The Croatian energy company you (probably) didn’t hear about but you should: Prvo Plinarsko Društvo

Prvo Plinarsko Društvo (PPD) has experienced a dazzling rise to the top, paved with high-level political connections and a decade-long gas distribution contract with Gazprom. What does it mean for Croatia’s gas market going forward?

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Enna Group: this name will usually ring no bells, even though it is currently one of the companies with the highest growth in Croatia. In 2017, Enna (short form for Energija Naturalis) has recorded 1.03bn euro in revenues, i.e., 40 percent more as compared to the same period in 2016. Essentially a middleman, it produces nothing, and most of its growth is linked to one firm, the Prvo plinarsko društvo (literally: «First gas company»), usually shortened to PPD. Today PPD is, however, one of the key economic players of the country, being the most significant gas distributor on the Croatian territory. It is estimated that this company will own 30% of the gas sold on the Croatian territory over the course of the next ten years.

PPD was born in 2001 as a Hungarian-Croatian joint venture aimed at stimulating the development and the expansion of the network of distribution of natural gas during the period of post-war reconstruction of the Vukovar region in eastern Croatia. In 2003, the firm changed ownership, being bought by Dél-dunántúli Gázhálózati Zrt (DDGÁZ), headquartered in Pécs, Hungary. The whole DDGÁZ consortium was later acquired by Düsseldorf-based E.ON Energie AG, a company that is partially owned by the Russian Gazprom. In 2009, after the economic crisis, E.ON changed strategy and sold PPD to a Croatian investment fund owned by the entrepreneur Pavao Vujnovac.

After the initial consolidation, the company management adopted a new approach: next to strengthening the gas distribution system and expanding its client base, it set off to take advantage of the liberalisation of the gas market. Today, PPD dominates the natural gas import market. This growth is a result of the partnership with E.ON at first, and directly with Gazprom later.

The links with Gazprom

The partnership with Gazprom has proved to be a critical factor in the firm’s development. In September 2017, Gazprom and PPD signed a ten-year contract for the distribution of gas on the Croatian market, whose value is estimated to be between 200 and 250 million euros per year. It is one of the largest contract ever signed in Croatia.

It is also the first ten-year contract signed by Gazprom in Croatia and, according to economist Željko Kardum, it can be seen as part of Russia’s efforts to counter Croatian attempts to free itself from the dependency on Russian gas. “This contract is as heavy as half of Agrokor’s overall debt with its suppliers”, Kardum noted, highlighting the deal’s importance for the country’s economy, “and it ties us to Russia for the next ten years”.

The signing of the deal should also be seen in conjunction with the potential construction of a Liquefied Natural Gas (LNG) terminal on the island of Krk — which seemed like a done deal at the moment of the Gazprom-PPD contract — had cast a shadow of doubt over the Croatian dependency on Russian gas.

Politics and business

The context of the gas market in Croatia has changed over the years of PPD’s activity. Starting from 2007, Croatian governments have engaged in the process of liberalisation of the gas market, following European Union legislation (the so-called Third Energy Package). From 2013, the process was accelerated to avoid paying penalties. However, the liberalisation has so far only resulted in an oligopoly — instead of the state, few private companies now dominate the market.

One of the principal actors in this process, both active during the centre-left government led by Zoran Milanović (2011–2016) and in the current centre-right government under the premiership of Andrej Plenković, is Ivan Vrdoljak of the Croatian People’s Party (HNS). The long-term friendship between Vrdoljak and Pavao Vujnovac — PPD’s owner since 2009 — has never been a secret. While Vrdoljak has always vehemently denied any involvement in PPD’s affairs, the same thing cannot be said for Vrdoljak’s former assistant, Sabina Škrtić, who passed from working with Vrdoljak at the Ministry of Economy (as Vice-Minister for Energy) to covering a business development position in the Management Board of the Enna group.

PPD has furthermore financed Croatia’s largest right-wing party, the Croatian Democratic Union (HDZ), with a loan of at least 4.2 million kunas issued in 2016. Pavao Vujnovac himself stated that this amount was requested by Miljan Brkić, the Secretary-General of the party at the time.

Controversial partners

At present, PPD’s most important investment is the acquisition of the port of Ploče, in Dalmatia. PPD and VTTI, one of the largest operators and owners of oil storage terminals in the world, signed a joint venture agreement for the management of the storage, loading and unloading terminal for petroleum products in the port of Ploče in 2016. The total investment value is around 125 million euros. The terminal offers the company the opportunity to go beyond the Croatian borders and become an important regional player in the distribution of gas.

In this project, controversial is the choice of the partner — the Vitol Group. Numerous outlets have reported about the company in unflattering terms. According to the British newspaper Observer, in 1995 Vitol transferred one million dollars to the Serbian war criminal Arkan. This payment was intended to settle a secret oil deal with Milošević’s Serbia. In 2007, Vitol was also convicted of buying oil from Saddam Hussein when Iraq was under embargo. In 2011, the Financial Times wrote of the company’s involvement in reselling oil sold by the Libyan rebels. According to Reuters, in 2012 Vitol took part in the sale of 2 million barrels of Iranian crude, circumventing the EU embargo.

In spite of the Croatian parliament’s approval, in June 2018, of the LNG terminal construction on the island of Krk, Croatia still depends and will continue to depend on Russian gas, at least in the near future. Moreover, it is possible that even after the construction of the LNG terminal private distributors will still opt for Russian gas, which is currently approximately 20 percent cheaper than the liquid one. Clearly, the PPD is destined to continue to play a vital role in the Croatian energy sector. It is therefore essential to better understand the mechanisms of this so far unknown company and to examine with transparency the importance it has for the energy sector of the country going forward.

Originally appeared on La Voce del Popolo, 1 June 2018