When a company seeks a major deal abroad, it usually has to make extra expenses, especially in developing countries and southeastern Europe. The phrase “extra expenses” does not necessarily mean bribes. It can take the form of overcharging services or products and then passing on a part of the revenue to the host state. Alternatively, it can take the form of favors that cannot be expressed in financial terms.

USKOK, the Croatian prosecution service specializing in corruption and organized crime, has charged Zsolt Hernádi, President and CEO of MOL Hungarian Oil and Gas Plc (MOL), of paying EUR 10 million in bribe to Ivo Sanader, then prime minister of Croatia. USKOK claims that sum helped MOL obtain managerial rights in INA Croatian Oil Company (INA) even though it had only bought 47.16 percent of its shares.

As Hernadi failed to show up for his hearing on September 25, Croatia issued (domestic, European and Interpol) warrants for his arrest.

MOL denies having paid a cent in payola. They made favors though. For instance, in early 2004 MOL agreed to sponsor the Croatian national soccer team (which was in the same qualification group as Hungary for the UEFA European Championship) until late 2005, which was a favor to Ivo Sanader, who shared Hungarian Prime Minister Viktor Orbán’s enthusiasm about soccer.

Soon after Sanader was installed as PM, he proposed an inquiry into an allegedly exorbitant price INA had paid to consultants when it was privatized but later on that inquiry was dropped and Sanader’s attitude to MOL warmed. Sanader is understood to have asked for additional favors from MOL but it is unclear what they were and whether he had actually got them.

That charges are now pressed against Hernadi is understood to be due to the fact that since 2009, when MOL sprang to the helm of INA, that company has been looking askance at Robert Ježić, once Sanader’s friend, and today one of Croatia’s richest and most influential businessmen. Jezic’s Croatian chemical firm, Dioki Holding used to buy oil from INA for years but when in 2010 Croatia stopped subsidizing gas prices, Jezic refused to buy gas at market price. Bills that he did not pay to INA kept accumulating.

The charges pressed against Hernadi are based on a Jezic’s testimony. Jezic claims that half of the bribe of EUR 10 million moved through his mediation. In spring 2011 Jadranka Kosor’s government – which sought to regain INA’s managerial rights – made a plea bargain with Jezic, who had been sent behind bars in late 2010 over Jezic’s dubious deals with Sanader.

Hernadi is not the first Hungarian business leader to have been charged with oiling the wheels in the Balkans. In 2006 Elek Straub, then President and CEO of Hungarian Telekom, and two fellow managers were charged to have paid officials in Montenegro and Macedonia a total of EUR 12 million in exchange for helping them purchase local firms, fending off competition and winning favorable treatment for Hungarian Telekom among Croatian regulators. The charges were never proven but Straub left his post in late 2006, and Hungarian Telekom made a plea bargain with the United States Department of Justice and Securities and Exchange Commission: the company paid nearly USD 91 million in January 2012 for the charges to be dropped within two years. But the case is still open. HVG has learned that Montenegro and Macedonia keep sending legal aid requests to the Budapest investigating arm of the prosecution service (KNYF) – but to no avail.

Croatia also has had two such failed attempts. The more recent one was this last July when USKOK – emboldened by Croatia’s accession to the European Union – requested the Hungarian prosecution service to subpoena Hernadi.

Croatia won’t let Hernadi off the hook. Its issue of a European Arrest Warrant was a foregone conclusion also because the Croatian media are putting unprecedented pressure on the government of Zoran Milanović (a Social Democrat). Articles that “expose” alleged shenanigans of MOL in Croatia are published week by week even when nothing actually happens in the tug of war for INA.

What fuels this campaign is all too familiar in Hungary ever since Viktor Orban’s government was sworn in. The method is well known: a state repurchases a formerly privatized company from its present foreign owner, just like it happened with gas firms of E.On in Hungary. Pressure is mounting on Milanovic’s government as the Croatian public is keenly following developments.

There might be other causes to why Croatia issued the arrest warrant exactly at a time when negotiations of MOL and the Croatian state have just started over INA. Observers note that Russian circles suggest that INA would be better off and Croatian energy prices could be cut if stated-owned Russian gas monopoly Gazprom or the state-owned oil firm Rosneft replaced MOL among INA’s owners.

Since Croatia has acceded to the European Union, senior Russian energy industry officials: Alexey Miller and Alexandr Medvedev of Gazprom and Igor Sechin (thought to be a confidant of Vladimir Putin) and Zeljko Runje of Rosneft have visited Zagreb.

Sechin is rumored to have proposed that Croatia could become the Russian energy sector’s new bridgehead in Central Europe. He apparently held out the possibility of Russian investment in INA, the laying of new pipelines and the building of major storage facilities. The Russians are interested in the Adriatic oil pipeline: there is a Russian proposal to reverse the direction of transport, whereby Russian oil could reach the Adriatic via Croatia. It is understood that Rosneft would also chip in a certain amount to the building of the Croatian liquefied natural gas (LNG) terminal although LNG transport was none of its concern in the past. If the Russians manage to set up shop in Croatia, Russians firms can further strengthen their already considerable influence on Central Europe.

That’s why it cannot be ruled out that the Croatians will – if their negotiations with MOL fail – attempt to force out the Hungarians from INA. They could choose from a variety of means to do so. They could offer Gazprom to buy a part or the whole of the stocks owned by the Croatian state (44.84 percent), in which case MOL would be forced to enter a race where it would be likely to fail.

Croatian Finance Minister Slavko Linic (Linić) – who in several statements called the Hungarian oil industry giant an ill-performing co-owner because “it has not fulfilled its investment obligations” – has told the Croatian daily Novi List that by altering the concession fees and closing a part of INA’s filling stations Croatia could create such a hostile business environment for MOL that eventually MOL could be left with no other option but to sell its stake. If MOL is ready to transfer management rights, it could lose interest in INA altogether because, despite Hungarian investments to the tune of billions of forints, INA has not been doing well. Only its oil extraction is profitable. The whole of INA could only be turned profitable if its staff were downsized and a refinery at Sisak, southeast of Zagreb, were closed. Such steps however would provoke angry reactions from the Croatians who increasingly see INA as a national cause.

To make Hernadi’s case worse, Croatia thinks it would damage its international prestige if an alleged briber could walk away while last November a court of first instance sentenced Sanader to ten years in jail in part for accepting a bribe from MOL. In Sanader’s case a final sentence is apparently missing partly due to the “unresolved” nature of Hernadi’s case.

Observers in Zagreb say MOL’s perspectives are anything but bright in the latest round of its bargaining with the Croatians. It can only reproach the Croatian government for defaulting on its pledge to acquiring the loss-making gas division of INA, which has caused a loss of HUF 80 billion to MOL.

The way the Croatian papers see it, the Croatian government could use the counter argument that the court sentence in which Sanader was found guilty said that the contract on the gas division had caused serious damage to the Croatian state and in fact it had damaged national interests. USKOK is trying to find out how MOL could obtain a new stake of 1.6 percent in INA in 2010 via an ill-famed Czech firm, J&T. In recent days the Croatian police have heard a deputy chairman of MOL: Sándor Csányi, executive chairman of OTP Bank Plc.

Observers say the Croatians do not expect Budapest to make any major concessions in the Hernadi case. Until now Prime Minister Orban – who is in conflict with Csanyi (widely regarded as Hernadi patron) on several fronts: business opportunities of the posts and savings banks, the bank tax and easing the plight of mortgage-loan holders but who is cooperating with Csanyi in the effort to restore ailing Hungarian soccer to its erstwhile glory – has been guarding Hernadi. Up to now such protection came via the Hungarian prosecution service because otherwise Orban is silent about this case. There was an exception in July 2011 at a press conference in Strasbourg when he said: “it a firm position of the Hungarian state that it will not approve any amendment to the agreement between MOL and INA.”

Three days before Croatia’s accession to the European Union, speaking on Croatian public service television, Orban fine-tuned his opinion like this: “It is a business issue that must not be elevated to a political level because relations between the two countries are excellent.”

Whether Orban is ready to give up on Hernadi – who was seen to have had a cup of coffee with Orban during a conference at Băile Tușnad (Tusnádfürdő), Hargitha county, Romania, in late July – to preserve the “excellent” relations between Croatia and Hungary will be seen soon. But given the Interpol arrest warrant, it is perhaps not undue to start guessing who the new executive chairman of MOL will be.

Source: HVG

Translated by Budapest Telegraph