In 10 Years from Strategic Partnership to International Dispute

The current dispute between the Croatian Government and MOL has recently entered what is likely the final phase, but it is actually a saga that has been unfolding for a full ten years, transitioning from a strategic partnership to an international dispute between two countries. We provide an overview of the most important events that have marked this case.

July 2003 – After a public tender in which Hungarian MOL, Austrian OMV, and Russian Rosneft were shortlisted, with Rosneft withdrawing from the final offer, the Government sold 25 percent plus one share of INA to MOL for $505 million.

Two contracts, one for the sale of INA shares and a shareholder agreement, under which the Management and Supervisory Board of INA have seven members each, five of whom are appointed by the Croatian side and two by MOL, were signed by the then Minister of Economy Ljubo Jurčić and on behalf of MOL by CEO Zsolt Hernadi.

November 2006 – In a public offering, more than 44,000 Croatian citizens purchased INA shares at a price of 1,690 kuna per share, which is approximately 50 percent higher than the price in the first phase of privatization when MOL acquired 25 percent of INA shares. The state raised a total of about 2.8 billion kuna in the public offering on domestic and foreign markets. INA shares were listed on the Zagreb and London Stock Exchanges.

November 2007 – The sale of INA shares to the employees of the company was conducted, in which about 28,000 workers purchased approximately 628,000 shares, or just under 7 percent of the total number of INA shares. The average sale price to INA employees was 1,366 kuna per share, as they were entitled to a discount compared to the public offering price of 1,690 kuna.

June 2008 – The Prime Ministers of Croatia and Hungary, Ivo Sanader and Ferenc Gyurcsany, discussed the possibility of exchanging shares of INA and MOL. The Government, on the other hand, received a letter expressing interest from Austrian OMV to participate in the further privatization of INA.

October 2008 – In a public offering, MOL purchased 22.15 percent of shares at a price of 2,800 kuna per share, thus acquiring a total of 47.15 percent of INA shares, up from the previous 25 percent plus one share. This made MOL the largest shareholder of INA, in which the Government holds 44.83 percent of shares. OMV did not participate in the bidding during the public offering.

January 2009 – The Shareholders’ Relations Agreement was amended, increasing the number of Supervisory Board members of INA from seven to nine, with MOL receiving five seats, the Government three, and one for employee representatives, with the Government appointing the Chairman of the Supervisory Board, while the Management of INA has six members, three representing the Government and three MOL, with MOL proposing the CEO.

The Government and MOL also signed the Main Gas Business Agreement, which elaborates on the sale of the gas storage facility in Okoli to the state, as well as the separation into a separate company and later sale to the Government of the gas trading company.

December 2009 – The Government and MOL concluded the First Amendment to the Main Gas Business Agreement, postponing the Government’s obligation to purchase the gas business from INA until December 1, 2010.

May 2010 – At the request of SDP representatives, the Parliament established an Investigative Committee for the privatization of INA, which was to determine the facts surrounding the conclusion of the amended agreement between INA and MOL from 2009, deeming that agreement and the Government’s dealings regarding the gas business agreement insufficiently transparent and questionable regarding national interests.

October 2010 – After six months of work, the Investigative Committee for the privatization of INA concluded its investigation, but without a single agreed point between the ruling party and the opposition. During those six months, former Prime Minister Ivo Sanader, Government members Ivan Šuker and Damir Polančec, as well as former Minister of Economy Ljubo Jurčić, presented their positions before the committee.

The Government published the Main Gas Business Agreement, concluded in January 2009, and the First Amendment to the Main Gas Business Agreement, concluded in December 2009. The texts of these agreements were published after the Government lifted the confidentiality designation from these two documents.

December 2010 – MOL announced a public offering to buy back shares from minority shareholders at a price of 2,800 kuna per share, which is the price at which MOL purchased INA shares in the 2008 public offering. This offer was directed at about 8 percent held by institutional and private investors. In this offering, MOL acquired only 0.10 percent of the total number of INA shares, increasing its stake to 47.26 percent of INA shares.

March 2011 – The Croatian Financial Services Supervisory Agency (Hanfa) temporarily suspended trading of INA shares on the Zagreb Stock Exchange as it determined significant trading by foreign investors during its oversight of INA share trading and, in the interest of trading transparency and protecting investors from relevant foreign regulators, requested relevant data necessary to establish facts significant for oversight.

Hanfa filed a report with the State Attorney’s Office (DORH) based on suspicions that the disputed shares were acquired with laundered money, i.e., manipulation. DORH initiated an investigation into the disputed purchase of INA shares by investors in Slovakia, Hungary, and Cyprus. 

May 2011 – MOL announced that 1.6 percent of INA shares were the subject of an option agreement concluded by MOL, that it acquired a total of 0.21 percent of INA shares through brokers on the over-the-counter market or on the Zagreb Stock Exchange, and that it holds a total of 47.47 percent of INA shares in custodial and sub-custodial accounts.

Hanfa, on the other hand, reported that it filed a criminal complaint against MOL and responsible persons in that company with DORH due to reasonable suspicion that they committed the criminal offense of market manipulation and fraud in economic operations.

June 2011 – USKOK confirmed that an investigation was opened against Sanader on suspicion of abuse of position and authority and receiving a bribe of 10 million euros from MOL CEO Zsolt Hernadi, to whom he enabled the takeover of management rights in INA in return. MOL denied this.

June 2011 – DORH requested the questioning of Hernadi as he is suspected of having bribed Sanader to ensure MOL’s takeover of control over INA. The Hungarian prosecution rejected this on the grounds that it concerns the protection of Hungarian national interests, stating that they cannot question him “because the transfer of information would jeopardize the security of the Republic of Hungary.”

The Government of Jadranka Kosor gave consent to conduct negotiations with MOL to proceed with the second amendment and supplement to the Shareholders’ Relations Agreement of INA and appointed its delegation to negotiate with MOL.

July 2011 – The Hungarian government will not accept any changes to the existing agreement between MOL and INA, said Hungarian Prime Minister Viktor Orban. When asked by journalists about the bribery allegations against Hernadi, Orban stated that Hungary does not consider this an inter-state issue and that these allegations fall under the jurisdiction of the relevant judicial authorities.

December 2011 – An arrest warrant was issued against former Prime Minister Sanader due to an investigation into five cases in which he is suspected of corruption and abuse of position, including receiving a bribe from MOL. USKOK again requested the questioning of Hernadi, but received no response from Hungary.

January 2012 – The Hungarian state prosecutor suspended the investigation into the alleged bribery in the case of the partial takeover of INA by MOL. Chief Prosecutor Imre Keresztes stated that the investigation found nothing indicating criminal activity.

Keresztes stated in a press release that DORH accused two companies registered in Cyprus of bribing Sanader with 10 million euros to facilitate MOL’s takeover of INA. Hungarian investigators began their investigation on July 14, 2011, and discovered that the two Cypriot companies, which allegedly transferred the bribe money, are not in MOL’s sphere of interest but belong to a large Russian investor, it was reported.

January 2012 – After being informed that the investigation into bribery in the INA-MOL case was suspended in Hungary, USKOK stated that “any decision by the Hungarian prosecution” has no impact on the proceedings against Hernadi in Croatia and that the investigation against him remains open.

December 2012 – Former Prime Minister Sanader was found guilty of war profiteering in the Hypo case and taking bribes in the INA-MOL case and was sentenced to a unique penalty of ten years in prison by a non-final judgment. For taking a commission of 3.6 million kuna from the Austrian Hypo Bank in the mid-90s, Sanader received three and a half years in prison, and seven and a half years were imposed for taking a bribe from MOL executives. The court found that Sanader received five million euros from MOL executives, although USKOK claimed in the indictment that this amount was twice as high.

September 2013 – Negotiations began between representatives of the Government and MOL regarding their mutual relations in INA. The Government’s negotiating team was led by Minister of Economy Ivan Vrdoljak, and the team also included the director of the Office for State Asset Management Mladen Pejnović. MOL’s negotiations were attended by Vice President Sandor Csanyi and CEO of INA Zoltan Aldott.

After the first meeting of the negotiating team, it was stated that both sides agreed on the course and manner of conducting negotiations and it was generally agreed that they would meet once a month.

It was agreed that the negotiations would cover the future of corporate governance, cost control, investments and profit distribution, research, development and production of hydrocarbons, procurement and processing of oil and production of oil derivatives, wholesale of oil derivatives, retail of oil derivatives, and gas business.

October 2013 – A red Interpol international warrant and a European arrest warrant were issued against MOL CEO Hernadi.

The Hungarian government requested a review of the company’s portfolio from MOL and announced the possibility of selling INA shares. It also stated that it believes that the INA-MOL case is no longer exclusively a matter of business disputes between owners, but concerns “suspicious and illegal actions.”

MOL, on the other hand, stated that by issuing an Interpol warrant and EAW for the MOL CEO, Croatian authorities are violating European Union law and announced that it will fight these demands by all legal means.