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PP RUEHAG RUEHAST RUEHDA RUEHDF RUEHFL RUEHIK RUEHKW RUEHLA RUEHLN
RUEHLZ RUEHPOD RUEHROV RUEHSR RUEHVK RUEHYG
DE RUEHVB #0781 3120718
ZNR UUUUU ZZH
P 070718Z NOV 08
FM AMEMBASSY ZAGREB
TO RUEHC/SECSTATE WASHDC PRIORITY 8766
INFO RUEHZL/EUROPEAN POLITICAL COLLECTIVE PRIORITY

UNCLAS ZAGREB 000781 
 
SENSITIVE 
SIPDIS 
 
DEPARTMENT FOR EB/ESC/IEC 
 
E.O. 12958: N/A 
TAGS: ECON ENRG HR
SUBJECT: NEGOTIATIONS STALL ON TAKEOVER OF INA; RUMORS OF 
RUSSIAN INTEREST IN TIFON 
 
¶1.  (SBU) Summary.  Representatives of the Croatian 
government and Hungarian MOL have so far failed to agree on 
the terms of a share swap that would give MOL a majority 
stake in the Croatian national oil company INA.  The previous 
shareholders' agreement expired at the end of October, giving 
MOL greater freedom to trade its INA shares.  The Croatians' 
main priority for the moment is to renegotiate this 
agreement, which would also give the Croatian government the 
right to repurchase INA shares should MOL decide to sell out. 
 The Croatian side is also demanding that INA's gas business 
be separated in hopes of retaining some control over a 
strategic industry.  Economic conditions in Hungary and in 
energy markets have put MOL in a difficult position as well, 
leading to rumors that it may try to sell off its chain of 
Tifon service stations in Croatia, possibly to Russian 
Lukoil.  These reports have not risen beyond the level of 
rumor, but may make some logical sense as MOL prepares to pay 
a $900 million bill for the INA stock purchase which ended 
October 3.  End summary. 
 
¶2.  (SBU) Negotiations have stalled between the Croatian 
government and Hungarian MOL on a share swap that would 
complete the privatization of the national oil company INA by 
giving MOL a majority stake.  MOL currently holds 47.5 
percent of INA shares after a public purchase offer that 
ended at the beginning of October.  The GOC still retains 45 
percent and its ownership cannot fall below 25 percent in 
accordance with legislation governing the sale. 
 
¶3.  (SBU) Also at issue are the terms of a new shareholders' 
agreement.  The old agreement, which expired on October 28th, 
limited MOL's freedom to trade its INA shares and gave the 
Croatian government the right to repurchase INA shares in the 
event of a MOL takeover.  The Croatian government is focusing 
for now on renegotiating this shareholder agreement, which 
would extend the government's rights on share trading for 
five years, and is putting off any decision on the share swap 
until this agreement is successfully renegotiated.  The 
government has also asked to separate INA's gas operations in 
a bid to retain some control over a strategic industry.  This 
has fueled speculation that Prime Minister Sanader is in no 
rush to complete the sale, using the government's remaining 
INA shares as a bargaining tool to achieve long-term 
strategic interests. 
 
¶4.  (SBU)  Current market conditions are partially to blame 
for the impasse.  MOL's stock has already fallen 60 percent 
this year.  Lower fuel prices and wider economic concerns in 
Hungary have damaged the investment climate.  Regardless of 
these challenges, the expiration of the shareholder agreement 
has put MOL in an advantageous position.  The senior 
strategic advisor to the INA CEO told us "MOL holds all the 
cards."  MOL can now trade its INA shares freely, or sell out 
completely without consultation with the Croatian government. 
 
 
¶5.  (SBU) At the margins of the negotiations, rumors have 
emerged of possible interest in Tifon by Russian Lukoil. 
Tifon is a chain of service stations owned by MOL which 
represents INA's main competitor in the retail gasoline 
business in Croatia.  Our INA contact told us he did not 
believe the rumors were true, but said it made some logical 
sense for MOL to be looking for a Tifon buyer, given MOL's 
financial difficulties and the $900 million about to be 
transferred for its INA shares. 
 
¶6.  (SBU)  COMMENT. We have seen no independent evidence that 
Lukoil is in any kind of talks with MOL about Tifon, and the 
reports may simply be thinly sourced speculation in the 
press.  However, given MOL's bargain stock price, there is a 
small but real possibility of interest in MOL by foreign 
firms.  Without a new shareholder agreement in place, Croatia 
would have no means to stop either Tifon, or MOL's shares in 
INA, from passing to a third party through a takeover of MOL. 
 END COMMENT. 
Bradtke