Hungary’s energy company MOL has initiated the construction of gas pipeline interconnections with Romania and Croatia. Concurrently, MOL is edging out its competitors in oil refining and fuel marketing in the region, most recently in Croatia.
On July 3 in Zagreb, MOL’s gas transmission subsidiary signed an agreement of intent with Croatia’s state pipeline company, Plinacro, to build an interconnecting pipeline between the two countries’ gas transmission systems. The new line, from Varosfold in Hungary to Slobodnica in Croatia, would run for more than 200 kilometers and should be completed by mid-2011 at the latest.
MOL and Romania’s state pipeline company Transgaz are already implementing a project to connect the two countries’ gas transmission systems. Signed in January of this year, the agreement envisages laying a pipeline of more than 100 kilometers in length from Arad in Romania to Szeged in Hungary. Construction work is under way and may well be completed next year.
European Union Energy Commissioner Andris Piebalgs has welcomed these MOL-initiated projects. In a recent press release he described them as the first steps toward a unified, Europe-wide gas transmission network, which would in turn make possible the development of a European gas market. By interconnecting some of the EU’s new member countries in Central Europe, these pipeline links would advance EU energy policy goals. (Vjesnik, July 4; Vilaggazdasag, July 9; Ziarul Financiar, July 9).
The two connections will make the transmission of gas via Hungary throughout the area between the Black Sea and the Adriatic Sea possible. The three countries, and any neighboring countries that may decide to link up, would be able to trade gas among themselves at any time, whether seasonally or in exceptional situations. Such situations might include supply shortfalls from Gazprom or commercial and political disputes involving the Russian monopoly, whether in this region or in transit countries such as Ukraine. Interconnectivity can enhance the importing countries’ security of supply through risk-sharing. This would strengthen an otherwise weak individual national hand vis-à-vis Gazprom.
Moreover, liquefied natural gas (LNG) shipped to Croatia’s Adriatic coast and re-gasified there could be pumped to other countries in the region through the interconnecting pipelines, assuming that Croatia goes ahead with its LNG project on Krk Island. By the same token, Caspian gas reaching Romania and Hungary through the planned Nabucco pipeline could be pumped to Croatia or other nearby countries, if the Nabucco project is implemented. Once connecting links are in place, a consolidated market becomes more attractive to Western-backed gas transport projects and makes such projects more bankable. The interconnected countries could also resort to swap operations, bilaterally or trilaterally, as might become necessary in emergencies or force-majeure circumstances.
Interconnection is one key element in the far broader New Europe Transmission System, NETS, a concept recently proposed by MOL to the gas companies of eight countries in Central and Southeastern Europe. This initiative envisages the unification of existing gas transmission pipeline systems within a region-wide transmission network. The existing, national transmission systems are owned and operated by state companies, except for the privately owned MOL. An integrated NETS would be jointly owned and operated by the same companies but as an independent entity. It would be unbundled from their gas production and retailing operations, in line with the EU Commission’s unbundling guidelines. The Hungarian-Romanian and Hungarian-Croatian links can advance the NETS, on which consultations have begun with the region’s countries (see EDM, December 10, 2007, March 19, 2008).
On July 5 in Dubrovnik, Prime Ministers Ferenc Gyurcsany of Hungary and Ivo Sanader of Croatia agreed that MOL would become the dominant partner in Croatia’s national oil refining and fuel distributing company, INA (Financial Times, July 7). The Croatian government would transfer 19 percent of INA’s shares to MOL, in addition to the 25 percent that MOL already holds, adding up to 44 percent, with full operating rights for MOL from October 1 onward (assuming final approval of the transaction). The Croatian government would retain 25 percent with smaller portions of shares held by a war veterans’ fund and INA employees or traded on the stock-exchange. MOL will be in a strong position to buy up further shares from those minority holders.
The transaction is based on share swapping, with the Croatian government to receive 6 percent of MOL’s shares. Details, including the conclusive valuation of shares and precise swap ratio, are yet to be finalized. Sanader called this a “win-win” solution. INA’s refining operations require modernization, and its shares are performing poorly. MOL is expected to rescue the company (MTI, Nepszabadsag, July 7; www.business.hr, July 7-10; Vjesnik, July 10).
MOL’s oil-refining performance is internationally rated as the most efficient in Central Europe. Austria’s OMV, a perennial loser to MOL in the market competition for oil assets, may yet make a counter bid for INA shares. The Hungarian company has won against OMV and other regional companies in the contests for acquisition of the Slovnaft (Slovakia) and Mantua (northern Italy) refineries, as well as the first stage of INA’s privatization under a previous Croatian government.