MOL's fugitive CEO on the battle for Croatia's INA

Hungarian government changed mindset on energy: MOL CEO
Hungarian government changed mindset on energy: MOL CEO   

Hungary's battle with Croatia over its stake in Croatian oil firm INA is about corporate governance, not an international dispute over the state control of energy firms, the chief executive of the Hungarian oil firm MOL, told CNBC.

In October, Croatia issued an arrest warrant against MOL chief executive Zsolt Hernádi, as the dispute over Hungary's controlling stake in the Croatian oil company INA came to a head. The warrant came amid allegations that MOL's management control of the company was acquired through bribery.

Earlier this month, MOL's board of directors issued a statement saying that it could sell its stake in its Croatian subsidiary.

Croatia's economy minister responded by telling state radio that the government was "interested in principle" in buying MOL's stake which is valued at $3.3 billion, according to a Reuters report. "We certainly want to get INA back in Croatia's hands as it is our strategic company, but we need to approach that task very seriously given that our public debt surpasses acceptable levels," Economy Minister Ivan Vrdoljak is reported to have said during the radio interview.

Speaking to CNBC from Budapest, Hernádi insisted that the dispute over MOL's control of INA was not a "battle between countries" but about the company's corporate governance.

"Some people in the company and in the government want to see INA working with a state model which means the company working with short-term aims rather than the long-term ones --which is in a market model and which are essential," Hernádi said.

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Hernádi's arrest warrant is the culmination of a protracted battle between Hungary's MOL and the Croation government over MOL's 49 percent stake in INA.

In October, the Budapest Municipal Court declined Croatia's request for the MOL CEO's extradition on the basis that a Hungarian criminal investigation concluded Hernadi did not commit the crime he had been charged with.

The Croatian state has a 44.9 percent holding in the firm but MOL has management control of the firm which the Croatian government wants back, particularly as rising fuel bills in Europe make energy firm ownership a hot political issue domestically.

Accusations of corruption surrounding MOL's attainment of a controlling stake in INA in 2009 led to the imprisonment of Croatia's former Prime Minister Ivo Sanader for receiving a 5 million euro ($6.76 million) bribe from MOL to help it get control of the company.

Despite advocating a corporate governance business model for INA – a model which essentially involves balancing the interests of the many stakeholders in a company – the Hungarian government's 24.6 percent stake in MOL has raised similar concerns.

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Hernádi defended the government's stake, however, saying that since it had bought its 24 percent stake, there had been no change in the company's corporate governance, "so the government has let MOL work according to market economy principles." Also, the government holds 10 percent voting rights, a spokesman for the company told CNBC.

The MOL stake was part of Hungarian Prime Minister Viktor Orban's move to nationalize a number of utility companies in the country in the hope of lowering energy prices.

"I cannot reveal it yet, but we are in continuous talks about buying back or getting into state hands at least 6-7 very serious companies involved in this field (utilities) that were previously privatized," Orban told public radio in an interview in September, according to a Reuters report.

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Hernádi said that energy companies were being offered a choice by the government - that if they are not satisfied with the regulatory changes they could leave the market "and the government is ready to buy into them."

If energy companies wanted to keep on operating, he said, the opportunity was there for them to improve, stay in the market and "work under the [regulatory] conditions."

He said he believed the government would hold onto basic infrastructure assets for a "longer run" and that it was natural for the government, which held final responsibility" for the energy supply, to have helped energy companies out of the crisis and to want to hold onto such stakes.

- By CNBC's Holly Ellyatt, follow her on Twitter @HollyEllyatt

Correction: This article has been updated to correctly reflect that the Hungarian government holds a 24.6 percent stake in MOL.