Oil & Gas Laws and Regulations in Croatia (2024)

1. Summary 

The oil & gas regulatory landscape in Croatia has seen several significant trends and developments. Croatia, like many countries, has been navigating the balance between exploiting its natural resources for economic gain while ensuring environmental protection and sustainability.

One notable trend has been the continued exploration and exploitation of hydrocarbon resources, particularly in the Adriatic Sea. Croatia has been actively seeking foreign investors and partnerships to utilize its offshore and onshore oil & gas reserves. However, these activities have been met with challenges, including environmental concerns and opposition from local communities and environmental groups. As a result, there has been a focus on implementing and enforcing regulations aimed at mitigating environmental risks and ensuring compliance with international standards.

In terms of legislation, Croatia has been working to modernize its regulatory framework governing the oil & gas sector. This includes amendments to laws and regulations related to exploration, production, and environmental protection.

One recent legislative trend has been the promotion of renewable energy sources and the transition toward a more sustainable energy mix. Croatia has set ambitious targets for increasing the share of renewable energy in its overall energy consumption, which has led to the adoption of new laws and incentives to support renewable energy development. This shift toward renewables has implications for the oil & gas sector, as it may impact investment decisions and the long-term viability of fossil fuel projects.

In terms of new cases and investors, Croatia has seen continued interest from international oil & gas companies looking to invest in exploration and production activities. With INA and the Hungarian company Aspect, Vermilion Zagreb Exploration d.o.o. (a local unit of the Canada-based energy group Vermilion) is the largest concessionaire in oil & gas exploration in Croatia according to the results of the government tender from 2016, which offered six fields in the mainland part of the country. Apart from the SA-07 field, Vermilion obtained a concession for exploration in the SA-10 field in the Vukovar-Srijem County, in the municipalities of Berak and Ceric.

Overall, the oil & gas regulation landscape in Croatia is characterized by a balance between promoting investment and economic development while ensuring environmental protection and sustainability. Legislative efforts are focused on modernizing the regulatory framework, promoting renewable energy, and enhancing transparency and accountability. However, challenges remain in effectively managing the environmental and social impacts of oil & gas activities and balancing competing interests and priorities.

2. Overview of The Country’s Oil & Gas Sector 

2.1. Legal Framework – A Brief Outline of Your Jurisdiction’s Oil & Gas Sector

Oil & gas exploration in the Republic of Croatia implies a rigorous bureaucratic procedure in which the Croatian Hydrocarbon Agency, the Government, and the Ministry of Economy and Sustainable Development (Ministry) are the main actors. The legislation regulating the oil & gas sector regarding exploration and reserves strongly favors the Republic of Croatia i.e., the government directly or indirectly, mostly through the national oil company.

The Ordinance on Reserves (Official Gazette Nos. 95/2018, 87/2022; Cro. Pravilnik o rezervama), provides a methodology for the categorization and classification of hydrocarbon reserves, distinguishing between proven reserves (P1), unproven reserves that may be probable (P2), and possible reserves (P3).

The legal framework seeks to ensure the supply of citizens with hydrocarbons (e.g., the right of pre-emption for the Republic of Croatia for hydrocarbons acquired by the investor under the hydrocarbon exploration and exploitation agreement). The investor can freely export oil & gas, however with a limitation that if the hydrocarbons owned by the Republic of Croatia are not sufficient to meet the market demand of the Republic of Croatia, the investor is obligated to sell its quantities, which are not bound by existing contracts/agreements, entered into by the investor, for the purpose of selling hydrocarbons, for the needs of consumption of the Republic of Croatia to a legal entity designated by the Government. In addition, in the event of a crisis, certain extraordinary measures, such as restrictions on imports and exports may be imposed pursuant to the Energy Act (Official Gazette Nos. 120/2012, 14/2014, 95/2015, 102/2015, 68/2018; Cro. Zakon o energiji) and the Act on the Market for Petroleum and Petroleum Products (Official Gazette Nos. 19/2014, 73/2017, 96/2019; Cro. Zakon o trzistu nafte i naftnih derivate). Over and above that, pursuant to the Rulebook on Data which energy subjects are obliged to deliver to the Ministry (Official Gazette Nos. 132/2014, 16/2015, 127/2019; Cro. Pravilnik o podacima koje se energetski subjekti duzni dostavljati Ministarstvu) producers, importers, and traders of oil and oil products have an obligation to report the ministry on certain statistical data, etc.

The opening of the LNG terminal on the Island of Krk signifies a major shift toward liquefied natural gas (LNG) as a key component of Croatia's energy strategy. This move is aimed at diversifying energy sources and reducing dependence on pipeline gas, particularly from Russia. There is an increasing focus on sustainability and energy transition policies, aligned with EU directives. Croatia has been integrating more renewable energy sources into its energy mix, which impacts the dynamics in the oil & gas sector by reducing long-term dependence on hydrocarbons. Croatia has shown efforts to improve the regulatory framework for exploration and production activities, aimed at attracting more foreign investment into the sector. However, environmental regulations and public opposition to some projects, particularly onshore exploration, continue to pose challenges. There is continued interest in both offshore and onshore exploration. Domestic production remains limited but is supported by the government to enhance energy security.

Due to fluctuations in energy prices and broader economic conditions within the EU, the government has intervened to mitigate the impact on consumers by implementing price controls on diesel and petroleum. These measures included freezing fuel prices on several occasions to stabilize the market and shield consumers from sudden increases in costs. This action was part of a broader strategy to manage inflationary pressures and maintain economic stability during periods of volatility in the global oil markets. Croatia has been actively involved in regional energy cooperation initiatives to strengthen its position as an energy transit country. This includes improving connections and infrastructure that facilitate the movement and integration of oil & gas markets in Central and Southeast Europe. These trends reflect Croatia's ongoing adaptation to both regional and global energy market changes, emphasizing diversification, sustainability, and enhanced regulatory measures to attract investments while managing environmental impacts.

2.2. Domestic Oil & Gas Production and Imports/Exports 

Croatia’s domestic oil production is relatively limited. In terms of gas, Croatia does produce domestically, but the amount is not sufficient to meet the entire country's demand. The exact percentage of domestic production versus total consumption varies annually but generally remains below 50% of total oil & gas consumption.

Given the shortfall in domestic production, Croatia relies significantly on imports to meet its energy requirements. Historically, much of Croatia’s natural gas was imported from Russia via pipelines, but with the new LNG terminal on Krk Island, the country has diversified its gas supply sources. For oil, Croatia also depends on imports, primarily processed through the JANAF pipeline system, which is connected to other European networks.

A substantial portion of Croatia’s energy requirements is met by oil & gas. These hydrocarbons are crucial for the transportation sector, heating, and electricity generation, although there is a significant push toward increasing the share of renewable energy sources (as already mentioned above several times in order to emphasize the “renewable energy pressure in the EU”).

The Croatian Bureau of Statistics published data indicating that the overall import of oil derivatives was 228 thousand tons for September 2023, while the export of oil derivatives was 197 thousand tons in September 2023. In 2021. Croatia imported crude oil in the amount of 1,761.7 thousand metric tons, and exported 472.5 thousand metric tons, while the Energy supplied amounted to 1 900.3 thousand metric tons. It stems from the report of the Ministry for the year 2022 that the domestic production of natural gas in 2022 amounted to 745.0 million cubic meters, representing approximately 30 percent of total gas consumption (2,529.7 million cubic meters). Exports of natural gas amounted to 1,062.0 million cubic meters, while imports amounted to 3,021.5 million cubic meters. Furthermore, the same report indicates that domestic production of crude oil in 2022 amounted to 548.0 thousand tons, representing approximately 31 percent of the total crude oil processed (1,757.8 thousand tons). Exports of crude oil amounted to 202.4 thousand tons, while imports amounted to 1,473.9 thousand tons or 84 percent of the total processed in refineries.

Croatia is connected through various pipelines for both oil & gas. The JANAF pipeline is a significant conduit for oil imports and exports, running through several countries in the region. For natural gas, before the LNG terminal became operational, pipelines were the primary mode of importation, notably connections from Hungary and Slovenia.

The LNG terminal on Krk Island, operational since early 2021, has become a crucial infrastructure for gas imports. It allows Croatia to import LNG from various global suppliers, enhancing the country's energy security and diversifying its energy sources.

2.3. Foreign Investment and Participation 

Under the Croatian Act on Exploration and Exploitation of Hydrocarbons (Official Gazette nos. 52/18, 52/19, and 30/21; Cro. Zakon o istrazivanju i eksploataciji ugljikovoikda; Hydrocarbons Act), it is envisaged that tender/bidding documentation can determine that the national oil company is obliged to participate with the selected bidder in the project of exploration and exploitation, in a percentage not less than 10% and not greater than 30%. The Ministry will ensure that there is no discrimination between oil and mining entities. However, the Ministry may, for reasons of national security, refuse to issue a permit to any oil and mining entity that is under the actual control of third countries or nationals of third countries.

2.4. Protection Of Investment 

Croatia, as a member of the European Union and a participant in various international agreements, is subject to several significant international treaties and multinational arrangements that influence its energy sector, particularly in oil & gas:

Croatia was a party to the Energy Community Treaty even before becoming an EU Member State. The Energy Community Treaty aims to extend the EU internal energy market to South East Europe and beyond. The treaty's provisions focus on creating an integrated energy market that allows for the free movement of oil, gas, and electricity across borders. It also requires the implementation of EU energy legislation on competition, environment, and energy efficiency. Above the latter Croatia is a signatory of the International Energy Charter (signed on May 20, 2015).

As an EU Member State, Croatia is part of the EU's Energy Union, which seeks to ensure secure, sustainable, competitive, and affordable energy across the EU pursuant to the European Union's Energy Union Strategy. This includes compliance with EU regulations on the internal energy market, renewable energy, energy efficiency, and emissions reductions. The Third Energy Package, which aims to liberalize markets and separate supply from transmission interests, is especially influential.

Although not specifically an energy treaty, the Paris Agreement on climate change significantly affects energy policies in Croatia, as the country has committed to reducing its carbon emissions. This has direct implications for the oil & gas sector, pushing for cleaner energy sources and technologies.

The revised Trans-European Networks for Energy (TEN-E) entered into force in June 2022. This EU policy focuses on linking energy infrastructure across Europe, including pipelines and LNG terminals, which are crucial for Croatia's energy import and export capabilities. TEN-E supports projects that enhance energy security and integration, such as the LNG terminal on Krk Island and interconnectors with neighboring countries.

The international treaties and EU directives require Croatia to maintain a regulatory framework that supports market liberalization, competition, environmental protection, and energy security. This includes the legal and operational separation of activities related to the transmission, distribution, and supply of gas and oil. Multinational agreements encourage and sometimes financially support the development of critical infrastructure. This can be seen in the investment in the Krk LNG terminal and improvements in pipeline connectivity. Commitments under the EU and global climate frameworks push Croatia toward adopting cleaner energy technologies and reducing dependence on fossil fuels. This influences policies that regulate oil & gas exploration and production, encouraging a shift to more sustainable energy sources. Overall, Croatia’s oil & gas regulatory policy is deeply influenced by its commitments under these international treaties, which guide its domestic legislation and policy decisions toward a more integrated, secure, and sustainable energy landscape.

3. Exploration of Oil & Gas 

3.1. Granting of Oil & Gas Exploration Rights 

As stated in the section 2.1. above, Hydrocarbons (meaning oil, natural gas, and gas condensate) are of great interest to the Republic of Croatia and therefore enjoy special protection under the regime prescribed by the Croatian law. The relevant legal framework in this field consists of: Hydrocarbons Act, Mining Act (Official Gazette nos. 56/13, 14/14, 52/18, 115/18, 98/19 and 83/23; Cro. Zakon o rudarstvu), Act on the Establishment of the Croatian Hydrocarbon Agency (Official Gazette nos. 14/14, 73/17, 84/21 and 155/23; Cro. Zakon o osnivanju Agencije za ugljikovodike), Act on Safety in Offshore Exploration and Exploitation of Hydrocarbons, Ordinance on Fees for the Exploration and Exploitation of Hydrocarbons (Official Gazette nos. 25/20 and 43/23; Cro. Uredba o naknadi za istrazivanje i eksploataciju ugljikovodika) and the Rulebook on Basic Technical Requirements, Safety and Security in the Exploration and Exploitation of Hydrocarbons from the undersea of the Republic of Croatia (Official Gazette nos. 52/10 and 52/18; Cro. Pravilnik o bitnim tehnickim zahtjevima, sigurnosti i zastiti pri istrzivanju i eksploataciji ugljikovodika iz podmorja Republike Hrvatske).

The pivotal permit in this domain is the permit for hydrocarbon exploration and exploitation, which encompasses the right to directly conclude agreements for both exploration and exploitation of hydrocarbons, the right to conduct hydrocarbon exploration, and the right to direct allocation of a permit for hydrocarbon extraction (the Hydrocarbon Exploration and Exploitation Permit). The Hydrocarbon Exploration and Exploitation Permit is typically granted after a public tender and the selection of the most suitable bidder, for a duration of up to 30 years, covering both the exploration and exploitation phases. The validity of the permit begins upon the effective date of the executed hydrocarbon exploration and exploitation agreement (the Hydrocarbon Exploration and Exploitation Agreement).

The key regulatory authorities in this field are the ministry responsible for energy (Ministry), the Croatian Government, the Croatian Hydrocarbon Agency and the Coordination for Safety in Offshore Exploration and Exploitation of Hydrocarbons Agency. The role of the Ministry involves drafting regulations, providing recommendations to the Croatian government for decision-making on issuing Hydrocarbon Exploration and Exploitation Permit, negotiating Hydrocarbon Exploration and Exploitation Agreements, maintaining public registers, conducting assessments of reports and oil-mining project, etc. The primary role of the Croatian government is issuing Hydrocarbon Exploration and Exploitation Permit and entering into Hydrocarbon Exploration and Exploitation Agreements. The main responsibilities of the Croatian Hydrocarbon Agency include preparing and participating in tender processes, determining the hydrocarbon exploration and exploitation fees, ensuring conditions for the effective execution of Hydrocarbon Exploration and Exploitation Permit, as well as the Hydrocarbon Exploration and Exploitation Agreements, monitoring trends and international standards in exploration and exploitation, preparing reports and similar. The Coordination for Safety in Offshore Exploration and Exploitation of Hydrocarbons Agency is responsible for overseeing the compliance with legal obligations prescribed for oil and mining economic entities involved in offshore exploration and exploitation activities (investors, operators, owners, contractors), primarily focusing on the prevention of major accidents and the mitigation of their consequences.

The government has several key initiatives and policies in relation to oil & gas development, with a strong focus on energy security, sustainability, and economic development. The expansion of the LNG Terminal (on the island of Krk) is one of the major initiatives. The capacity has already been increased from 2.6 to 2.9 billion cubic meters, and there are plans to expand it further with the support of European partners. This initiative aims to enhance Croatia's energy security and reduce dependency on Russian gas​​. The 2030 National Development sets strategic goals for Croatia's development until 2030, emphasizing green transition, digital transformation, and economic resilience. Within this framework, energy policy plays a critical role, particularly in ensuring sustainable growth and improving energy infrastructure. The National Recovery and Resilience Plan, as a part of the broader European Union efforts, Croatia is leveraging over EUR 25 billion in European funds to boost productivity, competitiveness, innovation, and job creation. This includes significant investments in energy infrastructure, aiming to support the country’s economic recovery and long-term growth. Furthermore, in response to the geopolitical tensions and the potential cutoff of Russian gas supplies, Croatia has taken proactive steps to secure its energy supply. This includes filling the underground gas storage facility Okoli and advocating for joint gas procurement at the EU level to stabilize gas prices and supply​​. The Croatian government continues to update and implement legislative measures to support the above-mentioned initiatives. This includes policies aimed at enhancing energy efficiency, promoting renewable energy sources, and ensuring the sustainability of energy projects​​. These initiatives reflect Croatia's commitment to enhancing its energy independence, promoting sustainable development, and aligning with the broader European energy policies.

3.2. Foreign Exploration

In connection to the above-stated, it is worth noting that a tender for the exploration and exploitation of hydrocarbons is conducted through the collection, review, and evaluation of bids from interested investors as a first step of the process. After the latter, Hydrocarbon Exploration and Exploitation Permits are issued to the selected bidders (investors) and the culmination of the process is in the execution of a Hydrocarbon Exploration and Exploitation Agreement. The investor/concessionaire may transfer in whole or in part the rights and obligations arising from the Hydrocarbon Exploration and Exploitation Permit and the Hydrocarbon Exploration and Exploitation Agreement to another oil and mining entity only if the government, upon the proposal of the Ministry, grants express prior written consent for such a transfer, which the government provides based on the amendment of the Hydrocarbon Exploration and Exploitation Permit. The investor is obliged to seek prior written consent from the government even when the rights and obligations from the Hydrocarbon Exploration and Exploitation Permit and the Hydrocarbon Exploration and Exploitation Agreement are transferred to an affiliated company or when the transfer occurs due to any status change of the investor. In the case of a transfer of the rights to dispose with hydrocarbons, the investor remains jointly and severally liable for all rights and obligations arising from the Hydrocarbon Exploration and Exploitation Permit and the Hydrocarbon Exploration and Exploitation Agreement together with the affiliated company. The entity for which the investor/current concessionaire requests a transfer to be approved must meet all conditions for the issuance of the Hydrocarbon Exploration and Exploitation Permit as envisaged by the applicable law, i.e., the Hydrocarbons Act. The investor is obliged to inform the Ministry without delay about the intention to transfer the rights and obligations arising from the Hydrocarbon Exploration and Exploitation Permit and the Hydrocarbon Exploration and Exploitation Agreement, and the Government, through the national oil company, has pre-emption right to acquire a share in the rights and obligations arising from the Hydrocarbon Exploration and Exploitation Permit and the Hydrocarbon Exploration and Exploitation Agreement. In addition, the pre-emption right applies to an entity proposed by the Government, that meets necessary requirements.

3.3. Stages of the Exploration Process 

N/A

3.4. Obligatory State Participation 

The state envisaged its participation through the savvy formulation of Article 18 Paragraph 1 of the Hydrocarbons Act, in a way that the bidding documentation can require the participation of the national oil company, with the investor that will be selected, in the percentage of no less than 10%, and no more than 30% (as already stated above). The state has many benefits from foreign participation in the oil & gas sector, namely referring to compensation in the form of monetary compensation and the allocation of quantities of extracted hydrocarbons. The total monetary compensation for the exploration and exploitation of hydrocarbons consists of the monetary compensation for the area of the approved exploration space, determined by registration in the register of exploration spaces of the Ministry, the monetary compensation for the area of the determined exploitation field, determined by registration in the register of exploitation fields of the Ministry, the monetary compensation for the conclusion of a contract between the investor and the Government based on the issued Hydrocarbon Exploration and Exploitation Permit, the monetary compensation for the quantities of extracted hydrocarbons, additional monetary compensation for achieved hydrocarbon exploitation, the monetary compensation for administrative costs.

All geological, geochemical, geophysical, engineering, and other data collected during the exploration or exploitation, including all analyses, interpretations, and studies conducted based on such data, are the exclusive property of the Republic of Croatia.

3.5. Risks To Be Considered

Companies must navigate a complex regulatory framework to obtain the necessary permits and licenses for exploration and exploitation and must adhere to the rules and obligations envisaged by them. Non-compliance can lead to delays, fines, or revocation of licenses. Strict environmental laws govern the impact on ecosystems, as Croatia adopted the acquis communautaire, apply. Breaches of agreements (primarily referring to the concession agreements) between investors and the Government can result in significant financial liabilities and termination of agreements. Mismanagement or unauthorized use of data (which is in the exclusive ownership of the Republic of Croatia) can lead to serious legal consequences, i.e., repercussions.

4. Production of Oil & Gas 

4.1. Granting Of Oil & Gas Production Rights

Under Croatian law, the granting of oil and gas production rights is governed by the following legal framework: Oil and Oil Derivatives Market Act (Official Gazette nos. 19/14, 73/17 and 96/19; Cro. Zakon o trzitu nafte i naftnih derivata), Gas Market Act (Official Gazette nos. 18/18 and 23/20; Cro. Zakon o trzistu plina), Energy Act (Official Gazette nos. 120/12, 14/14, 95/15, 102/15 and 68/18; Cro. Zakon o energiji), Rulebook on Permits (Official Gazette no. 44/2022; Cro. Pravilnik o dozvolama za obavljanje energetskih djelatnosti i vodenju registra izdanih i oduzetih dozvola za obavljanje energetskih djelatnosti). As opposed to exploration, the production of oil and gas is governed by a separate legal framework for each hydrocarbon respectively.

Concerning oil production, under Art. 4(2) of the Oil and Oil Derivatives Market Act legal and natural persons can carry out an energy activity, such as the production of oil derivatives, only based on a decision by the Croatian Energy Regulatory Agency (HERA). Similarly, the same condition is prescribed for gas production under Art. 4(6) of the Gas Market Act. Art. 4(2) of the Rulebook on Permits sets out the following conditions under which HERA can issue permits for performing energy activities in Croatia, such as oil and gas production: (i) the legal or natural person needs to be registered for performing the relevant energy activity in Croatia, (ii) they must fulfill the requirements of technical qualification, professional competence, and financial qualification set out under Arts. 5-7 of the Rulebook on Permits, and (iii) there must not exist hurdles as prescribed by Art. 17(1)(5) and (6) of the Energy Act. Special provisions under the Rulebook apply to legal and natural persons who, according to the regulations of the EU, are holders of projects on the List of Projects of Common Interest of the EU, and to active traders and/or suppliers of gas from a member state of the EU. Notably, for both oil and gas production, HERA reserves discretion in deciding whether to grant the permit to the relevant legal or natural person or not.

The pivotal permits in this domain are the permit for the production of oil derivatives and the permit for the production of natural gas. The respective permits grant their holder the right to carry out the relevant energy activity. It is important to note that, as evidenced in the Register of Permits for Carrying out Energy Activities, the only legal person who was granted a permit for the production of both oil derivatives and natural gas was INA d.d., Croatia’s leading oil company. For oil derivatives, INA d.d. had their permit extended on December 14, 2018. for a period of 15 years, whereas for natural gas, it had its permit extended on December 11, 2021, for a period of 9 years.

The key regulatory authorities in this field are the “Office for Energy” as part of the Ministry of Economy (Ministry), HERA, and the Croatian Hydrocarbon Agency (Hydrocarbon Agency). Under Art. 1(2) of the Rulebook on Permits, HERA’s role consists of carrying out the process of issuing, extending, transferring, and terminating the validity of a license for the production of oil and gas. Furthermore, it also maintains a register of issued and revoked licenses. Conversely, as set out under Arts. 7 and 10 of the Oil and Oil Derivatives Market Act the Ministry participates in the preparation of spatial planning documents adopted by the Croatian Parliament and it creates conditions for and oversees the safe, regular, and quality supply of the oil and oil derivatives market in Croatia. In addition, the Ministry is responsible for cooperating with and representing Croatia in the EU Commission and the International Energy Agency. Finally, the Hydrocarbon Agency is responsible for maintaining a register and statistical summaries regarding the quantity, structure, location, and availability of mandatory reserves of oil and oil derivatives, which it provides to the Ministry, as set out under Art. 14(5) of the Oil and Oil Derivatives Market Act. Moreover, under Art. 15(3) of the same Act, the Agency is responsible for determining the quantity and structure of mandatory reserves for the current year. Under para. 5 of the same provision, the Agency is responsible for releasing mandatory reserves onto the market at market prices.

4.2. Foreign Production 

Under Croatian law, the same process and law apply to the granting of exploration and production rights of oil and gas. The relevant procedures outlined in sec. 3.2. apply both to the production of oil and gas.

4.3. Stages of the Production Process 

N/A

4.4. Obligatory State Participation 

As established in sec. 3.4., the Hydrocarbons Act provides that the tender specifications may oblige INA d.d., the national oil company, to participate in the project with the selected investor between 10% and 30%. The process is applicable to exploration from sec. 3.4. is the same one applicable to oil and gas production.

4.5. Risks To Be Considered 

 As of 2022, crude oil is produced in 38 oil fields, and gas is produced in nine gas condensation fields [Annual Energy Report for 2022 of the Croatian Ministry of Environment and Energy, Energy in Croatia 2017, page 95]. As of 2023, 19,6% of Croatia’s GDP came from tourism, which is mainly successful due to the country’s nature, e.g.: clear beaches, biodiverse ecosystems, clean environment, etc. Effectively, every one of the 38 oil or the nine gas condensation fields in the country represent a potential source of danger that could lead to an environmental catastrophe. Such a catastrophe would not only directly impact the country's environment, but it would also indirectly have a negative impact on tourism. This is because tourists would be likely be reluctant to visit the country if they cannot enjoy its natural wonders which Croatia is known for. Additionally, the vast natural gas fields in the Adriatic basin present a danger for the whole Adriatic due to the current of the Croatian part of the sea which flows from south to north, and curves towards Venice, continuing south. Accordingly, a natural gas spill in Croatia could cause significant environmental damage to the Adriatic ecosystems in the north of Croatia, Slovenia, and Italy.

Furthermore, in the past decades, Croatia has experienced increased seismic activity. Earthquakes in Petrinja in Zagreb, which respectively reached 6,2 and 5,5 units on the Richter scale are a testament thereof. Since a majority of the oil fields are located in the Pannonian basin which is fairly close to the hypocenters of the aforementioned earthquakes, additional risks of environmental disaster are present. Therefore, it is necessary to navigate oil and gas production in Croatia with the utmost care for the environment.

5. Termination of Production of Oil & Gas 

5.1. Abandonment and Decommissioning 

The abandonment and decommissioning regime are governed by the Hydrocarbons Act, which prescribes that the investor (i.e., holder of the Hydrocarbon Exploration and Exploitation Permit) must abandon at least 25% of the exploration area at the end of the first exploration phase and the remaining portion at the end of the second exploration phase. However, the investor is not obligated to abandon any part of the exploration area designated as an appraisal area defined in the appraisal work program or any part identified as one or more exploitation fields.

The decommissioning has to be conducted in accordance with the Hydrocarbons Act, special regulations pertaining to environmental and nature protection, safety of people and property, protection of human health, as well as international best practices in oil and mining operations. The investor is obliged to inform the energy inspection in the field of oil mining and the environmental protection inspection of the State Inspectorate about decommissioning. Upon inspection, if it is determined that decommissioning has been carried out satisfactorily, with adequate security and environmental safeguards in place, and if the remediation efforts are deemed sufficient, the investor will receive confirmation from the inspections. Conversely, should inspections find deficiencies in the remediation and security measures during decommissioning, the investor will be instructed to address these shortcomings within a specified timeframe, not exceeding six months. If the investor fails to comply with the order issued in the case of detected insufficiencies, the inspections will inform the ministry responsible for the energy sector and the Croatian Hydrocarbon Agency thereof, and the Croatian Hydrocarbon Agency will undertake necessary security measures and remediation at the expense of the investor. Before abandoning the exploration or exploitation area, the investor is required to settle all fees associated with the exploration and exploitation. Upon the request for deletion of the exploitation field from the register of exploitation fields, the investor shall submit to the Ministry certificates issued by inspections as evidence of fulfilling the obligations set by applicable regulations, unless the reserve assessment commission determines that the reserves have not been utilized and that there is a possibility of further oil and mining operations.

Environmental protection measures apply to the investor, who must implement all necessary steps to safeguard the environment, nature, human health, and property during oil and mining operations, as per the conditions stipulated in the Hydrocarbon Exploration and Exploitation Permit and the terms of the Hydrocarbon Exploration and Exploitation Agreement. This specifically entails: taking all requisite precautions to prevent pollution by employing the best available technologies; avoiding environmental contamination; minimizing or eliminating waste generation; and refraining from injecting water into wells in quantities exceeding 1,000 cubic meters per fracturing stage or 10,000 cubic meters throughout the entire fracturing process (“hydraulic fracturing with high-volume fluid”), as recommended at the EU level and similar practices.

5.2. Environmental and HSE Consideration 

Upon receiving the confirmation from the inspections and the confirmation that all fees associated with the exploration and exploitation have been settled the investor will request that the Ministry issues a resolution on the deletion of the exploitation field from the register of exploitation fields.

6. Safety of Oil & Gas Exploration and Production 

6.1. International Treaties to Which the Jurisdiction Is a Party 

N/A

6.2. Offshore Safety Directive 

Act on Safety of Offshore Exploration and Production of Hydrocarbons entered into force on July 25, 2015, and became fully applicable as of July 19, 2018. Above the latter act, two by-laws have been adopted to implement the so-called OSD directive, the Rulebook on investigations of major accidents in offshore exploration and exploitation of hydrocarbons (Official Gazette 52/2021; Cro. Pravilnik o istragama velikih nesreca pri odobalnom istrazivanju I eksploataciji ugljikovodika) and the Ordinance on the Coordination for Safety in Offshore Exploration and Exploitation of Hydrocarbons (Official Gazette no. 74/2017, 14/2021; Cro. Uredba o Koordinaciji za sigurnost pri odobalnom istrazivanju i eksploataciji ugljikovodika)

7. Import, Export, and Sales of Oil & Gas 

7.1. Import and Export of Oil & Gas

As envisaged by the Act on the Market for Petroleum and Petroleum Products, natural or legal persons can conduct operations, i.e., business of oil and oil derivatives exclusively based on the resolution of the HERA. Likewise, natural or legal persons may sell and/or deliver gas products based exclusively on the resolution of the Croatian Energy Regulatory Agency. Cross-border sales and deliveries of oil & gas are conducted pursuant to bilateral agreements between the parties, and depending on market, i.e., geopolitical conditions. In the event of a crisis, certain extraordinary measures (including import and export restrictions) can be taken based on the Energy Act, the Decision on Plan of Interventions on Measures of Protection of Security of Gas Supply of the Republic of Croatia (Official Gazette No. 127/2022; Cro. Odluka o donosenju Plana intervencije o mjerama zastite sigurnosti opskrbe plinom Republike Hrvatske), and the Ordinance on Criteria for the Acquisition of the Protected Customer Status in the Event of a Gas Supply Crisis (Official Gazette Nos. 65/2015; Cro. Uredba o kriterijima za stjecanje statusa zasticenog kupca u uvjetima kriznih stanja u opskrbi plinom) over and above that certain reporting/registration obligations to the CNB may also be required depending on the specific transaction of gas. As far as oil is concerned, although stemming from different legal grounds, the same principles apply, i.e., in the event of a crisis certain extraordinary measures (such as import and export restrictions) can be taken on the basis of the Energy Act, and the Act on the Market for Petroleum and Petroleum Products. Generally, producers, traders, and importers of oil and oil products have an obligation to report certain transactions pertaining to oil to the Ministry of Economy and Sustainable Development pursuant to the Rulebook on Data which energy subjects are obliged to deliver to the Ministry (Official Gazette Nos. 132/2014, 16/2015, 127/2019; Cro. Pravilnik o podacima koje su energetski subjekti duzni dostavljati Ministarstvu).

7.2. Transportation 

Domestic gas transmission lines are owned and operated by the 100 percent State-owned company PLINACRO d.o.o. which was separated from INA in 2002. In 2007, PLINACRO d.o.o. was designated as the transmission system operator (TSO) for a period of 30 years. According to the list of HERA’s license registry only PLINACRO d.o.o. is licensed for the transportation of gas. Terms on which gas can be transported are set by relevant legislation. Nonetheless, Article 79 of the Gas Market Act (Official Gazette Nos. 18/2018, 23/2020; Cro. Zakon o trzistu plina) states that access to the upstream pipeline network is subject to the negotiated third-party access regime. The gas transmission tariff regime is based on the HERA’s Methodology for determining tariff rates for gas transportation (Official gazette Nos. 79/2020, 36/2021; Cro. Metodologija utvrdjivanja iznosa tarifnih stavki za transport plina). Concession for the construction of a distribution system is stipulated in chapter VIII of the Gas Market Act. In the case of a concession for the construction of a distribution system for gas, the concession grantor is obligated, in addition to the preparatory actions for granting the concession as prescribed by the regulations governing concessions, to obtain location permits for high-pressure or medium-pressure distribution pipelines from the connection point to the transportation system, including the connection, up to the reduction stations.

Oil transportation is conducted through the JANAF oil pipeline, (the pipeline’s installed capacity is 24 million tons) which was constructed in 1979 (Ownership structure of JANAF: Ministry of Finance/Croatian pensions fund 37,26%, Croatian Restructuring and Sale Centre 26,28%, Ministry of finance/Republic of Croatia 14,97%, OTP bank 11,80 %, HPB d.d./HEP d.d. 5.36%, OTP BANKA d.d. obligatory pension fund category B 2.31%, ERSTE & STEIERMARKISCHE BANK d.d./PBZ - obligatory pension fund category B 0,42%, OTP bank d.d. obligatory pension fund category A 0,20%, ZAGREBACKA BNANKA d.d. voluntary pension fund 0,18%, UNION d.d. 0.11%, other private and institutional investors 1,11%). Transportation terms for the oil transportation through the JANAF pipeline system are encapsulated in the Technical Conditions of Access to Transportation Capacities of JANAF (No. 433/20; Cro. Tehnicki uvjeti za pristup transportnim kapacitetima JANAF-a). As of 2014, oil transportation by oil pipelines is no longer a regulated energy activity, and the negotiated third-party access is not based on the tariff system for oil transportation. The price for oil transportation by pipeline is based upon negotiated commercial conditions. The price of oil and oil products storage is not regulated; it is based upon existing market conditions.

Most of the LNG import is done through the LNG terminal located on the island of Krk. The terminal started operations in early 2021 and it is of crucial importance to the Republic of Croatia due to its strategic position, allowing the Republic of Croatia to play a significant role in the Central and Southeast European gas market. While the terminal is primarily focused on importation to meet domestic and regional gas needs, it also has the potential to facilitate the export of gas, depending on regional demand and market dynamics. The terms for the use of the LNG terminal are encapsulated in the following legislation: Liquefied Natural Gas Terminal Act (Official Gazette Nos. 57/18, 83/23; Cro. Zakon o terminal za ukapljeni prirodni plin), Rules for the Use of the Liquefied Natural Gas Terminal (Official Gazette Nos. 87/21, 72/22 and 15/24; Cro. Pravila koristenja terminala za ukapljeni prirodni plin), the Methodology for Determining the Amount of Tariff Items for the Reception and Dispatch of Liquefied Natural Gas (Official Gazette Nos. 48/18 and 79/20; Cro. Metodologija utvrdivanja iznosa tarifnih stavki za prihvat i otpremu ukapljenog prirodnog plina), Methodology for Determining the Price of Non-Standard Services for Gas Transport, Gas Distribution, Gas Storage, Reception and Dispatch of Liquefied Natural Gas, and Public Gas Supply Service (Official Gazette Nos. 48/18, 25/19, 134/21 and 9/22; Cro. Metodologija utvrdivanja cijene nestandardnih usluga za transport plina, distribuciju plina, skladistenje plina, prihvat i otpremu ukapljenog prirodnog plina i javnu uslugu opskrbe plinom), Decision on the Amount of Tariff Items for the Reception and Dispatch of Liquefied Natural Gas (Official Gazette 108/22; Cro. Odluka o iznosu tarifnih stavki za prihvat i otpremu ukapljenog prirodnog plina), Decision on the Price List of Non-Standard Services of the Liquefied Natural Gas Terminal Operator (Official Gazette No. 108/22; Cro. Odluka o cjeniku nestandardnih usluga operatora terminala za ukapljeni prirodni plin).

Transportation of oil & gas is of utmost public interest and it is classified as a public service, hence those are strictly regulated activities, which leave little to no space for the parties to negotiate, and when leaving space to negotiate certain terms, stringent limits/frameworks of applicable legislation apply.

Apart from licenses issued by the regulatory authority (HERA), concessions for gas distribution and concessions connected to oil transportation, or a concession for the building of a distribution system are required to operate a distribution network. Prior to the granting of a concession, a tendering process has to be conducted in accordance with applicable laws and all requirements regarding transparency must be met in the due course of possible tendering processes. Depending on the specific project, several other authorizations and approvals/permits (of different competent authorities) may be required, such as ones pursuant to regulations governing physical planning and building or water regimes and maritime domains.

7.3. Land Rights 

Considering the fact that JANAF d.d., PLINACRO d.o.o., and LNG HRVATSKA d.o.o. operate and maintain all conduits necessary for the current supply of oil & gas (including liquified natural gas) and they are mostly/or completely (as the case may be) owned by the Republic of Croatia it is highly unlikely that some other entity could obtain a building, i.e., location permit necessary for the construction of the possibly envisaged infrastructure or to conclude the concession agreement. Nevertheless, it is worth noting that location permits are issued by the competent administrative or county offices, i.e., the Ministry of Physical Planning, Construction, and State Assets, depending on the place where the construction or reconstruction of the facility is planned. The list of competent offices is available on the website of the Ministry of Physical Planning, Construction, and State Assets.

Government authorities or Transmission System Operators (TSOs) have the power to initiate the compulsory acquisition, i.e., expropriation (in the public interest), also known as eminent domain, to facilitate land access for infrastructure projects such as pipelines and other conduits if the interest of the Republic of Croatia is ascertained. This power allows the government or its designated entities to acquire private land when the interest of the Republic of Croatia is determined, provided that just compensation is paid to the landowners. This right of expropriation is crucial for the development and maintenance of essential infrastructure, such as oil pipelines, gas pipelines, and other utilities, which typically require continuous corridors of land that span multiple properties. Since these conduits must pass through extensive areas, it is rare that all necessary land plots are already owned by the state or a single investor. Energy transportation, which is vital for national infrastructure, is deemed to be of interest to the Republic of Croatia. Stated powers ensure that essential projects can proceed without being unduly hindered by individual land ownership disputes, thereby balancing private property rights with the needs of the broader community.

7.4. Access and Integration 

For the third-party access regime/rights with respect to oil and natural gas transportation and associated infrastructure please refer to Section 7.2.

7.5. Gas Transmission and Distribution 

Please refer to in Section 7.2.

8. Trading 

8.1. Trading License 

The natural gas trading sector in Croatia is governed by the provisions laid down in the Gas Market Act, Energy Act, and Act on the Regulation of Energy Activities (Official Gazette Nos. 120/2012, 68/2018; Cro. Zakon o regulaciji energetskih djelatnosti) and by-laws adopted pursuant to these acts.

Gas trading is a market energy activity and is performed based on market principles, i.e., gas prices in market activities amongst gas market participants are freely contracted. The gas trader has the right to: (i) trade gas with participants in the gas market, except for end customers; (ii) use, under the regulated conditions, the services of the transport system operator, gas market operator, gas storage system operator and the services of the LNG terminal operator, based on concluded contracts; (iii) to access to the network of gas production pipelines, transport system, gas storage system, including access to operational storage, in accordance with the prescribed rules.

In order to pursue a gas trade activity in Croatia, a license for trading, issued by HERA, is required. In case the intended activities of wholesale trading of gas also include the sale of gas to end customers, a license for supply, issued by HERA, is required. The license is issued within 30 days or in the case of the examination procedure within 60 days.

Legal entities established in Croatia can provide services on a permanent basis in Croatia if they obtain the license for performing the energy activity of gas trading from HERA. Legal entities established in third countries must establish a branch office or a company in Croatia in order to provide services in Croatia, and after establishment obtain the license for performing the energy activity of gas trading from HERA.

Legal entities established in EU/EEA countries can provide the activity of gas trading on the basis of (i) the freedom to provide services or (ii) on the basis of the freedom of establishment:

1. legal entities established in EU/EEA countries that are active gas traders in the country of their establishment have the freedom to provide services without the obligation of establishment in Croatia, under the condition that they obtain a license for carrying out the energy activity of gas trading according to a simplified procedure. HERA shall access The Central European Register of Energy Market Participants to confirm whether the active gas trader from an EU member state participates in the European energy market. HERA can request the information on fulfillment of conditions for performing the energy activity of gas trading for the applicant from an EU Member State from the regulatory body of the EU Member State of the applicant’s establishment.
2. legal entities established in EU/EEA countries have the freedom to provide services on a permanent basis in Croatia if they register an establishment in Croatia and obtain the license for performing the energy activity of gas trading from HERA.

The entry-exit model and a virtual trading point (VTP) were introduced in Croatia on January 1, 2014. Rules relating to VTP are prescribed under the Rules on the Gas Market Organisation (Official Gazette Nos. 50/2018, 154/2022; Cro. Pravila o organizaciji trzista plina) and the Transportation Network Rules (Official Gazette Nos. 50/2018, 31/2019, 89/2019, 36/2020, 106/2021, 58/2022, 9/2024; Cro. Mrezna pravila transportnog sustava). VTP is defined as a point of gas trading following its entry into the transmission network and prior to its exit from the transmission network including the gas storage system. To trade on the VTP it is not necessary to book entry-exit capacity or storage system capacity. However, only a balancing responsible party (BRP) who is a transmission system user is entitled to trade on the VTP. This means that only market participants in possession of a supply or trade license, and who have signed a transport contract with PLINACRO d.o.o. as the current transmission system operator (TSO), can gain access to the VTP. The Croatian Energy Market Operator (HROTE) publishes, on its website, the form that allows the placing of a bid for the purchase or sale of gas on the VTP. Trading at the VTP is done independently between the BRPs; neither the TSO nor the Croatian Energy Market Operator acts as a clearing house, therefore each party bears the counterparty risks of the other.

Each gas market participant, except for the Croatian Energy Market Operator as the gas market operator, must be a member of the balancing group. A balancing group is a virtual association of one or more gas market participants, which is organized on a commercial basis primarily to optimize the costs of balancing, and which is organized and managed by the BRP. The balancing group is comprised of direct members (i.e., the gas supplier and gas trader) and indirect members (i.e., the final customer). The Croatian Energy Market Operator keeps the register of the BRPs on the gas market and publishes it on its website. 

In addition, there is also a trading platform operated by the Croatian Energy Market Operator that enables trading between the BRPs and TSO for the purpose of balancing the gas transmission network.

8.2. Products

Natural gas can be traded as an unbundled commodity, separate from the service of distribution/transportation.

There is currently no commodity exchange in Croatia.

9. Competition

9.1. Authorities

The Croatian Competition Agency (AZTN) is the general competition authority for all sectors and is responsible for ensuring that different kinds of anticompetitive practices (e.g., price fixing, abuse of a dominant position) are detected, assessed, and accordingly sanctioned if they represent infringements of competition rules. The same applies to the assessment of compatibility of concentrations (mergers and acquisitions). The AZTN carries out investigations and assessments and imposes sanctions in the above-mentioned areas.

In addition, HERA is competent for the regulation and supervision of energy activities in the oil and natural gas market. Amongst various administrative tasks, HERA conducts supervision of the competition and the potential abuse in the energy market and in the supply of customers, supervision of restrictive contracts, especially contracts that limit the number of suppliers, and, if necessary, notifies the AZTN on its findings.

9.2. Anti-Competitive Actions 

The AZTN has the following powers:

• identifying prohibited agreements between undertakings and directing commitments needed for the elimination of the harmful effects of anti-competitive behavior;
• identifying abuse of a dominant position of an undertaking/s and prohibiting any further practices leading to the abuse and directing commitments for the elimination of the harmful effects of anti-competitive behavior; and
• ex-ante assessment of the compatibility of proposed concentrations between undertakings (the AZTN can prohibit a certain transaction if it has a significant effect on market competition in the relevant market, especially if it creates a new or strengthens the existing dominant position of the participants in the concentration).

In terms of Croatian competition law, the concentration of entrepreneurs is created by a change of control over the entrepreneur on a permanent basis, which is conducted by: (i) a merger of two or more independent entrepreneurs or parts of these entrepreneurs; (ii) acquiring direct or indirect control or predominant influence of one or several entrepreneurs over another or several other entrepreneurs or part of other entrepreneurs through acquiring the majority of shares, or by acquiring the majority of voting rights. The creation of a joint venture by two or more independent entrepreneurs, which operates on a permanent basis as an independent economic entity, is also considered a concentration.

Unlike the procedures for determining prohibited agreements between entrepreneurs and the abuse of the dominant position of entrepreneurs, which the AZTN always initiates ex officio, the concentration assessment procedure is usually initiated based on the notification of its participants. Since the concentration of entrepreneurs can have positive and negative effects on the market, the AZTN precisely takes into account the effects of the concentration on the relevant market or markets and decides on the evaluation criteria for each individual concentration.

In accordance with the regulations that govern its competence, the AZTN evaluates only business transactions of significant economic strength, which is reflected in the total income of entrepreneurs participating in the concentration. The Croatian Competition Act (Official Gazette Nos. 79/2009, 80/2013, 41/2021, 155/2023; Cro. Zakon o zastiti trzisnog natjecanja), as the only objective and measurable criteria for the existence of the obligation to notify the proposed concentration, determines the amount of the total consolidated annual income of the entrepreneur-participant of the concentration. Therefore, the participants of the concentration are obliged to report any intention to implement the concentration if the following conditions are cumulatively met:

• if the total annual consolidated income of all entrepreneurs participating in the concentration achieved through the sale of goods and/or services on the world market amounts to at least EUR 132,722,808.41 in accordance with the financial statements for the financial year preceding the concentration, if at least one participant in the concentration has its headquarters and/or subsidiary in the Republic of Croatia, and
• if the total income of each of at least two participants in the concentration, in the Republic of Croatia, according to the financial statements, amounts to at least EUR 13,272,280.84 in the financial year preceding the concentration.

If the participants of the concentration fail to report the concentration to the AZTN for assessment of its permissibility, and such an obligation exists, then the AZTN is obliged to issue an administrative penal measure up to a maximum of one (1) percent of their total income.

If the AZTN, based on the analysis of the data and circumstances from the notification on the concentration, assesses that the implementation of the concentration could have a significant effect on market competition in the relevant market, especially if this concentration creates a new or strengthens the existing dominant position of the participants in the concentration, the Croatian Competition Agency within 30 days from confirming that it has received the all required documentation on consecration renders a Conclusion on the initiation of the procedure for evaluating the permissibility of the concentration.

Then AZTN begins the process of evaluating the concentration's permissibility which includes the extensive collection of data, documentation, and statements necessary for the preparation of an in-depth legal and economic analysis of the relevant market and the effects of a specific concentration on market competition. This involves contacting all entrepreneurs and/or interest associations that operate and/or have knowledge of the relevant market that needs to be analyzed in the process and requesting detailed numerical and financial indicators and business analysis from them.

The decision by which the concentration can be assessed as permitted, conditionally permitted, or prohibited is issued by the AZTN within three months from the date of the Conclusion of the initiation of the procedure, with the possibility of extending that deadline for the additional three months in cases when the AZTN decides that the assessment of all the facts and evidence requires additional analysis.

10. Stability Clause and Dispute Resolution 

10.1. Stability Clause 

The laws of the Republic of Croatia contain a stability clause for oil & gas companies. The Hydrocarbons Act prescribes in Article 33 that if there are changes or amendments to the legal and other regulations affecting the economic or commercial provisions of exploration and exploitation permits or agreements, the parties involved will negotiate for possible amendments or supplements to ensure a balance of initial interests and planned economic results. However, the stability clause in question does not apply to changes in laws related to employment relations, environmental protection, human health, occupational safety, and safety of oil mining operations.

10.2. Compulsory Dispute Resolution Procedure

Regarding the compulsory dispute resolution procedures, the Hydrocarbons Act prescribes in Article 30 that a PSA has to contain an arbitration clause determining an arbitration in accordance with the international arbitration rules, with the seat of arbitration being in Croatia and with Croatian law as the applicable law. Furthermore, the Concessions Act (Official Gazette nos. 69/17 and 107/20; Cro. Zakon o koncesijama), in Article 97 prescribes that unless the Concessions Act states otherwise, parties to a Concession Agreement may agree on the arbitration in Croatia, with the applicable law being Croatian and on the Croatian language, with an obligation of a previous addressing to the party with a request for an amicable settlement of a dispute, which settlement cannot be shorter than three months from the delivery date of the request. Otherwise, the Concessions Act determines that the disputes arising from the Concession Agreements fall within the scope of the Administrative Court, where the exclusive competency regarding local competency falls within the seat of the concession grantor.

10.3. International Treaty Protection 

Croatia is a signatory of the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards, which it ratified in 1993, and the Convention on the Settlement of Investment Disputes between States and Nationals of Other States, ratified in 1998. Regarding whether there are any special difficulties in litigating or seeking to enforce judgments or awards against government authorities or state organs in Croatia, the case of MOL exemplifies some challenges. Namely, Under the Shareholders’ Agreement of 2009, MOL obtained operational control of INA. Despite the agreement's provision for the government to take over INA's gas trading business by December 2010, negotiations failed, leading to two arbitration procedures. MOL initiated the arbitration under ICSID rules in November 2013, while the government initiated arbitration under UNCITRAL rules in January 2014. The former Croatian Prime Minister's conviction for bribery in June 2014 added complexity. In December 2016, the UNCITRAL dismissed Croatia’s claims, but the ruling on MOL’s claim is pending. The Croatian Prime Minister announced plans to repurchase MOL’s INA shares by the end of 2016, but financing through the sale of a stake in the state-owned electricity company HEP faced political opposition. Despite a government advisory committee's formation in January 2017, no concrete sale models have emerged. Lazard was selected as a consultant in July 2019, with plans to extend an offer to MOL in the first quarter of 2020. There is no information available on any resolution of these disputes. These arbitration procedures showcase potential challenges in litigating against government authorities.