Hungary’s oil company, a possible bribery charge in Croatia

I have been collecting articles on the Hungarian oil company’s troubles in Croatia ever since the summer of 2011. In June of that year a Croatian newspaper Večernji list reported that Zsolt Hernádi, CEO of MOL, was accused by the Croatian prosecutor’s office of bribery in connection with the privatization of INA, the Croatian oil refinery. According to the paper, Hernádi paid Ivo Sanader, Croatian prime minister at the time, €5 million for a favorable deal. Apparently, the money exchanged hands during 2008 and 2009. MOL, which took over the management of the company, got a 47.47% stake in INA and the Croatian government held on to 44.84%. Details of the alleged bribery were murky, but Sanader abruptly resigned on July 1, 2009 and after a while left Croatia for Austria from which he was eventually extradited.

Naturally, MOL denied the allegations, and members of the Orbán government who have a close working relationship with Hernádi suspected Russian hands in the affair. After all, the Russians disliked Hernádi because of the Hungarian government’s insistence on buying Surgutneftegas’s stake in MOL. Government officials claimed that the Russians urged the Croats to take over INA from the Hungarians.

By July 2011 Croatia sought to review both the 2003 and the 2009 agreements signed by MOL and the government of Ivo Sanader. Viktor Orbán, whose government has a 25% share of MOL, intervened: “It is our firm stance as an owner of MOL that we won’t agree to any changes in the contract between the Hungarian and the Croatian oil companies.”  There were even reports that the Croatians asked for the extradition of Hernádi, but that turned out to be no more than a rumor. It was true, however, that the Croatian prosecutor’s office submitted a legal aid request. It took the Hungarian prosecutors only about a week to decide that they had no reason to investigate the case.

Meanwhile the case against Sanader was unfolding, and here and there Hungarian papers reported on some details of the possible bribes paid by MOL. For example, on September 17 MTI reported that Večernji list indicated that the money Hernádi paid to Sanader came in installments. The paper claimed that 2.6 million euros were paid on June 17, 2009 and another 2.4 million the next day, on June 18, just a few days before Sanader abruptly and unexpectedly resigned as prime minister of Croatia.

Image via The Gloss

It was just a question of time before the Croatian prosecutor’s office would charge Sanader with taking a €5 million bribe that secured MOL a dominant position in Croatia’s market. The proceeding against Sanader began on September 23, 2011. By mid-November it was reported that the Croatian prosecutors named Zsolt Hernádi as a suspect in the bribery trial of Ivo Sanader. Both Sanader and MOL denied the accusations.

By November Sanader’s lawyer asked the court to allow Zsolt Hernádi to testify on behalf of his client. The court refused the request, especially since the prosecution was in possession of a video of a lavish dinner attended by both Ivo Sanader and Zsolt Hernádi which was accepted as evidence although the defense argued that it was taken illegally without the guests’ knowledge.

All in all, the case was not going well from the point of view of Hernádi, and MOL and the Hungarian government through Heti Válasz were still pushing the Russian connection. The Hungarian publication claimed that the two Cyprian companies through which Hernádi allegedly moved the money to Sanader were in fact affiliated with Gazprom. Gazprom denied the allegation, but Heti Válasz didn’t give up and announced several times that it wasn’t MOL that bribed the former Croatian prime minister.

By January 2012 the Hungarian prosecutors were no longer investigating the MOL-INA case; they had found no evidence of a crime. As for the legal aid requested by the Croatians, the Hungarian prosecutor’s office couldn’t oblige because giving such information”would endanger the security of Hungary.”

Then came a lull both in the investigation and in the court proceedings until yesterday when Ivo Sanader was sentenced to ten years for accepting €5 million or $6.4 million from MOL. He is still facing separate trials for profiteering, creating slush funds for his political party by siphoning money off from state companies, and influencing public tenders. The judge said in court: “You have damaged Croatia’s reputation. Because you were a top official, this verdict is a message to those engaged in politics that crime does not pay.” According to the executive director of the Zagreb office of Transparency International, Sanader “represented the epitome of political corruption in Croatia.”

After the announcement of the verdict, the price of MOL shares dropped by 4%. MOL immediately published a communiqué in which the company denied any and all wrongdoings and expressed their belief that the whole case was concocted by Ivo Sanader’s political enemies.

Today’s verdict was handed down by a lower court, and Sanader will most likely appeal. According to Hungarian lawyers specializing in international law, when the verdict becomes final MOL may end up in big trouble. First of all, the Croatian government may start proceedings against MOL, demanding the annulment of the contract with INA. It is also possible that the Croatian authorities may go after the persons allegedly involved in bribing Sanader. If it turns out that MOL illegally took over  the management of  INA, all decisions since the date of the changeover could also be questioned.

At the moment MOL’s lawyers are studying the judge’s written verdict. Apparently they found “factual errors” and “misunderstandings.” According to MOL, the prosecution didn’t prove its case against MOL. Well, that is pretty basic, I think. Naturally, the judge claims that the charge against Sanader is solid. In any case, the Hungarian company may take steps to defend its reputation by appealing to international arbitration.

Meanwhile the Croatian foreign minister indicated that as soon as there is a final verdict in the case, the Croatians will surely try to change MOL’s contract with INA.

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5 comments

  1. At least this is a refreshing variation – now we have a receiver, but noone seems to have paid.

    As opposed to the infamous Gripen affair, when they have paid bribes to at least five Hungarians, just somehow nobody happened to receive the payment…
    But, of course, its nothing, but coincidence, that somehow the same people governing the country in both occasions…

    Oh, well…

  2. You that MOL Nyrt. paid out dividend of HUF 545,45 per share.

    As the Hungarian Government has almost 26 million shares their dividend share 2011 was around EUR 42 mio. pre-tax. That was the first dividend payment of the last couple of years. More information can be found on the website of the Budapest Stock Exchange under MOL Plc.

    MOL lost almost 1,000 employees due to restructuring. That will add to the 1,000,000 new jobs.

    By the way INA has concession to major oil fields in Syria, which due to the recent fighting there they may loose. At the moment it is only suspended.

  3. Ron :
    You that MOL Nyrt. paid out dividend of HUF 545,45 per share.
    As the Hungarian Government has almost 26 million shares their dividend share 2011 was around EUR 42 mio. pre-tax. That was the first dividend payment of the last couple of years. More information can be found on the website of the Budapest Stock Exchange under MOL Plc.

    Right. They payed almost 2 billion Euros for the 20% of the MOL. 2% in dividends in 18 months. Yesssss …

  4. To be fair, it was not only Heti Válasz, which was pushing the ‘Russian connection’ in this complicated case.

    The Russians have indeed tried their best to block the establishment of a North-South energy corridor in Central Europe. Their operative on the field is Davor Stern, a member of INA’s supervisory board member and an energy adviser to Croatia’s current Premier.

    http://www.jamestown.org/single/?no_cache=1&tx_ttnews%5Btt_news%5D=38122

    Since this short research paper was published in July 2011, the Russians have signed a contract with Hungary on South Stream, leaving Croatia out in the cold.

    While I am sure the bribery did take place, the case is highly symbolic and the Croatian government shall be aware of it.

    All in all, Croatia has lost a crucial geopolitical game on the pipelines, and is about to lose the goodwill of its neighbour and strategic ally.

  5. Turkmenbasi :
    To be fair, it was not only Heti Válasz, which was pushing the ‘Russian connection’ in this complicated case.
    The Russians have indeed tried their best to block the establishment of a North-South energy corridor in Central Europe. Their operative on the field is Davor Stern, a member of INA’s supervisory board member and an energy adviser to Croatia’s current Premier.
    http://www.jamestown.org/single/?no_cache=1&tx_ttnews%5Btt_news%5D=38122
    Since this short research paper was published in July 2011, the Russians have signed a contract with Hungary on South Stream, leaving Croatia out in the cold.
    While I am sure the bribery did take place, the case is highly symbolic and the Croatian government shall be aware of it.
    All in all, Croatia has lost a crucial geopolitical game on the pipelines, and is about to lose the goodwill of its neighbour and strategic ally.

    Hungary = puppet state of……of…..

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