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Will new rules of the game improve competitiveness on the Croatian energy market?
On 1 July 2013, Croatia joined the EU internal market, which is expected to further open up the energy market to potential domestic and foreign investors in the coming period. As part of Croatia’s preparation for the EU membership, it was crucial to transpose the Third Energy Package into the national law.
The new legal framework
To this end, in the course of 2012 and 2013 the following key energy-related laws have entered into force:
Nevertheless, a whole set of secondary legislation, which will ensure the full and effective implementation of the above-mentioned laws, remains to be adopted.
In order to strengthen the independence and functions of the Croatian Energy Regulatory Agency (Hrvatska energetska regulatorna agencija; HERA), the national regulatory authority has been vested with greater powers and responsibilities, in particular to set energy tariff rates.1
Although the new laws governing electricity and gas markets now provide for a simplified licensing procedure for electricity and gas traders or suppliers based in EU member states interested in entering the Croatian energy market, HERA is still applying the old licensing rules in the licensing procedure. This is due to a lack of new implementing bylaws, which should stipulate the exact licensing requirements.
Despite the fact that the Croatian electricity market has been fully opened as of 1 July 2008, electricity generation, distribution, and supply is still rather monopolistic. The key market player in the electricity sector is the vertically-integrated HEP Group, which is fully owned by the Croatian state. Therefore, one of the major amendments introduced by the new Electricity Market Act is the requirement that the HEP Group unbundle its transmission system business from its generation business. Croatia has opted for the independent transmission operator (ITO) model pursuant to which the transmission system operator (TSO) HEP-OPS will belong to the HEP Group, but it will have to comply with strict regulatory conditions to ensure fully effective independence. Currently, the certification process of HEP-OPS is pending before HERA. The unbundling process should be finalised by March 2014.
In the meantime, two new competitors – the German energy company RWE and the Slovenian company GEN‑I – have entered the Croatian electricity supply market. It is expected that the unbundling process will provide new opportunities and facilitate foreign suppliers’ entering the electricity market.
In the Croatian oil and gas industry the key market player is INA-INDUSTRIJA NAFTE d.d., a vertically integrated company with MOL Hungarian Oil and Gas Plc. and with the Croatian Government as its biggest shareholders. Oil and gas exploration and production, oil processing, and most trade in oil derivates and LPG, as well as supply, is carried out by INA Group companies.
Although the Croatian gas market has legally been fully opened since 1 August 2008, INA (through its affiliated company PRIRODNI PLIN) as the major wholesale natural gas supplier, and at the same time, the importer of natural gas, continues to dominate the gas supply market.2
Pursuant to the new Gas Market Act, the unbundling of transmission from generation and supply activities is required. The cited law provides for three unbundling models: (i) full ownership unbundling; (ii) the independent system operator (ISO) model; or (iii) the ITO model. But the unbundling of activities related to gas transmission and storage has already happened. The state-owned PLINACRO, which was separated from INA in 2002, is the TSO. The gas storage operator is PODZEMNO SKLADIŠTE PLINA. This company was legally unbundled from INA and bought by state-owned PLINACRO. Currently, the certification process of PLINACRO as ownership unbundled TSO before HERA is pending.
Exploration and production of hydrocarbons
The new Mining Act provides a legal framework for the exploration and production of mineral raw materials in general, whereas the new Hydrocarbons Exploration and Production Act contains special provisions concerning the licensing and concession regimes applicable to exploration and production of hydrocarbons (oil, gas, and gas condensates). The respective legal reform is aimed to boost investments in exploration and production of hydrocarbons in Croatia. Reportedly, the Croatian Government plans to launch the tender process for the exploration and production contract in the second half of 2014.
The comprehensive energy law reform focused on transposing the Third Energy Package into Croatian law. Unbundling and implementation of the established legal and regulatory framework is expected to create a non-discriminatory and competitive environment on the Croatian energy market. But the expected benefits of EU Accession on the energy sector will have to be seen.
1Only feed-in tariff rates for electricity generated from RES and cogeneration and bio fuel production are to be adopted by the government.
2It is regulated by law that until 31 March 2014 the company PRIRODNI PLIN is under the public service obligation of gas procurement (who is obliged to supply gas to the household customers’ suppliers under regulated conditions and at regulated prices) in Croatia.
author: Petra Šantić