Croatia has prevailed against the Hungarian oil company MOL in commercial arbitration, the Croatian State Attorney’s Office announced on Tuesday, after the International Centre for Settlement of Investment Disputes, ICSID, rejected all of MOL’s claims and ordered it to pay Croatia 775,000 euros in legal costs, plus interest.
After MOL filed a claim with ICSID, the Hungarian oil company in July 2022 was directed to pursue its claim through commercial arbitration over the alleged breach of its business agreement with Croatia. MOL then opened commercial arbitration proceedings against Croatia in 2023.
MOL claimed that Croatia had violated the Agreement and the First Amendment to that agreement, seeking damages in the amount of 36,152,485 euros.
The tribunal rejected MOL’s claim in its entirety.
Croatia’s Economy Minister Ante Susnjar welcomed the ruling.
“I congratulate the State Attorney’s Office on conducting a high-quality process and protecting Croatian interests. It is time for the co-owners of INA [Croatia’s oil company] to focus on what is truly important – the company’s development, new investments and production growth,” the minister said.
MOL attempted to prove that Croatia had violated the annexes to the 2003 share purchase agreement under which MOL acquired a 25 per cent stake plus one share in INA, along with management rights over the oil company, which had previously been state-owned. The annexes, signed in 2009 and commonly referred to as the “gas agreements,” concern the liberalisation of the gas market.
Relations between Hungary and Croatia have been strained for more than a decade over the relationship between MOL and INA, particularly after Croatian courts ruled that MOL had acquired management rights in INA through corruption. Specifically, the courts found that former Croatian Prime Minister Ivo Sanader had been bribed by Zsolt Hernadi, the chairman of MOL’s management board.
Despite an arrest warrant being issued for Hernadi, Hungary has refused to extradite him and Hungarian courts have not recognised the Croatian rulings.
“Croatia needs an INA that produces, an INA that invests, and an INA that strengthens its role in the region’s energy security. This means strengthening domestic production, investing in new fields and projects, but also returning to Syria when business and security conditions allow,” Susnjar added.
MOL responded on Wednesday that the tribunal’s decision, rejecting its claim for damages from Croatia, sends a serious message to future foreign investors. “MOL’s compensation claim arose out of Croatia’s breach of the First Amendment to the Gas Master Agreement (FAGMA) … However, the court found that the FAGMA’s royalty provision was contrary to mandatory Croatian law, despite the fact that the agreement was fully vetted and approved by the Croatian state at the time,” MOL noted.
As a responsible and law-abiding international company, it will fully fulfill all its obligations arising from the latest ruling, it added.
Although Peter Magyar recently became Hungary’s new Prime Minister, replacing Viktor Orban, Croatian authorities remain cautious about expecting any major changes regarding INA, MOL or the extradition issue.
INA holds symbolic significance in Croatia and remains a source of national frustration, as much of the public believes the once-major oil company was sold too cheaply and subsequently neglected. INA was once larger than MOL, which has since grown into a major regional energy company.
MOL also announced that an international arbitration tribunal seated in Switzerland has unanimously determined that Croatia failed to prove that MOL Plc.’s Chairman-CEO engaged in bribery. „This is the third international forum to reject Croatia’s bribery allegations, which have also been rejected twice by the Swiss Supreme Court and separately by INTERPOL“, said MOL’s press releases.