In June 2016 Croatia experienced one of the greatest political crises since its independence – in large part the result of issues and competing views relating to strategic energy projects in Croatia.

The coalition government, led by non-partisan Prime Minister Tihomir Oreskovic, collapsed after only six months in office. From the beginning, the coalition held a slim majority in Parliament and key partnerships in the coalition could not agree on important political issues – particularly those relating to the energy sector.

The already fragile relationships between coalition partners were weakened further by the 'Consultant Affair', in which Vice President Tomislav Karamarko (who is also president of the coalition's strongest political ally, the Croatian Democratic Union) was held responsible for a conflict of interest when his wife Ana Saric Karamarko received consultancy fees from a lobbyist for MOL Hungarian Oil and Gas Plc.

Croatia is in arbitration with MOL over management rights in Croatian energy company INA, a company of strategic national interest. Karamarko insisted that Croatia should pull out of the proceedings; in response, the prime minister requested that Karamarko resign.

In order to protect Karamarko's position, the Croatian Democratic Union initiated impeachment proceedings against Oreskovic (even though it had previously nominated him as prime minister).

Nonetheless, on June 15 2016 Karamarko resigned. Oreskovic was impeached the following day and the government collapsed. Parliament was dissolved on June 20 2016 (effective from July 15 2016). Early elections will be held in September 2016.

Shortly before his impeachment, Oreskovic addressed Parliament, saying:

"It's no secret that my views on INA, LNG and the energy sector significantly differ from the views of some government members, and that I firmly defended them because I am deeply aware of the importance which INA and the energy sector have for our economy, and I fought to protect our vital interests".

During the crisis, while the impeachment proceedings were underway and only a few days before dissolution of the government, two key decisions affecting Croatia's energy sector were issued:

  • expedition of the first of four phases of the floating liquefied natural gas terminal (capacity 2 billion cubic metres) on the island of Krk, as part of Croatia and the European Union's strategic energy project; and
  • approval of production sharing agreements for the exploration and exploitation of hydrocarbons for six onshore blocks in northwest Slavonia.

In June 2015 exploration licences were awarded to INA (one block), Nigerian company Oando Plc (one block) and Canadian company Vermilion (four blocks). On June 10 2016, a few days before his impeachment, Oreskovic signed five onshore production sharing agreements: four with Vermilion and one with INA.

Although the government's decisions are legally valid and binding, their legitimacy might be questioned. The future of Croatian strategic energy projects will depend mainly on the outcome of the September elections.

For further information on this topic please contact Miran Macešic or Ivana Manovelo at Macešic & Partners by telephone (+385 51 215 010) or email (mmacesic@macesic.hr or manovelo@macesic.hr). The Macešic & Partners website can be accessed at www.macesic.hr.

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