VZCZCXRO9504
OO RUEHAG RUEHAST RUEHDA RUEHDBU RUEHDF RUEHFL RUEHIK RUEHKW RUEHLA
RUEHLN RUEHLZ RUEHNP RUEHPOD RUEHROV RUEHSK RUEHSR RUEHVK RUEHYG
DE RUEHVB #0361 1670608
ZNR UUUUU ZZH
O 160608Z JUN 09
FM AMEMBASSY ZAGREB
TO RUEHC/SECSTATE WASHDC IMMEDIATE 9317
INFO RUEHZL/EUROPEAN POLITICAL COLLECTIVE PRIORITY
RUCPDOC/DEPT OF COMMERCE WASHDC PRIORITY

UNCLAS ZAGREB 000361 
 
SENSITIVE 
SIPDIS 
 
DEPT FOR EUR/SCE, EUR/ERA, COMMERCE FOR FCS REGINALD MILLER 
 
E.O. 12958: N/A 
TAGS: ECON ETRD EINV ENRG HR
SUBJECT: CROATIAN MARKET COMPETITION AGENCY ASSERTS ITSELF 
 
¶1.  (SBU) Croatia has recently made significant progress 
toward a new competition law that will be more in line with 
EU legislation, strengthening potential penalties for 
monopolistic practices, and empowering the Agency for the 
Protection of Market Competition (AZTN) to enforce its 
directives.  The law will give the Agency new powers to 
investigate collusion and other illegal market practices and 
to impose significant administrative fines.  Olgica Spevec, 
the director of the agency, told Econoffs the reforms are 
greatly needed, as previously the AZTN could only investigate 
and refer cases to judicial authorities for appropriate 
action.  Such cases were then heard in the court of first 
instance, the equivalent of a misdemeanor court.  This echoes 
complaints from the American Chamber of Commerce in Croatia 
that significant cases of collusive or monopolistic practices 
are being heard "alongside traffic court cases."  The new law 
would give Spevec the ability to unilaterally impose fines of 
up to 10 percent of a company's revenue, with a single higher 
level court having the right to hear appeals. 
 
¶2.  (SBU) By far the biggest and most politically sensitive 
case the AZTN has reviewed recently has been the acquisition 
of the national oil company INA by Hungarian MOL.  Both INA 
and MOL operate gas stations throughout Croatia and the 
merger would have given MOL a dominant position in this 
market, by some estimates approaching 65 percent (although 
the impact on the public is questionable since fuel prices 
are fixed and adjusted on a regular schedule).  The AZTN 
ordered MOL to sell its Crobenz subsidiary and not to build 
any new fueling stations within 30km of existing stations. 
(Note: Crobenz's market share is reportedly only 5 percent, 
and MOL's market share will still exceed 50 percent.  MOL may 
find the directive on expansion more restrictive than the 
sale of Crobenz.  Nevertheless, there are unconfirmed reports 
that the Prime Minister is unhappy with the AZTN's meddling 
in the INA-MOL deal and would like to find a way to replace 
the director.) 
 
¶3.  (SBU) Member companies of the American Chamber of 
Commerce in Zagreb have long complained about unfair market 
practices that strongly favor domestic companies against 
international competition.  For example, the huge 
agriculture/food processing conglomerate Agrokor owns 
iNovine, one of the largest chains of press stands in 
Croatia.  Through restrictive, and some would say illegal, 
contracts with its subsidiaries, Agrokor forbids iNovine from 
carrying competing products in the stands.  Such aggressive 
practices help Agrokor keep a dominant position in the market 
for everything from ice cream to cigarettes, exceeding 90 
percent market share for certain products.  While AmCham 
members do not say the new law will eliminate such practices, 
they strongly support increasing the independence of the AZTN 
to levy punitive fines.  AZTN Director Spevec told us that 
the new structure will be almost unprecedented in the 
Croatian system, where enforcement powers, including the 
imposition of administrative fines, lie almost exclusively 
within the notoriously overburdened court system. 
Unfortunately, due to the new burden of an investigative role 
given to the Agency, Spevec said the law will not go into 
practical effect until late 2010. 
 
COMMENT 
------- 
 
¶4.  (SBU) With the new directives for INA/MOL, AZTN Director 
Spevec has again shown herself willing to take unpopular 
positions in favor of a stronger market economy (she 
previously has advised the government on the unsustainability 
of Croatian shipyards).  The structure of the new competition 
law will help her and could set an important precedent in 
devolving government regulation out of the exclusive realm of 
inspectorates and courts and into the hands of expert 
regulators.  But as with many things in Croatia, the issue is 
not clear cut.  Spevec's husband is a senior manager at 
Agrokor, the target of many of the complaints of monopolistic 
behavior.  But her willingness to impose restrictions on 
politically sensitive companies such as INA is a positive 
sign that the AZTN takes its role of strengthening Croatia's 
competitive environment seriously. 
BRADTKE