Source: https://iclg.com/practice-areas/oil-and-gas-laws-and-regulations/croatia
Timestamp: 2018-12-13 00:03:22
Document Index: 71807329

Matched Legal Cases: ['Art. 8', 'Art. 22', 'Art. 17', 'Art. 91', 'Art. 15', 'Art. 16', 'Art. 4', 'Art. 38', 'Art. 75', 'Art. 6', 'Art. 6', 'Art. 27', 'Art. 73', 'Art. 75', 'Art. 5', 'Art. 40', 'Art. 4', 'Art. 8', 'Art. 74', 'Art. 78', 'Art. 5', 'Art. 41', 'Art. 9', 'Art. 87', 'Art. 24', 'Art. 22', 'Art. 97']

Oil & Gas Regulation 2018 | Laws and Regulations | Croatia | ICLG
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Oil & Gas Regulation 2018 | Croatia
In 2015, gross inland consumption (production + imports – exports + storage variations) of natural gas in Croatia amounted to 2.08 Mtoe, whereas about 1.47 Mtoe thereof was covered by domestic production of natural gas [www.ec.europa.eu/energy, Statistical Pocketbook 2017, page 196]. At the moment, Croatia is not completely dependent on the import of natural gas because about 56.1 per cent of natural gas supplied in 2015 was covered by domestic production from fields in the Pannonian basin and from offshore fields in the North Adriatic. The remaining demand was covered by imports of natural gas. [Annual Energy Report for 2015 of the Croatian Ministry of Environment and Energy, Energy in Croatia 2015, page 133, available at http://www.mzoip.hr/doc/energija_u_hrvatskoj_za_2015_godinu.pdf.] In 2016, the entry of gas into the transmission system reached 27.689 kWh, out of which 10.855 kWh (39.2 per cent) originated from domestic production, 12.836 kWh (46.4 per cent) from imports and 3.998 kWh (14.4 per cent) from the underground gas storage facility PSP Okoli (UGS Okoli). [Annual Report 2016 of the Croatian Energy Regulatory Agency, page 135, available at www.hera.hr.] Due to the continuous decrease in domestic production, Croatia’s dependence on gas imports is expected to grow significantly in the future.
In the Croatian gas and oil industry, the key market player is INA-INDUSTRIJA NAFTE d.d. (INA), a vertically integrated company 49.08 per cent owned by MOL Hungarian Oil and Gas Plc., 44.84 per cent owned by the Republic of Croatia and 6.08 per cent owned by institutional and private investors [www.ina.hr]. As regards the ongoing INA-MOL dispute, please see question 13.2 below. At the moment, INA is the only producer of natural gas in Croatia.
Although the Croatian gas market has legally been liberalised since 1 August 2008, the first signs of de facto opening of the market have occurred in the gas season 2012/2013 following the removal of a price cap for gas supply to eligible customers (but only in relation to non-household customers), and new wholesale suppliers entering the market. Under the old legal regime, all public suppliers purchased gas at prices regulated by the Croatian Government from PRIRODNI PLIN d.o.o. (PRIRODNI PLIN) (owned by INA). In light of this, INA (through its affiliated company PRIRODNI PLIN) in its capacity as the major wholesale natural gas supplier, and also an importer of natural gas, continued to dominate the gas supply market with a market share of nearly 68 per cent until 31 March 2014. In 2015, INA market share dropped down to 22.7 per cent, and two new important players in their field of gas supply are HEP Group companies with a market share of 43.2 per cent and PRVO PLINARSKO DRUŠTVO d.o.o. (PPD) with a market share of 22.7 per cent.
The reason for this is that, following the amendments to the Croatian Gas Market Act (ZTP) [Zakon o tržištu plina, Official Gazette nos. 28/13, 14/14 and 16/17], on 1 April 2014, the State-owned electricity company Hrvatska elektroprivreda d.d. (HEP) has been appointed the new supplier on the wholesale market in Croatia, taking over the similar role of ‘supplier of public suppliers’ from a procurement entity PRIRODNI PLIN. This means that HEP (through its affiliated company HEP-Opskrba plinom d.o.o.) was the key wholesale gas supplier to other Croatian suppliers with PSOs for the needs of household customers until 31 March 2017. INA, as the only Croatian producer of natural gas, was under an obligation to sell a set volume of gas to HEP at a regulated price. During this three-year transitional period, the price at which gas produced in Croatia is sold to HEP, and the price at which HEP then sells it to other PSO suppliers has remained regulated. In addition, HEP has been awarded 70 per cent priority for booking storage capacity with the UGS Okoli.
Consequently, at the end of May 2015, the European Commission launched a formal infringement procedure against Croatia. The European Commission’s view is that the national gas market rules introduced in 2014 create unjustified barriers to the export of domestic gas production and restrict gas imports from other Member States. Moreover, the existing price regulation for non-household customers and the regime on access to, and capacity allocation of, storage are considered not fully compatible with EU internal energy market rules [Commission’s reasoned opinion sent to Croatia on 26 February 2016, available at http://europa.eu/rapid/press-release_MEMO-16-319_EN.htm].
On 17 February 2017, the Croatian Parliament enacted the eagerly awaited amendments to the Gas Market Act that are primarily intended to remove the current gas import and export restrictions and to allow further opening of the Croatian gas market. The Act on Amendments to the Gas Market Act [Zakon o izmjenama i dopunama Zakona o tržištu plina, Official Gazette no. 16/17] entered into force on 23 February 2017 and became fully applicable as of 1 April 2017.
The following overview provides a summary of the key amendments to the Gas Market Act:
The regime of appointing a wholesale gas supplier to other Croatian suppliers with PSOs has been kept. However, prior to appointing a supplier in the wholesale gas market, a tender has to be conducted by the Ministry of Environment and Energy (Ministarstvo zaštite okoliša i energetike; MZOE) in cooperation with the Croatian Energy Regulatory Agency (Hrvatska energetska regulatorna agencija; HERA) and the Croatian Energy Market Operator (Hrvatski operater tržišta energije d.o.o.; HROTE). Additionally, an important prerequisite for the tendering process to take place in practice is that HERA conducts a prior investigation into the functioning of the gas market. It follows that the launching of the tender will depend upon a market report of HERA based on its view on the (effective) functioning of the Croatian gas market. The new rules do not foresee any time limits for the submission of HERA’s report to MZOE. Following the tendering procedure, the Government should appoint a preferred supplier in the wholesale gas market for a definite period of time, which would be obliged by law to supply gas under regulated conditions to other suppliers with PSOs for the needs of household customers and to ensure a reliable and secure gas supply. Until then, HEP (through its affiliated company HEP-Opskrba plinom d.o.o.) remains the key wholesale market supplier to other public service suppliers for the needs of household customers.
The Croatian Government should, subject to prior approval from HERA, determine a “strategic share” of gas storage booking capacity to be allocated to the appointed wholesale market supplier for a period of five (5) years in order to ensure a reliable and secure gas supply to household customers. However, in the interim period (that is as of 1 April 2017 until the above-mentioned decision is taken by the Government), the existing wholesale market supplier (HEP) has been awarded 60 per cent priority for booking storage capacity with the UGS Okoli. Nevertheless, the Government has been given the possibility, upon the proposal of MZOE and subject to prior approval by HERA, of reassigning the allocated storage capacity to a supplier with a PSO that decides to procure gas under market conditions for its customers entitled to such supply.
For the time being, a system of regulated retail prices for household customers remains in place. On 28 February 2017, the Croatian Government adopted a decision on the gas price at which the wholesale market supplier (HEP) sells gas to other suppliers with PSOs for the needs of household customers and for heat generation with effect from 1 April 2017 until 31 March 2018. As a result of this decision, since the Government was under strong pressure to prevent price increases for households due to recent legal changes, the final gas price for household customers as of 1 April 2017 until 31 March 2018 will remain at about the same level as compared with the same period last year.
The obligation imposed on gas suppliers with PSOs and the supplier of last resort, pursuant to which they are obliged to primarily purchase gas from a domestic gas producer, and to purchase any remaining gas quantities from a trader and any other supplier on an organised gas market or from gas imports, has been abolished.
Suppliers with PSOs are entitled, but no longer required by law, to buy gas from the appointed wholesale market supplier (HEP). The current obligation imposed on gas suppliers with PSOs and the supplier of last resort to purchase the gas for the needs of household customers from the appointed wholesale market supplier (HEP), has been abolished.
The domestic producer of natural gas is now allowed to sell gas at market prices. The current obligation imposed on the domestic gas producer (INA) to sell its total gas volumes at a regulated price primarily to the wholesale market supplier and the supplier of last resort, and to sell any remaining gas quantities in Croatia, has been abolished.
Gas transmission, distribution and storage of natural gas are regulated energy activities performed as a public service. The ZTP provides for a new unbundling regime with the following three models: (i) the ownership unbundling model; (ii) the independent system operator (ISO); and (iii) the independent transmission operator (ITO). However, the legal unbundling process of the activities related to the gas transmission and gas storage has already been carried out.
Domestic transmission lines are owned and operated by the 100 per cent State-owned company PLINACRO d.o.o., which was separated from INA in 2002. In 2007, PLINACRO was designated as the transmission system operator (TSO) for a period of 30 years. In line with the ZTP, PLINACRO still remains to be certified as an ownership unbundled TSO. The gas production fields of the Pannonia and North Adriatic, the UGS Okoli, 35 distribution systems and 21 final customers are connected to the transmission system. [Annual Report 2016 of the Croatian Energy Regulatory Agency, page 120, available at www.hera.hr.] The Croatian gas transmission system is 2,694 km long and has been continuously expanded in recent years [www.plinacro.hr]. Under the previous PLINACRO’s Plan for the Development, Construction and Modernization of the Gas Transmission system of the Republic of Croatia in the period 2002–2011, the regional gas pipeline network Lika – Dalmacija from Bosiljevo to Split was completed in May 2013. Although PLINACRO’s expanded gas pipeline network covers now around 95 per cent of the Croatian territory, the distribution system and the gas consumption do not follow the development of the transmission system. In December 2017, a new PLINACRO’s Ten-Year Development Plan of the Croatian Gas Transmission System in the period 2018–2027 [Ten-Year Plan, Desetogodišnji plan razvoja plinskog transportnog sustava Republike Hrvatske 2018.-2027., available at http://www.plinacro.hr/UserDocsImages/dokumenti/Desetogodi%C5%A1nji%20plan%20razvoja%20PTS%202018-2027.pdf] was approved by HERA. The current gas supply forecasts indicate the need for further transmission capacity and significant investment in the construction of new parts of the gas transmission system with regard to its integration into new strategic supply projects. Therefore, the two most important projects under the Ten-Year Plan are the planned construction of the LNG terminal on the Island of Krk in the North Adriatic and the Ionian-Adriatic Pipeline (IAP). The IAP project intends to connect the Croatian and Albanian pipeline system with the Trans Adriatic Pipeline (TAP) [TAP is part of the EU-designated Southern Gas Corridor with a length of 800 km, running from Greece to Italy, via Albania and the Adriatic Sea]. The total gas pipeline length from Croatia (Ploče) to Albania (Fieri) is 540 km and has an annual pipeline capacity of 5 billion m³/year. This is a strategically important project, whose implementation will enable the creation of a new energy corridor for the region of South-East Europe, with the aim of establishing a new supply of natural gas from new sources – the Caspian and Middle Eastern regions. The IAP project has been included in the list of EU Projects of Common Interest (PCI).
Currently, two cross-border interconnections in Croatia exist, being (i) interconnection Dravaszerdahely–Donji Miholjac (Hungary–Croatia), and (ii) interconnection UMS Rogatec (Slovenia–Croatia). Please note that gas can only be imported from Slovenia and Hungary to Croatia. In this context, the Ten-Year Plan also addresses the problem of the security of supply, N-1 criterion and bidirectional flow at the interconnections. Therefore, and to avoid possible physical congestions in the gas pipeline network, the centrepiece of the Ten-Year Plan are projects for the construction of compressor stations and new interconnection in the direction of Lučko–Zabok–Rogatec (Slovenia). [PLINACRO’s Ten-Year Plan, page 53–56.] In addition, the Ten-Year Plan anticipates projects for connecting the Croatian gas transmission system to the gas transmission systems of other neighbouring countries (e.g. Bosnia and Herzegovina, Serbia and Montenegro). A number of new planned projects have been included in the EU PCI and Projects of Energy Community Interest list (PECI).
In 2016, there have been 35 active gas distribution operators in Croatia, among which the two most important are GRADSKA PLINARA ZAGREB d.o.o. and HEP-PLIN d.o.o. The total length of the gas distribution network in Croatia at the end of 2016 was 19,153 km.
Currently, no LNG facility exists in Croatia. Perhaps one of the most important projects in the gas sector concerns the planned construction of the floating LNG terminal on the Island of Krk in the North Adriatic with a capacity of 2 billion m³/year (LNG Terminal). This would open a cross European North-South corridor and improve the natural gas supply security of the region. The planned LNG re-gasification facility has been given PCI status. On 29 October 2014, the project has been included in the indicative list of key energy infrastructure eligible for financial support under the Connecting Europe Facility (CEF) Energy 2014 programme. Under the Decision dated 16 July 2015 of the Croatian Government, the LNG Terminal project has been also designated as a project of strategic importance to the Croatian State (PSI). In June 2016, the Croatian Government adopted a decision to speed up the preparation and implementation of the first phase of the LNG project that involves construction of the floating storage and regasification unit (FSRU). At the same time, LNG Hrvatska d.o.o. (LNG Croatia) [www.lng.hr] (with HEP and PLINACRO each holding 50 per cent of the equity shares thereof) was given the status of the project developer. From March 2017, preparation of project and permitting documentation and activities related to procurement of FSRU are under way for the construction of the floating LNG terminal [http://www.lng.hr/en/news-details/floating-lng-terminal-implementation-kick-off-68]. The Financing Agreement for the construction of the first phase of the LNG project under the CEF was signed at the Energy Council of 18 December 2017 [https://ec.europa.eu/inea/en/connecting-europe-facility/cef-energy/projects-by-country/croatia/6.5.1-0018-hr-w-m-16]. According to current plans, all construction work on jetty, pipeline and auxiliary facilities should be completed by the end of 2019, and the release of the first gas from the terminal to the system is expected in early 2020 [http://www.lng.hr/en/news-details/goran-francic-managing-director-of-lng-croatia-visited-dnevnik-3-80]. The Final Open Season phase for customers who could book the capacity of the LNG terminal on a long-term period is expected to be launched by mid-January 2018 [http://www.lng.hr/en/open-season].
As regards projects allowing gas to flow from Croatian LNG terminal to neighbouring countries, the phased development of the LNG terminal and gas pipeline Zlobin–Bosiljevo–Sisak–Kozarac–Slobodnica has been included in the updated EU PCI list as of 18 November 2015 [https://ec.europa.eu/energy/sites/ener/files/documents/5_2%20PCI%20annex.pdf.]
Croatia’s primary energy supply is dominated by liquid fuels [Annual Energy Report for 2015 of the Croatian Ministry of Environment and Energy, Energy in Croatia 2015, page 47]:
Liquid fuels – 32.8 per cent.
Coal and coke – 7.5 per cent.
Natural gas – 21.9 per cent.
Electricity – 6.1 per cent.
Hydro Power – 15.5 per cent.
Heat – 0.2 per cent.
Fuel wood – 13.3 per cent.
Renewables – 2.9 per cent.
The above data shows that the share of natural gas in the consumption of Croatia’s primary energy (21.9 per cent) is exceptionally significant. Croatia is still covering larger part of its needs by domestic production (40–45 per cent), primarily because the consumption of gas has significantly decreased over the last few years. However, future supply forecasts, and the expected moderate increase of consumption, indicate that imports of larger gas volumes will be required. [PLINACRO’s Ten-Year Plan, page 6.]
Domestic natural gas production is performed by INA. INA reported their reserves at the end of 2016 at 98 million boe of natural gas. About 56.1 per cent of total domestic demand in 2015 was covered by domestic production from 16 onshore fields in the Pannonian basin and 10 offshore fields in the North Adriatic (see question 1.1 above). [Annual Energy Report for 2015 of the Croatian Ministry of Environment and Energy, Energy in Croatia 2015, page 133.] In 2015, the total domestic production of natural gas was 1,850.5 million m3.
Data of the Energy Balances of Natural Gas for 2015 shows that the total export of natural gas in 2015 was 367.4 million m3 [Annual Energy Report for 2015 of the Croatian Ministry of Environment and Energy, Energy in Croatia 2015, page 140]. LNG is not exported from Croatia.
The exploration, production and refining of crude oil, and most of the trade in oil derivatives and LPG is carried out by INA Group companies. Crude oil is produced at 33 oil fields, and gas condensates at eight gas condensation fields. [Annual Energy Report for 2015 of the Croatian Ministry of Environment and Energy, Energy in Croatia 2015, page 107.]
INA operates two oil refineries and one lubricant products plant. Processing of oil and production of oil products is carried out in the Oil Refinery Rijeka located in Rijeka (Urinj), next to the Adriatic Sea with a total of 4.5 million tonnes of annual crude oil processing capacity or 90,000 bbl/day, and in the Oil Refinery Sisak, close to the domestic oil fields and in the centre of Croatian market, with a total of 2.2 million tonnes annual crude oil processing capacity or 44,000 bbl/day. In addition, INA operates the Lube Refinery Zagreb, where lubricants are produced. [Available at www.ina.hr; Annual Energy Report for 2015 of the Croatian Ministry of Environment and Energy, Energy in Croatia 2015, page 107.] In the last few years, INA carried out the project of the refinery modernisation in Rijeka and Sisak in order to comply with EU requirements and standards.
Transportation of oil through oil pipelines in Croatia is performed by Jadranski naftovod d.d. (JANAF). [Ownership structure of JANAF: 37.26 per cent owned by the State Office for State-owned Property Management/Croatian Pension Fund; 26.28 per cent owned by the Croatian Restructuring and Sale Centre; 11.80 per cent owned by INA; 10.6 per cent State-owned; 5.36 per cent owned by HEP; 4.30 per cent owned by the State Office for State-owned Property Management/State Agency for Deposit Insurance and Bank Rehabilitation; and 4.34 per cent owned by institutional and private investors.] The JANAF oil pipeline was completed in 1979 as an international crude oil transportation system with a designed capacity of 34 million tonnes/year and an installed capacity of 20 million tonnes/year. The crude oil quantities transported through the JANAF oil pipeline in 2016 amounted to 7.1 million tonnes. The JANAF oil pipeline system has a longitude of around 622 km with the following sections: Omišalj – Sisak, Sisak–Virje (with a section to Lendava in Slovenia) – Gola (Croatian-Hungarian border); and Sisak–Slavonski Brod (with a section to Bosanski Brod in Bosnia and Herzegovina) – Sotin (Croatian-Serbian border). Crude oil is imported by tankers through the sea terminal in Omišalj on the Island of Krk in the North Adriatic. However, the oil pipeline system can also be used to import oil by land. The biggest crude oil handling terminal located in Omišalj has a storage capacity of 1 million m3 for oil and 60,000 m3 for oil products. Other crude oil handling terminals are located in Sisak and Virje, with a storage capacity of 500,000 m3 in Sisak and 40,000 m3 in Virje. The submarine oil pipeline Omišalj – Urinj has a longitude of 7.2 km, with a submarine section of around 6 km, and connects the Omišalj Terminal with the INA’s Oil Refinery in Rijeka. Oil derivatives terminal JANAF-Žitnjak is located in Zagreb with a storage capacity of 142,000 m3. The total storage capacity of the JANAF system amounts to 1.54 million m3 for oil and 202,000 m3 for oil products. [Available at www.janaf.hr; Annual Energy Report for 2015 of the Croatian Ministry of Environment and Energy, Energy in Croatia 2015, pages 108.] According to HERA’s licence registry, a total of 21 companies are licensed as oil and oil products storage operators. Croatia has three ports which can receive oil and oil products: Omišalj; Zadar; and Ploče.
Currently, the construction of two new LPG and oil derivatives handling terminals with the total storage capacity of 273,000 m3 in the port area of Luka Ploče in the South Adriatic is under way. The terminal is being developed as the Adriatic Tank Terminal (ATT). In December 2014, the company PPD (now part of Energia Naturalis (ENNA) group) has signed a sub-concession contract to construct and operate the LPG and oil derivatives terminals. PPD has also signed a memorandum of understanding for development of these two terminals with the company VTTI, a provider of energy storage worldwide (co-owned by Vitol, one of the largest energy traders in the world, and MISC, a leading international shipping and maritime conglomerate). In September 2016, the first stage of ATT has been completed with the construction of 50,000 m3 of capacity terminal for white petroleum products. Reportedly, the second stage of construction will ensure a capacity of more than 200,000 m3 for petroleum, as well as 60,000 m3 for the storage of LPG [http://www.enna.hr/en/the-port-of-ploce-t3]. This would open a new supply route for the LPG by sea.
The Croatian Mandatory Oil Stocks Agency (Hrvatska agencija za obvezne zalihe nafte i naftnih derivata; HANDA), which has been merged with the Croatian Hydrocarbon Agency (Agencija za ugljikovodike; AZU) in September 2017, is the entity responsible for the maintenance of the mandatory stocks of crude oil and oil products of the Republic of Croatia; it is also responsible for establishing the mandatory stocks in the quantity of the 90-day average daily consumption in the previous calendar year by 31 July of the current year.
The total number of fuel stations was some 826 in 2015, out of which some 382 petrol stations were owned by INA. [Annual Energy Report for 2015 of the Croatian Ministry of Environment and Energy, Energy in Croatia 2015, page 109.] According to HERA’s licence registry, there are currently a total of 47 oil products wholesalers in Croatia (e.g. INA, PETROL d.o.o., CRODUX DERIVATI DVA d.o.o., etc.), only one LPG wholesaler and retailer (INA), 11 LPG wholesalers and one company licensed for the road transport of crude oil, oil products and biofuels.
The production of domestic oil products is carried out by INA. Only about 19 per cent of domestic requirements for crude oil may be covered by domestic production of oil and condensates. The total production of crude oil in 2016 amounted to 684,000 tonnes of oil [Annual Report 2016 of the Croatian Energy Regulatory Agency, page 161]. Croatia, thus, is dependent on the import of oil. INA reported their proven reserves at the end of 2016 as 86 million bbl of oil. Crude oil production in 2016 amounted to 15.0 million boe/day and condensate production to 1.9 million boe/day [https://www.ina.hr].
Croatia does not export crude oil; it exports oil products. In 2016, about 79 per cent of the imported crude oil, 19 per cent of the domestic crude oil and 2 per cent of the domestic condensates were used as raw material for oil products production. [Annual Report 2016 of the Croatian Energy Regulatory Agency, page 162.] The total production of oil products in 2016 amounted to 3.4 million tonnes of oil products. Nevertheless, the significant share of the oil products in the Croatian market originates from imports.
Following the transposition of the EU Offshore Safety Directive (Directive 2013/30/EU) into national law, the new Croatian Act on Safety of Offshore Exploration and Production of Hydrocarbons (ZSOIEU) [Zakon o sigurnosti pri odobalnom istraživanju i eksploataciji ugljikovodika, Official Gazette no. 78/15] entered into force on 25 July 2015, but will become fully applicable as of 19 July 2018. The new offshore legal regime establishes a minimum set of rules for preventing major accidents in offshore oil and gas operations and limiting the consequences of such accidents. In order to ensure the timely implementation of new offshore safety rules, the ZSOIEU provides for additional transitional periods (for further information, please see question 3.11 and 14.1 below).
The Strategic Environmental Impact Assessment (SEA) must be conducted when exploration and exploitation of hydrocarbons are intended. Projects related to the production of oil and gas are subject to an Environmental Impact Assessment (EIA). The EIA approval, issued under the EIA Regulation [Uredba o procjeni utjecaja zahvata na okoliš, Official Gazette nos. 61/14 and 3/17], has to be obtained prior to the issuance of the location permit.
On an administrative level, the competent authorities are, inter alia, MZOE, the Ministry of Economy (Ministarstvo gospodarstva; MINGO), the Ministry of State-owned Property (Ministarstvo državne imovine; MDI) as the State administration authority managing State-owned land, MZOE as the State administration authority governing the EIA process and the Ministry of Construction and Physical Planning (Ministarstvo graditeljstva i prostornog uređenja; MGPU) as the State administration authority governing the issuance of the location, building and use permits.
In accordance with the ZIEU and the Act on Establishment of the Hydrocarbon Agency [Zakon o osnivanju Agencije za ugljkovodike, Official Gazette nos. 14/14 and 73/17], the Croatian Hydrocarbon Agency (Agencija za ugljikovodike; AZU) has been established in February 2014. The AZU provides operational support to competent administration authorities in the domain of exploration and production of hydrocarbons and permanent geological storage and it is responsible for, inter alia, the launching of a public tender process for the award of a licence for exploration and concession for production, supervision of the licensed activities as well as cooperation with investors, etc.
The ZSOIEU provides for the establishment of a special competent authority, so-called Coordination for the Safety of Offshore Exploration and Production of Hydrocarbons (Koordinacija za sigurnost pri odobalnom istraživanju i eksploataciji ugljikovodika; the Coordination body). The Coordination body shall be comprised of the representatives of the different State authorities, such as, inter alia, MZOE, AZU, the Croatian Register of Shipping (Hrvatski registar brodova; CRS), the Ministry of Maritime Affairs, Transport and Infrastructure (Ministarstvo pomorstva, prometa i infrastrukture; MMPI), the National Protection and Rescue Directorate (Državna uprava za zaštitu i spašavanje; DUZS) and the Agency for Explosive Atmosphere Hazardous Areas (Agencija za prostore ugrožene eksplozivnom atmosferom; Ex-Agency). In accordance with the Regulation on Coordination for the Safety of Offshore Exploration and Production of Hydrocarbons [Uredba o Koordinaciji za sigurnost pri odobalnom istraživanju i eksploataciju ugljikovodika, Official Gazette no. 74/17], the Coordination body has been established in September 2017 [http://www.azu.hr/hr-hr/Koordinacija].
Oil and natural gas are mineral resources of special interest to the State which are in the possession of the Republic of Croatia. The ZIEU allows investors to apply for rights to explore and extract oil and natural gas reserves. However, only companies having their seat or a branch-office in Croatia or in an EU Member State and which are registered with the competent authority to perform hydrocarbons exploration and production, and which also comply with further statutory requirements set out in Art. 8 of the ZIEU (e.g. payment of all public duties, royalties, charges for the usage of forest land or agricultural land, absence of unlawful exploration and production activities, absence of any remediation liabilities related to the previous exploration and production activities, etc.), may be granted a licence for the exploration and concession for the production of oil and natural gas reserves within one single tendering procedure.
In accordance with the ZIEU, the State administration authorities competent for conducting the above-mentioned tendering procedure is the MZOE and the AZU in consultation with other competent authorities in case that exploration and production activities are to be carried out in specific areas (e.g. State-owned land, maritime domain, areas under special water regime, etc.).
As stated above (see question 3.2 above), the award of the licence and concession agreement for exploration and production of oil and natural gas resources is carried out within one single tendering procedure. The public tendering procedure is launched on the basis of the decision of the Croatian Government. Prior to launching the formal tender procedure, MZOE, in cooperation with AZU, may organise a presentation in order to inform potential investors on hydrocarbons of their potential existence in certain Croatian regions.
The public tender must be published in the Croatian media and internet sites of MZOE at least three months, and in the EU Official Journal at least six months, prior to the expiry of the set deadline for submission of bids. Tender guidance for the first international offshore tender round as well as tender guidance for the first international onshore tender round is being made available at www.azu.hr. The Croatian Government must adopt the award decision within two months.
The licence may be granted for a maximum of 30 years and covers the exploration period of up to five years and the production period. The exploration period may be extended a maximum of twice for a period of six months in justified cases. The production period may be extended by the Government on the request of the investor, provided that it has been requested at least 12 months prior to the licence expiry.
In accordance with the ZIEU, the following agreements may be concluded between the Government and the investor: (i) an exploration and production sharing agreement (a production sharing agreement); (ii) exploration and production agreement with fees and taxes payments obligation (a royalty payment agreement); or (iii) a mixed agreement containing elements of both agreements under points (i) and (ii). The draft agreement has to be part of the tender documentation. The mandatory terms of the agreement are set out in detail in Art. 22 of the ZIEU. In this respect, it should be noted that the tender guidance for both the offshore and onshore licensing round includes a draft of the production sharing agreement with royalty and applicable taxes (the draft PSA). The ZIEU provides that the above-mentioned agreement has to be concluded between the Government and the investor within three months of the issuance of the licence. However, the onshore PSA with the selected licensees/investors has been signed in June 2016 (please see question 14.1 below), which implies that, in practice, the award of the concession agreement for hydrocarbons exploration and production may be delayed.
For the construction and operation of mining facilities and installations, the building and use permit are required (Sec. V Arts. 105–139 of the ZR).
The energy activities of gas production and natural gas production are also governed by the ZTP and subject to licensing by HERA. Therefore, if the production (i.e. extraction) operations also include the delivery and sale of natural gas on the Croatian market, a licence for the performance of energy activity of natural gas production (dozvola za obavljanje energetske djelatnosti proizvodnje prirodnog plina) is also required. HERA issues the licence only to natural or legal persons who are registered for the performance of the respective energy activity in Croatia and comply with other statutory requirements laid down in Art. 17 of the Croatian Energy Act (ZE) [Zakon o energiji, Official Gazette nos. 120/12, 14/14, 95/15 and 102/15] and the Ordinance on Licences for the Performance of Energy Activities and Keeping of the Registry on the Issued and Revoked Licences (PDOED) [Pravilnik o dozvolama za obavljanje energetskih djelatnosit i vođenju registra izdanih i oduzetih dozvola za obavljanje energetskih djelatnosti, Official Gazette nos. 88/15 and 144/15] (e.g. technical, expert and financial qualifications, absence of any criminal record, etc.). The licence for natural gas production may be issued for a minimum period of one year and a maximum period of 30 years. The general obligations and rights of a gas producer and a natural gas producer are set out in Arts. 12–13 of the ZTP.
Generally, the new ZIEU allows the Government to participate in oil and gas development projects through a 100 per cent State-owned company (i.e. national special purpose vehicle). In accordance with the ZIEU, such national SPV will be established on a proposal of the Government pursuant to a special law to be enacted by the Croatian Parliament. Furthermore, the Croatian Government has exclusive ownership of the documentation and data in connection with the oil and natural gas development projects.
The draft PSA for both the first offshore and onshore licensing round stipulates that the Croatian State remains the sole owner of all petroleum produced, except as regards the contractor’s entitlement to its share of production in accordance with the provisions of the PSA. However, there is no State participation in the PSA. In addition, draft PSA provides for the establishment of an advisory committee, as the competent body of the AZU and MZOE, for the purpose of supervision of the exploration, development and production operations carried out under the PSA.
Methods for setting the amounts and the ratio of allocation of the royalty and other fees for the exploration and production of hydrocarbons are set out in detail under the UNIEU. The fees are established for (i) exploration and production of hydrocarbons, (ii) the storage of hydrocarbons in geological structures, and (iii) permanent disposal of gas in geological structures.
total fees, which include: (i) a fee for the approved exploration area; (ii) a fee for the area of the established production field; (iii) a signature bonus for the agreement signed between the investor and the Croatian Government; (iv) a fee (royalty) for the produced quantities of hydrocarbons; (v) additional fees for the realised production (production bonus) of hydrocarbons; and (vi) administrative fees; and
As regards the share of production, please see questions 3.3 and 3.4 above. In accordance with the ZIEU, the Croatian Government enjoys the pre-emption right to purchase the extracted hydrocarbons based on the market conditions depending on the method of production.
As regards technical restrictions of the Croatian gas transmission system, please see question 1.1 above. In the event of a crisis, certain extraordinary measures (including import and export restrictions) can be taken on the basis of the Croatian Energy Act (ZE) and other energy laws.
In accordance with the ZIEU, the rights from the licence and agreement may be transferred to a third party; however, the respective transfer is subject to prior approval of the Croatian Government. The Croatian Government cannot refuse the approval without justified reasons. It will be assumed that there is a justified reason for refusal of prior approval in case the investor fails to notify the MZOE of the intended transfer without delay. The MZOE must decide on the investor’s application for prior approval within 30 days of receipt of the application. In addition, the Croatian Government has the pre-emption right to acquire a minimum of 10 per cent of the shares from the respective licence and agreement, either via a national SPV or via a legal entity proposed by the Government and which fulfils all statutory requirements for the award of the licence and agreement.
As regards the assignment and change of control clauses in the PSA, the draft PSA imposes an obligation for the MZOE’s prior approval. A failure to comply with such obligation is specified as a ground for termination of the agreement.
In accordance with the Concessions Act (ZK) [Zakon o koncesijama, Official Gazette no. 69/17], a pledge may be established over the rights from the concession contract, with prior approval of the concession grantor, only in favour of financial institutions to secure the claims of these institutions on the basis of the loan contract. Claims of financial institutions may relate solely to financial instruments acquired for the purposes of the concession contract execution, and shall not include any other claims that financial institutions have towards the concession holder on any other grounds.
Special regulations in connection with the pledge for security or the booking for accounting purposes of rights to develop oil and natural gas are stipulated in the draft PSA for both the first offshore and onshore licensing round. In accordance with the draft PSA, the pledge for security of rights to develop oil and natural gas is subject to prior approval of MZOE. The approval shall not be unreasonably withheld. The respective accounting and auditing procedure is specified in detail in the draft PSA.
Apart from authorisations based on the ZIEU, the ZR and the ZTP (see question 3.3 above), several other authorisations (of different authorities) may be required, depending on the specific project. Therefore, authorisations, e.g. according to the Croatian law on State property management, nature and environmental protection, physical planning and building, water regime and maritime domain, etc., may be required (see question 3.1 above).
Further, for the execution of the mining activities and for the construction of mining facilities and plants, mining projects (rudarski projekti) must be developed in accordance with Art. 91 et seq. ZR. In addition, pursuant to the ZR, the licensee has to prepare and keep a set of obligatory documents for exploration and production works (e.g. mining plans and certified measurement records, a location plan of the exploration area/production field, a study on hydrocarbon reserves, the mining production project, etc.). The ZR also imposes special obligations of reporting to the competent authorities on the licensee.
Besides having a concession, the holder of the concession for production must also obtain special approval from the MZOE in order to conduct simultaneous offshore hydrocarbons exploration and production activities in Croatia. To obtain the respective approval, the concession holder must comply with requirements set forth in the Ordinance on fundamental technical requirements, safety and security in the exploration and production of hydrocarbons from the Croatian seabed. [Pravilnik o bitnim tehničkim zahtjevima, sigurnosti i zaštiti pri istraživanju i ekploataciji ugjljikovodika iz podmorja Republike Hrvatske, Official Gazette no. 52/10.]
In addition, the ZSOIEU requires that offshore hydrocarbons operations are conducted only by operators appointed by the licensee and approved by the Coordination body. The ZSOIEU provides for a list of mandatory documents to be adopted by the licensee and/or operators (as an operating company appointed under the PSA between the Croatian Government and the licensee) and/or owners (as an entity responsible for a non-production installation) and submitted for prior approval to the Coordination body. These are, inter alia, the corporate major accident prevention policy, the safety and environmental management system applicable to the installation, a report on major hazards, the internal emergency response plan, a design notification (in the case of a planned production installation), a notification of a well operation, a description of the scheme of independent verification, etc. In addition, the report on major hazards is subject to review every three years (Art. 15 (9) and Art. 16 (8) of the ZSOIEU). In the event of ‘material changes’ affecting the original report on major hazards (as defined in Art. 4 (2) of the ZSOIEU), the operator or the owner will be required to prepare an amended report and to submit such amended report for prior approval to the Coordination body. Guidelines for the preparation and delivery of the above-mentioned documents are being made available at http://www.azu.hr/hr-hr/Koordinacija/Dokumenti.
It should be noted that the competent authorities (e.g. the Coordination body or mining inspectorate) have been given wide enforcement powers in relation to the preparation and carrying out of offshore operations, including the power to prohibit the operation or commencement of operations and to revoke the licences for exploration and production of hydrocarbons (Arts. 21–23 and 35–38 of the ZSOIEU).
According to the ZIEU, the movable and immovable property used in oil and natural gas development which can be separated without causing damage is the ownership of the investor who purchased such property. In case the investor already received recovery costs for such property, the Croatian State acquires the ownership over the respective property. In case of the licence revocation and/or termination of the agreement or the licence and/or agreement expiration, the immovable property or other fixed installation on the exploration and/or production field becomes the ownership of the Croatian State.
In addition, the investor is required to undertake all safety measures in order to prevent danger to people, property and the environment on the occupied areas, and also to notify, among others, the Mining Inspectorate and other competent State authorities thereof (Art. 38 of the ZIEU). If the Mining Inspectorate and other competent State authorities ascertain that the safety measures, environmental protection measures and restoration of the exploration and/or production field are sufficient, the investor can obtain a certificate in relation thereto, and thereafter a decision on the decommissioning of the production field and removal from the Registry of production fields. The competent authorities are empowered to prescribe safety measures.
The ZR, the ZIEU and the new Ordinance on permanent disposal of gas in geological structures [Pravilnik i trajnom zbrinjavanju plinova u geološkim strukturama, Official Gazette no. 106/13], which came into force on 31 September 2013, provide a legal framework for gas storage in geological structures.
The storage of natural gas is carried out by the PSP (see question 1.1 above) pursuant to the ZTP and Storage Code [Pravila korištenja sustava skladišta plina, published by the PSP no. 3/17; available at www.psp.hr], which came into force on 1 April 2017. According to Art. 75 of the ZTP, access to the gas storage system is subject to the regulated third-party access regime. The access to storage can be refused under certain conditions: (i) lack of capacity; (ii) where access to the system would prevent a system operator from performing the public service obligation; or (iii) where access to the system would cause serious financial and economic difficulties to gas undertakings with regard to take-or-pay contracts concluded prior to a request for approval of access, which is subject to prior approval from the regulatory authority (HERA). The refusal has to be notified in writing. The party seeking access to storage can file an appeal with HERA, if access to storage is refused. HERA has to find whether the prerequisites for refusal of access apply (within 60 days). Against the decision of HERA, no appeal is allowed, but the injured party may bring a claim before the competent Administrative Court.
Gas storage is regulated energy activity performed as a public service. Exceptionally, Art. 6 of the ZTP provides that the energy activity of gas storage may be performed as a market activity, provided that the gas storage operator obtains a prior approval from HERA. According to Art. 6 of the ZTP, the criteria for issuing the approval of HERA is determined taking into account the level of competition in relation to energy activity of gas storage in the Republic of Croatia and the region as well as the issues of security of gas supply in the Republic of Croatia. HERA is required prior to issuing the respective approval to obtain prior opinion of the MZOE and the Croatian Competition Agency (Agencija za zaštitu tržišnog natjecanja; AZTN). So far, no such criteria for determining the access to gas storage system have been issued.
The gas storage tariff regime is based on HERA’s Methodology for Determining Tariffs for Gas Storage [Metodologija utvrđivanja iznosa tarifnih stavki za skladištenje plina, Official Gazette no. 22/14], which came into force on 20 February 2014. On the basis of the methodology, in December 2016, HERA adopted the Decision on gas storage tariff rates for the second regulation period 2017–2021 [Odluka o iznosu tarifnih stavki za skladištenje plina, Official Gazette no. 122/16] for PSP, which entered into force on 1 January 2017.
As regards the Croatian gas market-opening process, please see question 1.1 above. According to the draft PSA for both the first offshore and onshore licensing round, the investor shall be required, on the request of AZU, to sell a set volume of its share of oil and/or gas to the Republic of Croatia if the Croatian Government’s production share is insufficient to meet domestic supply requirements. In case of war or imminent expectation of war or grave national emergency, the MZOE may also request all or part of the oil and gas produced from the agreement area and require the investor to increase such production to the extent required.
Cross-border sales and deliveries of natural gas are transacted pursuant to bilateral agreements between the parties and the availability of cross-border capacity. Also, the Rules on the Gas Market Organisation [Pravila o organizaciji tržišta plina, published by the HROTE no. 3/17; available at www.hrote.hr], which came into force on 1 April 2017, and the new Transportation Network Rules [Mrežna pravila transportnog sustava, published by the PLINACRO nos. 3/17 and 12/17; available at www.plinacro.hr], which will come into force on 1 April 2017, are applicable. In the event of a crisis, certain extraordinary measures (including import and export restrictions) can be taken on the basis of the ZE, the Decision on Plan of Interventions on Measures of Protection of Security of Gas Supply of the Republic of Croatia [Odluka o donošenju Plana intervencije o mjerama zaštite sigurnosti opskrbe plinom Republike Hrvatske,Official Gazette no. 78/14] and the Regulation on Criteria for the Acquisition of the Protected Customer Status in the Event of Gas Supply Crisis [Uredba o kriterijima za stjecanje statusa zaštićenog kupca u uvjetima kriznih stanja u opskrbi plinom,Official Gazette no. 65/15], which have been adopted in accordance with Regulation (EU) No 994/2010 on Security of Gas Supply. In addition, certain reporting/registration obligations to the CNB may also be required, depending on the specific transaction.
As regards the obligation of the oil producer to supply the domestic market under the draft PSA, please see question 4.1 above. Cross-border sales and deliveries of oil and oil products are transacted pursuant to bilateral agreements between the parties. In the event of a crisis, certain extraordinary measures (including import and export restrictions) can be taken on the basis of the ZE and the Act on Oil and Oil Derivatives Market (ZTNND) [Zakon o tržištu nafte i naftnih derivata, Official Gazette nos. 19/14 and 73/17], which came into force on 20 February 2014. Generally, producers, importers and traders of oil and oil products have an obligation to report certain transactions to the MINGO according to the new Ordinance on Data Delivery by the Energy Undertakings to the Ministry [Pravilnik o podacima koje su energetski subjekti dužni dostavljati Ministarstvu, Official Gazette nos. 132/14 and 16/15], which came into force on 20 November 2014. In addition, certain reporting/registration obligations to the CNB may also be required, depending on the specific transaction. As regards the wholesale of oil products, see question 10.2 below.
As regards ownership of transportation pipelines and storage facilities, see questions 1.1 and 2.1 above. Gas transportation and storage of natural gas are regulated energy activities performed as a public service. Provisions on the operation of gas transportation pipelines and storage facilities can be found in the ZE, ZTP and the Transportation Network Rules, the General Conditions of Natural Gas Supply [Opći uvjeti opskrbe plinom, Official Gazette nos. 158/13 and 74/17] and other gas-related regulations. PLINACRO as the TSO owns and operates the network of main transmission lines and regional gas pipelines by which domestic and imported natural gas is transmitted to exit measuring-reduction stations where the gas is delivered to gas distribution systems and to final (industrial) customers directly connected to the transmission system. The operation of a gas transmission network is divided in five regions (eastern, central, northern, western and south Croatia). The TSO has to comply with the duties imposed by the ZTP (Art. 27 et seq. of the ZTP incl. informational duties towards gas market participants, publishing terms and conditions governing the use of the network, elaborating the 10-year network development plan, operating, maintaining and developing the transmission facilities, transmitting gas on the basis of signed contracts, etc.). PLINACRO as the TSO is responsible for the allocation and reservation of the transportation system capacities. Network users (e.g. gas supplier and gas trader) are entitled to use the gas transportation system within a reserved capacity on the basis of a gas transportation contract concluded with PLINACRO as the TSO. The system operator is obliged to publish the general terms and conditions of the transportation system and the standard form of gas transportation contract. A tariff charging regime applies to the transportation system both at the transmission and distribution level. Croatia has adopted the entry-exit transportation tariff system. In line with ZTP, the unbundling process of the activities related to the gas transmission and gas storage was carried out. As regards operation of storage facilities, see question 3.13 above.
According to the ZTP, the natural gas producer is required, inter alia, to: ensure a secure, reliable and efficient operation of the upstream pipeline network; and ensure fair, equal and transparent conditions for access to the upstream pipeline network, including access to plants providing additional technical services, except those parts of the upstream pipeline network used for the production of gas at the gas field site, etc. According to Art. 73 of the ZTP, access to the upstream pipeline network is subject to the negotiated third-party access (TPA) regime. The negotiated TPA is based on negotiated commercial conditions. The gas producer may refuse access to the upstream pipeline network under certain conditions set out in Art. 75 (1) of the ZTP.
According to the ZTNND, energy undertakings performing the activity of pipeline transport of oil (JANAF) and oil products transport by product-pipeline are required to grant access to their transport facilities to parties entitled to transport facilities access at non-discriminatory and transparent conditions pursuant to the negotiated third-party access. As of 20 February 2014, the negotiated third-party access is based on negotiated commercial conditions. Provisions on the operation of the oil pipeline system of JANAF can be found in the Technical Conditions of Access to Transportation Capacities of JANAF [Tehnički uvjeti za pristup transportnim kapacitetima JANAF-a, Gazette “Glasilo VRED-a” no. 3-4/03]. Access can be denied under certain conditions (Art. 5 of the ZTNND). There are currently a total of 21 companies licensed for oil and oil product storage in Croatia.
According to the Croatian building law, both a location permit and building permit issued by the MGPU are required for, inter alia, (i) international and main oil and natural gas transportation pipelines including the terminal and associated infrastructure, (ii) underground gas storage, (iii) oil and liquid oil products storage facilities with a capacity of 50,000 tonnes or more, (iv) LPG storage facility with a capacity of 10,000 tonnes or more, and (v) buildings and other projects within strategic investment projects of the Republic of Croatia defined under a special law (e.g. LNG terminal on the island of Krk in the North Adriatic). An EIA must be carried out before a location permit can be issued. The use permit will be issued on the basis of a technical examination, provided that the constructed building satisfies all conditions under the building and other energy-related laws.
According to Art. 40 of the ZE, energy entities are entitled to use properties belonging to third parties for the construction and maintenance of grids and systems for the transmission and/or transport and distribution of energy, in compliance with special regulations. Private land may be expropriated provided that this is required with a view to construct a pipeline and that it is in the State’s interest to do so. According to Art. 4 of the ZE, construction, maintenance and the use of energy objects as well as the performance of energy activities are considered to be in the State’s interest. Generally, construction of new transportation infrastructure has to be provided for in the network development plan of the system operators (Art. 8 of the ZE), but also in the development plans of the local and regional self-government units. Detailed provisions on the administrative procedure applicable to property expropriation can be found in the new Croatian Act on the Expropriation and Determination of Compensation [Zakon o izvlaštenju i određivanju naknade, Official Gazette nos. 74/14 and 69/17], which came into force on 26 June 2014.
As regards the Croatian oil and gas transportation network, see questions 1.1, 3.1 and 6.1. The TSO is obliged to cooperate with other system operators in the gas sector. The Transportation Network Rules sets out specific provisions in relation to development, construction and maintenance of the transportation system. Interconnection of the gas transportation system and transportation system of the neighbouring country, including technical aspects in relation to planning, construction and operation of the interconnected pipelines, is carried out on the basis of the agreement concluded with the transportation system operator of the neighbouring country (see Sec. III and VI of the Transportation Network Rules).
As stated above (see question 6.4 above), non-discriminatory access to the gas transportation system according to the principle of regulated third-party access is provided for in line with the Transportation Network Rules. The access can be refused under certain conditions: (i) lack of capacity; (ii) where access to the system would prevent the system operator from performing the public service obligation; and (iii) where access to the system would cause serious financial and economic difficulties to gas undertakings with regard to take-or-pay contracts concluded prior to a request for approval of access, which is subject to prior approval from the regulatory authority (HERA). The system operator which refused access to the system on the basis of a lack of capacity or a lack of interconnection shall make the necessary changes and expansion of the system in order to enable access within a reasonable period of time, as far as it is economically feasible to do so or when a potential customer is willing to pay for them. In case of the refused access to the distribution or transmission system by a final decision, construction of a direct gas pipeline may be allowed, which is subject to prior approval from HERA (Art. 74 of the ZTP). Major new gas infrastructures (i.e. interconnectors, gas storage system and LNG facilities) may, upon request, be exempt from the application of third-party access right under certain conditions laid down in Art. 78 of the ZTP.
In August 2017, HERA adopted the Criteria for issuance the approval for construction and operation of a direct gas pipeline, which entered into force on 10 August 2017 [Kriteriji za izdavanje suglasnosti za izgradnju i pogon izravnog plinovoda, Official Gazette no. 78/17].
In June 2014, HERA adopted the Methodology for Determining Fees for the Connection to the Gas Distribution or Transmission System and for Increasing the Connection Capacity [Metodologija utvrđivanja naknade za priključenje na plinski distribucijski ili transportni sustav i za povećanje priključnog kapaciteta, Official Gazette no. 76/14], which entered into force on 25 June 2014. On the basis of the methodology, in December 2016 HERA adopted the Decision on the respective fee amounts for the regulation period 2017–2021 [Odluka o naknadi za priključenje na plinski distribucijski ili transportni sustav i za povećanje priključnog kapaciteta za regulacijsko razdoblje 2017. - 2021. godina, Official Gazette no. 122/16], which entered into force on 1 January 2017.
Non-discriminatory access to the oil transportation system, according to the principle of negotiated third-party access, is provided for in line with the ZTNND and the Technical Conditions of Access to Transportation Capacities of JANAF (see also question 6.1 above). Access can be denied under certain conditions, e.g. lack of capacity, technical or safety limitations (Art. 5 of the ZTNND).
Under Croatian law, gas transportation is regulated energy activity performed as a public service. The General Conditions of Gas Supply stipulate certain specific data that the gas transportation contracts concluded between gas suppliers or gas traders with the TSO for a definite period of time need to comprise as follows: (i) data regarding the contracting parties; (ii) conditions of gas transmission; (iii) provisions on quality of gas supply; (iv) conditions of gas delivery limitation; (v) provisions on the reading and communication of metering data; (vi) provisions on the billing and payment of the fee for the use of the transmission system; (vii) time and location of gas delivery; and (viii) other provisions. The gas transmission tariff regime is based on HERA’s Methodology for determining tariff rates for gas transportation [Metodologija utvrđivanja iznosa tarifnih stavki za transport plina, Official Gazette nos. 85/13, 158/13 and 118/15], which regulates the mode, method and conditions of the calculation of the network tariffs. The regulation model is based on the regulation incentive method (i.e. the revenue cap method). The tariff system is based on the entry-exit model. The tariff rates for the natural gas transmission are determined for specific entry and exit points for particular years of the regulation period. The duration of the first regulation period is three years (from 2014 to 2016) and of the subsequent regulation periods five years. The actual tariff rate is set by the TSO, with the prior approval of HERA. In the event that HERA refuses to give approval, it shall independently set the tariff rates. On the basis of the methodology, in December 2017 HERA adopted the Decision on gas transportation tariff rates for the second regulation period 2018–2021 [Odluka o iznosu tarifnih stavki za transport plina, Official Gazette no. 127/17] for PLINACRO as the TSO, which entered into force on 1 January 2018.
As of 20 February 2014, oil transportation by oil pipeline is no longer regulated energy activity and the negotiated third-party access is not based on the tariff system for oil transportation. The price for oil transportation by pipeline is based upon negotiated commercial conditions. The price of oil and oil products storage is not regulated; it is based upon existing market conditions.
Gas transmission and distribution are regulated energy activities performed as a public service. PLINACRO, as the only TSO, is legally unbundled (see also question 1.1 above). According to HERA’s licence registry, a total of 35 companies are currently licensed as DSOs. Thirteen (13) DSOs are legally unbundled from retail and 22 DSOs are exempt from unbundling due to having less than 100,000 customers. Transmission and distribution networks are subject to regulated third-party access (see questions 6.6 and 7.3).
Apart from the licence issued by the regulatory authority (HERA), a concession for gas distribution or a concession for the building of a distribution system is required to operate a distribution network. Prior to the granting of a concession, a tendering process has to be conducted in accordance with the requirements set out in the ZTP and the ZK.
A concession may be granted for a minimum period of 20 years and a maximum period of 50 years (instead of the current maximum time limit of 30 years). In addition, the existing concession contracts may be prolonged with prior approval from HERA and in accordance with the requirements set out in the law. The authority has the power to revoke the concession in case of non-compliance with the terms and conditions of the concession requirements (Art. 41 of the ZTP). According to the Regulation on the amount and method of payment of fees for the concession for gas distribution and concession for the building of distribution systems [Uredba o visini i načinu plaćanja naknade za koncesiju za distribuciju plina i koncesiju za izgradnju distribucijskog sustava, Official Gazette no. 31/14], a compensation fee for the concession for gas distribution and concession for building of distribution systems is determined in the amount of 0.5 to 1.5 per cent of the total turnover realised by gas distribution activities in the previous year in the area for which the concession is granted.
Non-discriminatory access to the distribution network, according to the principle of regulated third-party access, is provided for in line with the ZTP and the Distribution Network Rules [Mrežna pravila plinskog distribucijskog sustava, Official Gazette nos. 155/14 and 43/17], which came into force on 1 January 2015. The Distribution Network Rules govern, inter alia, the connection to the distribution system, services of the DSO, the rights and duties of the DSO, system users and final customers, contractual relationships and general terms and conditions of the distribution system, etc. The network user shall conclude a gas distribution contract with the DSO. The gas distribution contract governs the provision of gas distribution service, including the ancillary services and the financial obligations in accordance with the Distribution Network Rules. Such contract shall also include a list of all final customers connected to the distribution system to which the gas supplier supplies the gas elaborated by the balancing groups. The DSO is obliged to publish the standard form of a gas distribution contract.
Access to the distribution system may be denied by the DSO under certain conditions provided by the law. The regulatory authority (HERA) can be appealed to if the right of access is damaged (see question 6.6 above). Compare also question 6.6 to insufficient system capacity or insufficient interconnection.
The gas distribution tariff regime is based on HERA’s Methodology for determining tariff rates for gas distribution [Metodogija utvrđivanja iznosa tarifnih stavki za distribuciju plina, Official Gazette no. 104/13], which set out the mode, method and conditions of the calculation of the network tariffs. The regulation model is based on the regulation incentive method (i.e. the revenue cap method). The tariff system in the distribution system is based on the post stamp principle. The actual tariff rate is set by the DSO, with the prior approval of HERA. In the event that HERA refuses to give approval, it shall independently set the tariff rates. On the basis of the methodology, in December 2017 HERA adopted the Decision on gas distribution tariff rates for the second regulation period 2018–2021 [Odluka o iznosu tarifnih stavki za distribuciju plina Official Gazette no. 127/17] for the 35 DSOs, which entered into force on 1 January 2018.
Regulation (EU) No 1227/2011 of the European Parliament and of the Council of 25 October 2011 on wholesale energy market integrity and transparency (REMIT) applies directly to parties engaging in gas trading in Croatia. Since Art. 9 of the REMIT imposes an obligation on wholesale energy market participants entering into transactions that are required to be reported to the Agency for Cooperation of Energy Regulators (ACER) to register with the competent national regulatory authority, the registration of market participants is made available by HERA via the Centralised European Register of Energy Market Participants (CEREMP) as of 25 February 2015.
Currently, no LNG facilities exist in Croatia. As regards the planned construction of the LNG terminal on Island of Krk in the North Adriatic, please see question 1.1 above.
According to the Croatian building law, a location permit and building permit issued by the MGPU are required for, inter alia, an LNG terminal (see question 6.2 above). An EIA must be carried out before a location permit can be issued. The use permit will be issued on the basis of a technical examination, provided that the constructed building satisfies all conditions under the building and other energy-related laws.
Pursuant to Art. 87 of the ZTP, the Rules for Use of LNG Terminals (Pravila korištenja terminala za UPP) shall set out specific provisions in relation to the development, manner of management and the usage of the LNG terminal including contractual relations and general terms and conditions for using the LNG terminal. In the process of adopting the Rules for Use of LNG Terminals, the LNG terminal operator shall ensure adequate participation of all interested parties, and conduct public consultations lasting no less than 15 days. The Rules for Use of LNG Terminals are to be adopted by the LNG terminal operator, with prior approval of HERA. The respective rules must also be published on the websites of HERA and the LNG terminal operator. Rules for Use of LNG Terminals still remain to be adopted.
In November 2017, HERA adopted the Methodology for Determining Tariffs for LNG Reception and Dispatch [Metodologija utvrđivanja iznosa tarifnih stavki za prihvat i otpremu ukapljenog prirodnog plina, Official Gazette no. 110/17] which entered into force on 23 November 2017. The regulation model is based on the regulation incentive method (i.e. the revenue cap method). On the basis of the methodology, in December 2017 HERA adopted the Decision on indicative tariff rates for the LNG reception and dispatch for the regulation period 2020–2039 [Odluka o indikativnim iznosima tarifnih stavki za prihvat i otpremu ukapljenog prirodnog plina, Official Gazette no. 127/17] for LNG Croatia, which entered into force on 1 January 2018.
A non-discriminatory third-party access regime also applies to LNG terminals. The access to a LNG facility can be refused under certain conditions (set out in question 3.13 above).
The oil industry falls under the competence of MZOE. The national regulatory authority is HERA. The entity responsible for maintenance of the compulsory stocks of crude oil and oil products in Croatia is AZU (formerly HANDA). Beside the ZE, the main legal act is the ZTNND (see question 2.1 above).
As stated above (see question 2.1 above), most of the trade in oil products and LPG is carried out by INA Group companies. Other important market players in the oil industry are PETROL HRVATSKA d.o.o., CRODUX DERIVATI DVA d.o.o., LUKOIL Croatia d.o.o. and TIFON d.o.o.
A licence for the performance of energy activities (dozvola za obavljanje energetske djelatnosti) issued by HERA is needed to carry out the wholesale of oil products and wholesale of LPG. As regards the wholesale and retail trade with third countries of certain oil products and biofuels, beside the licence for performance of the respective energy activities, it is necessary to obtain approval from MINGO in line with the Regulation on Conditions for Wholesale and Retail Trade with Third Countries of Particular Goods [Uredba o uvjetima za obavljanje trgovine na veliko i trgovine s trećim zemljama za određenu robu, Official Gazette nos. 47/14 and 62/15]. According to this Regulation, legal and natural persons engaged in wholesale and trade of fuels (not including oil products and biofuels from the EU Member States, EEA Member States or Turkey) must have adequate warehouses specially furnished and equipped for the storage of fuel. As regards certain reporting obligations to the MINGO, see question 5.1 above.
Upon completion of proceedings, AZTN may issue a decision prohibiting further performance of an anti-competitive agreement or practice or a decision prohibiting the abuse of dominant position in the market. AZTN is further empowered to impose fines (of up to 10 per cent of total annual turnover of the party involved in the anti-competitive practice) or remedial measures. In certain circumstances, AZTN can terminate the proceedings by imposing on the parties to the proceedings commitments proposed during the proceedings, provided they are sufficient for the protection of competition and the harmful situation would be eliminated by their fulfilment.
As stated above (see section 11 above), special requirements or limitations on acquisitions of interests in the oil and natural gas sector may arise from the Croatian and the EU competition law irrespective of the nationality of the purchaser. As an exception, Art. 24 of the ZTP provides that a special certification process must be conducted where a transmission system owner or transmission system operator is controlled by a person from a third/non-EU country. In this context, HERA is required to make an assessment, in consultation with the MZOE and the European Commission, about whether foreign ownership or control of the transmission system would pose a risk to security of supply of the Republic of Croatia and the European Union.
As regards the licence for the exploration and production of hydrocarbons as well as the licence for performance of the respective energy activities, the Croatian law imposes certain residence requirements on the licensees (e.g. please see questions 3.2 and 3.3).
In terms of disputes arising from the PSA between the Croatian Government and the investor, Art. 22 (5) of the ZIEU suggests that the parties are free to agree on dispute resolution (incl. place of arbitration) and on the applicable law. However, pursuant to Art. 97 of the ZK, the dispute arising from concession contracts shall be resolved by arbitration in Croatia (so-called domestic arbitration) irrespective of the fact that a concession holder is a foreign legal entity. If the parties have not arranged to settle disputes by arbitration, dispute falls within the scope of the exclusive jurisdiction of a Croatian commercial court according to the seat of the concession grantor.
Under the Shareholders’ Agreement 2009, MOL gained operational control of INA. Although the shareholders’ agreement committed the Croatian Government to take over the gas trading business of INA (i.e. the import business of PRIRODNI PLIN) by December 2010, this issue remains unsolved during the ongoing negotiations between the Government and MOL. Consequently, two arbitration procedures in connection with the INA-MOL dispute were initiated. At the end of November 2013, MOL initiated the arbitration procedure under ICSID rules against the Croatian Government under the Energy Charter Treaty. In January 2014, the Croatian Government initiated arbitration under UNCITRAL rules in Geneva to annul the 2009 Amendments to the Shareholders’ Agreement and the Gas Master Agreement (and its First Amendment). In June 2014, the former Croatian Prime Minister was sentenced to imprisonment for taking a bribe from MOL in 2008 in exchange for securing MOL’s dominant position in INA. However, in July 2015, the Croatian Constitutional Court annulled the verdict and ordered a retrial. In December 2016, UNCITRAL dismissed Croatia’s claims based on bribery, corporate governance and MOL’s alleged breaches of the 2003 Shareholders Agreement. ICSID ruling on MOL’s claim is still expected.
Further liberalisation of the Croatian gas market shall take place in the course of 2018. To this end, a new Gas Market Act is expected to be adopted until March 2018. However, according to the draft proposal made publicly available in December 2017, the deregulation of gas prices for household customers has been postponed (again) in order to protect final (household) customers from the excessive market gas price.