ICSID decides in favor of MOL in Croatia arbitration case

Energy Trade

The International Center for Settlement of Investment Disputes (ICSID) has decided in favor of Hungarian oil and gas company MOL in an arbitration case involving the state of Croatia over breach of contract, according to a report by state news wire MTI.

MOL notified the market of the verdict, delivered on Tuesday, in an announcement posted on the website of the Budapest Stock Exchange on Wednesday.

The company noted that it had filed a request for arbitration against Croatia in 2013 for breach of contract related to agreements concerning Croatian energy company INA signed in 2009.

MOL owns a little over 49% in INA and has management rights in the company. The state of Croatia is the other big owner in INA.

"The ICSID award clearly states that Croatia's bribery-related allegations are unfounded," MOL said. "The three-member council unanimously rejected Croatia's objection that the 2009 agreements are a result of criminal conduct," it added.

ICSID characterized the story of the witness testifying against accomplices in the Croatian criminal proceedings as "weak and full of contradictions" and expressed "strong doubts" about the truthfulness and reliability of both the arbitral and criminal proceedings in Zagreb, MOL said.

ICSID ruled that Croatia caused "substantial damages" to INA for failing to take over the energy company's gas trading business as well as for breaching contractual obligations concerning gas pricing and royalties and awarded MOL USD 167.8 million. The tribunal also awarded MOL USD 16.1 mln in damages caused by Croatia for forcing the sale of gas stored at INA subsidiary Prirodni Plin.

Together with interest, MOL was awarded a total of around USD 236 mln.

Pál Kara, MOL's chief legal counsel, told journalists on Wednesday that the Croatian judiciary's binding ruling regarding MOL chairman-CEO Zsolt Hernádi "flies in the face of" the ICSID decision and suggested steps should be taken to remedy the situation.

Last October, the Supreme Court of Croatia upheld convictions on charges of graft of Ivo Sanader, Croatia's former prime minister, and Hernádi. The court rejected the appeals of Sanader and Hernádi in the combined case and upheld the first-instance ruling sentencing Sanader to six years and Hernádi to two years in prison.

Hernádi was charged in absentia with bribing then-prime minister Sanader, to give MOL management rights in INA.

Hernádi was earlier acquitted of the charge by the Hungarian judiciary.

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