Energy 21 September, 2017 11:00 am   
Editorial staff

Wójcik: Gazprom’s descent on Croatia with Agrokor’s scandal in the background 

For the first time since 2010 Gazprom has returned as Croatia’s number one natural gas provider. The company used the free market to achieve this – writes Teresa Wójcik, editor at The Agrokor scandal, about which was first to write in Poland, is casting a shadow on the situation.

On 15 September the Russian company signed a trade treaty with a private Croatian company Prvo Plinarsko Drustvo (PDD) to deliver 1 bcm of gas annually until 31 December 2027. The agreement will enter into force on 1 October 2017. Both sides are satisfied with the contract.

“The long-term agreement for gas deliveries to Croatia results from fruitful cooperation between both sides. I am sure that this important step will strengthen the mutually beneficial partnership between the two countries in the energy sector,” Elena Burmistrova, Director General for Gazprom Export said. PDD’s CEO was also satisfied: “Our cooperation with a strong, reliable partner will ensure the Croatian market is secure and has a stable gas supply.”

Prvo Plinarsko Društvo (PDD) is a private limited liability company and is officially owned by Pavao Vujnovac who is also its CEO. Vujnovac also owns and heads the Energia Naturalis Group. Both companies are located in the town on Vukovar. PDD is also the owner and operator of a 595 km long domestic gas pipeline. Its clients include Croatia’s biggest industrial and municipal gas consumers and distributors.

A gift for Gazprom 

Bloomberg’s analysts noticed that signing such a long-term contract has become rare in the past few years on the gas markets of EU Member States, but on the other hand the exceptional relationship between Gazprom and Germany’s energy companies does take place as part of a ‘long-term cooperation.’ For Croatia such a contract is, among others, an expression of the lack of a convincing alternative to gas supplies from a non-Russian direction.

Finally, two important facts need to be stressed. First, the contract eliminates the need to import gas to Croatia from partners other than Gazprom for the next 10 years. According to official data the country’s domestic production is about 1.7 bcm a year. Considering the demand is 2.7 bcm annually these two sources are enough to cover Croatia’s consumption.

What about the LNG terminal on Krk, what about the Three Seas Initiative? 

Both Bloomberg and Kommiersant argue that the LNG terminal on the Krk Island is no longer needed. Such opinions have also appeared in Croatia. Unofficially even at the country’s parliament in Zagreb. The Krk LNG terminal is an important part of the Three Seas Initiative. It is supposed to be the end-point of the Baltic Pipe and the North-South corridor whose starting-point is Poland’s LNG terminal in the seaside town of Świnoujście. How big of a threat the agreement between Gazprom and PDD is to this plan?

The long-term contract is actually an extension of a short-term agreement between the two companies, according to which Gazprom has delivered to Croatia 1.48 bcm of gas between the beginning of 2017 and the end of this September. Neither Gazprom nor PDD revealed the details of both contracts. It is known that the gas will be transmitted via  a pipeline in Slovenia from a gas hub in Austria’s Baumgarten.

Russia uses Agrokor to pressure Zagreb

According to Sergey Lavrov Russia’s Foreign Minister “Russia is implementing good economic projects in Croatia. And our forecasts are taken into consideration by Zagreb.” “We are very interested in signing good and the best contracts with Croatia,” he declared. Lavrov is certainly talking about, among others, the Agrokor scandal and Russia’s involvement in it. The company’s situation has been Croatia’s main political and economic problem in the past few months and reveals Russia’s behind-the-scenes involvement in the country’s economy.

Agrokor is Croatia’s biggest private company, its income is estimated at 15 percent of the country’s GDP. It is owned by Croatian oligarch Ivica Todorić, one of the Balkan’s biggest tycoons. At the end of March this year Agrokor went nearly bankrupt. The company’s total debt is supposedly around EUR 5.8 bn, out of which EUR 3.5 bn is owned to banks and financial institutions. The biggest creditors are Russia’s Sberbank and Vneshtorgbank, which have been financing Agrokor in the recent years. The company’s liabilities to the banks amount to EUR 1.3 bn.

The engagement of Russia’s ambassador in the case in Zagreb, who presented himself as a representative of Russian creditors in the media, proves that Russian authorities want to politically exploit this difficult situation. So far it seemed that the Kremlin has not had any effective tools for exerting pressure on Zagreb. However, it seems probable that the participation of the mentioned institutions in bankrolling Agrokor was and certainly still is such a tool. It also remains unknown whether the Russian creditors contributed to the Croatian tycoon’s financial problems. It also remains to be revealed to what concessions the previous and current Croatian governments had to agree. At least when it comes to the reorientation of the country’s energy policy, which opened the Croatian market to Gazprom.