Strategic Analysis: Russian Business Activity in Croatia (Abstract)

For many years following Croatias independence and its involvement in the Balkan wars of the 1990s, its fight with the Serbs shaped the countrys views toward their erstwhile allies in Moscow. As a consequence, both dominant political parties in Croatia have taken a wary approach toward Russian activity in the country including in the economic and financial domain. In recent years, Croatia has walked a fine line between welcoming limited Russian business activity and maintaining its pro-Western orientation.

While the country planned for some time to participate in the now-defunct South Stream gas pipeline project, Croatia has also pursued plans to transform itself into an energy hub that would provide real energy security domestically and support similar designs for the rest of Europe. Croatian leadership appears dedicated to several key EU-supported projects, like the LNG terminal at Krk, development of the deep water port at Omisalj and involvement in the Ionian Adriatic Pipeline (IAP) connector to the Southern Gas Corridor, each of which are important nodes in the EUs plans for a more liquid and efficient natural gas market that will diminish Russian dominance in this industry.

Still, Russian state-owned enterprises (including Gazprom, Zarubezhneft and Transneft) have expressed interest and even bid on many strategic energy-related projects (including the potential privatization of the state-run oil pipeline operator, JANAF). Short of actual investment in assets, Russian companies (including Gazpromneft and Zarubezhneft) have contracted with various Croatian companies to provide oil storage and transport services, and a network of Russian-owned petrol stations is present in the country via Lukoil and Gazprom-owned NIS.


Excerpted Deals and Transactions:

  • As of September 2014, Russian oil accounted for roughly 34% of Croatias total energy imports.Russian oil enters Croatia by way of the southern branch of the Druzbha pipeline, which runs through Ukraine, Slovakia and Hungary.
  • JANAF is strategically important, not just to Croatia, but to landlocked Central Europe. A number of the countrys relationships involve servicing Russian companies operating in the region or supplying their facilities downstream elsewhere in the Balkans, such as its two refineries in Serbia at Panevo or Novi Sad. Zarubezhneft, in particular, has been involved in positioning Russia to lure JANAF closer to Moscow. During a January 2012 visit to Zagreb by Zarubezhneft CEO Nikolai Brunich, the company offered several proposals/investment projects, with a combined value of over $1.5 billion, that were all largely designed to hamper JANAFs role as a major European source of non-Russian oil and oil products. The company announced these offers publicly via a news conference at the Russian embassy in Zagreb.
  • While Rosneft itself is not an LNG player, it had proposed to discuss building the LNG terminal on Krk Island. This proposal, made during Sechins June 2013 visit to Croatia, was part of the barrage of Russian visits to the country prior to its EU accession taking effect. This terminal is a part of Europes efforts to bring in a diverse flow of natural gas and to connect the pipeline infrastructure of various European countries. The LNG terminal is currently in its bidding phase, with seven bids received, although the winner (as well as the companies who placed the bids) has yet to be announced.
  • Russias state-owned Sberbank, currently under international sanctions, has had significant activity in Croatia over the past several years, including acquiring 100% of Volksbank International (VBI), the Eastern European subsidiary of Austrias Oesterreichische (delivering to Sberbank 31 Croatian branches; a five-year loan to motorway operator Hrvatske Autoceste (HAC) to finance its 2013 and 2014 operations; and multiple large-scale loans to Croatias Agrokor Group).
  • Russian investors have attempted to purchase tracts of land on Krk Island for tourism development, reportedly with backing from Russian governmental officials. This has been met with some local concern that, such land acquisitions, in the proximity of the planned LNG terminal, can be used for interfering with that project later on; for example, by claiming that the LNG project would damage tourism and these developers business interests.