PLINACRO d.o.o. - Operator plinskoga transportnog sustava - State of project Interconnection gas pipeline with Hungary

On 30^th January 2009, some Croatian media published statement of Mr Ferrando Tarradellas, EC Public Relations Officer for Energy, in which he states that “European Commission did not include construction of gas pipeline Slavonski Brod-Hungarian border on the list of projects which are to be financed from unexpended European budget funds during next two years, due to the lack of money and because the project has not been sufficiently prepared.” This statement leads public to make incorrect and wrong conclusions, which harms reputation of company Plinacro, the bearer of the Interconnection project, as well as reputation of its owner, Government of the Republic of Croatia. Due to the fact that the quoted statement, at least its part related to “(lack of) project preparation”- is completely incorrect, we would like to inform the public about the actual state of the project Construction of Interconnection gas pipeline between the Republic of Croatia and Hungary:

Construction of Interconnection gas pipeline between Croatia and Hungary, which includes gas pipelines Slobodnica-Donji Miholjac and Donji Miholja-Dravaszerdahely-Pecs-Varosfold, is one of the main priorities of company Plinacro, due to the fact that it enables use of the most important part of the gas infrastructure of Plinacro, as well as other energy subjects. Furthermore, that Interconnection as well as storage capacities, can be used for the purpose of connection to the potentially realised Nabbuco project in direction North-South, as well as to one of the announced Gazprom projects (Blue Stream, South Stream) which would pass through the Croatian territory and therefore these capacities could be used in reverse gas flow for the purpose of gas supply from Croatia to Hungary, as well.

Interconnection gas pipeline between Croatia and Hungary, which should be constructed in 2010, is an integral part of the second development-investment cycle 2007-2011 of the Plan of Development, Construction and Modernisation of Gas transmission system in the Republic of Croatia by the year 2011, which was approved by the responsible Ministry of the Economy, Labour and Entrepreneurship on 14^th November 2006.

In order to provide financial means necessary for realisation of all projects included in that investment cycle, Plinacro started drafting “Investment Study of Development, Construction and Modernisation of the Gas transmission system in the Republic of Croatia for the second development-investment cycle 2007-2011”, which was conducted by the Faculty of Economics, University of Zagreb and delivered to Plinacro in April, 2007. Due to the fact that the Study undoubtedly proved that the construction of anticipated gas transmission infrastructure in the total amount of EUR 443 million is justifiable, European Investment Bank accepted this Investment Study as a document, based on which a Contract on financing of Plinacro, in the amount of EUR 190 million was concluded in July, 2007. On the basis of that, company Plinacro started realisation of the construction of anticipated facilities on infrastructure of Gas transmission system in the Republic of Croatia; and one of the most significant facilities, in a strategic point of view, is the Interconnection gas pipeline with Hungary.

Intensive technical preparations and negotiations with Hungarian partner during the year 2007, resulted in signing Memorandum of Understanding, and joint Croatian-Hungarian working group suggested that the Interconnection Croatia-Hungary should be constructed as a single gas pipeline in dimension DN 800/75 bar, capacity 6,5 bmc/y, with limit pressure of 50 bar and possibility of gas transmission in both directions under same conditions. It should be completed and put into operation by the end of 2010. In compliance with proposed technical basis a Letter of Intent was signed between the companies Plinacro and FGSZ (former MOL Natural Gas Transmission) on 3^rd July 2008, in Zagreb, regarding realisation of Interconnection Varosfold-Slobodnica. Immediately thereafter, both companies started drafting Joint Development Agreement in respect of Interconnection gas pipeline, which was harmonised at the end of 2008, and should be signed very soon.

It also needs to be pointed out that at the same time while carrying out international activities, company Plinacro has been conducting intensive activities related to preparation and construction of Croatian sections of the gas pipelines, including carrying out and obtaining approval of Environmental Impact Study, carrying out Preliminary designs and obtaining Location permits, as well as carrying out Main design and Public procurement for pipes, equipment and works.

At the beginning of December 2008, through European Association of gas infrastructure companies-Gas Infrastructure Europe (GIE), and Plinacro has been its full member since 2006, at the request of European Commission, Plinacro informed European Commission (EC) about the status of Interconnection Project in Croatia and the purpose of this was to obtain funds for financing this project from the funds of EU Recovery Plan. In coordination with Plinacro, our partner company FGSZ did the same for the Hungarian section of Interconnection gas pipeline.

At the repeated request of EC, in which additional data were requested from all potential candidates for EU financing, on 20^th January 2009, our priority list was extended and supplemented with all requested data. Due to the fact that Croatia-Hungary Interconnection Project met all required criteria, and especially criteria related to completion date (during 2009 and 2010), we considered it to be the most serious candidate for EU financing. This was confirmed by EC senior officials – Mr Fabrizio Barbaso, during his visit to Zagreb, as well as Mr Manuel Barroso in Budapest.

Having in mind statements of EU officials regarding the importance of Interconnection gas pipeline between Croatia and Hungary in relation to the security of gas supply for the whole region of South-East Europe, EC decision on rejection of the project in respect of financing, was accepted both by Plinacro and its Hungarian partner with surprise and regret, especially because the majority of projects which are on the list of EU financing do not meet required criteria regarding Final Investment Decision, and the level of their preparation is far below the level of Croatia-Hungary Interconnection Project preparation. Therefore it is obvious that some other criteria were crucial in the process of making the decision.

Anyhow, if we have to accept explanation that “European Commission did not include construction of gas pipeline Slavonski Brod-Hungarian border among the projects which are to be financed from unexpended European budget funds during next two years, due to the lack of money…”, we consider statement of Mr Tarradellas, EK Public Relations Officer for Energy that one of the reasons for such decision is “… that the project has not been sufficiently prepared.” to be completely unacceptable and incorrect.

State of project Interconnection gas pipeline with Hungary

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