Category: Croatia

The biggest story in Croatia, according to Kovacevic Prpic Simeunovic Partner Martina Prpic, is the preparatory work for the upcoming switch to EUR as the official currency, complemented by EU-driven updates impacting consumer protection, agriculture, and the upcoming tourist season.

“2023 will see Croatia become part of the eurozone and, leading up to it, there is a lot of buzz around the surrounding preparatory work and the transition period,” Prpic begins. “The most exposed businesses are those that deal with consumers directly – retail businesses, webshops, service providers, and the like,” she says. There will be a requirement of “prices transparency” under which, starting with September 2022, prices will have to be shown in both HRK and EUR until the final switch.

“The first two weeks of 2023 will be a period in which citizens will be allowed to make payments in HRK while getting change in EUR – but the prices transparency regime will remain in place until 2024,” Prpic reports. “The idea is to have consumers prepared for the final switch in time while, at the same time, preventing unjust price hikes.” All this work requires a lot of structural solutions, Prpic says, all of which are requiring EU approval – which is set to be given this year before the summer. “In practice, this means that businesses will have a year packed with adjustments.”

Furthermore, Prpic reports changes to the consumer protection framework, in an effort to ensure further harmonization with EU law. “Certain aspects of retail are being amended – some rules regulating prices and sales – all of which are a part of the recently passed EU directive package seeking to protect consumers more,” she says. “The same package also updated contract law provisions, mostly having to do with goods and services defects and the like.”

Additionally, there has been an overhaul of the rules having to do with unfair market practices in agriculture. “This too is an adjustment seeking to harmonize Croatian and EU law,” Prpic reports. “The law is quite complex on this matter, introduces high fines and penalties, and will force businesses to adjust a lot.”

Lastly, Prpic tackles the outlook for the upcoming tourist season. “The transport, hospitality, and tourism sectors have been hit hard by the pandemic, even with 2021 being a very strong tourist season. With the EU establishing safety criteria based on the vaccination rate in each member state, Croatian safety status could be hit – given the fact that the country has lower vaccination rates than some of the other member states. We’ll just have to wait and see how it all plays out,” Prpic concludes.

On January 26, DTB announced that United Group’s acquisition of the majority stake in Optima Telekom (reported by CEE Legal Matters on July 16, 2021) has now closed. 

According to the firm, “after obtaining all regulatory approvals from relevant authorities and fulfilling all condition precedents for completion of the transaction, Telemach – a subsidiary of the United Group – became the owner of 54.31% of Optima Telekom shares.”

As previously reported, DTB advised the United Group on the acquisition of a majority stake in Optima Telekom from Hrvatski Telekom and Zagrebacka Banka, with the sellers being advised by Madirazza and Partners.

DTB’s team included Senior Partners Damir Topic and Mario Krka, Lawyers Dina Salapic, Ema Mendjusic Skugor, Olena Manuilenko, Jasna Belcic, Iva Crnogorac, and Dominik Glavina, and Trainees Antonia Mihaljevic, Iva Vukoja, Ana-Maria Sunko, Barbara Simic, and Petar Zubic.

Madirazza and Partners’ team included Managing Partner Josip Madirazza and Partners Marinka Kovacic and Morana Herak.

Sustainable finance is at the very heart of the financial system ensuring financial service providers offer green products and push them and the corporate businesses to be greener, to reach a higher level of social and corporate relevance when making investment or financing decisions.

Sustainable Finance – Croatian Legal Framework and Green Transition

The enactment of, among others, the Sustainable Finance Disclosure Regulation, Taxonomy Regulation and LCR Regulation on the EU level boosted the way for twisting from traditional finance and investment (either through bank financing or bond issuance) into a sustainable one. The basic idea of the stated regulations is to accomplish a higher level of preservation of social rights, introduce good practices in corporate governance, and create a low-carbon economy resistant to climate changes.

Along with the EU Regulation, the Croatian Parliament enacted the Law on Implementation of the Disclosure and Taxonomy Regulation which, together with the EU rules, creates a legal framework for sustainability and its introduction in the field of financing and investments.

Bilateral agreements – such as the memorandum of understanding between the European Investment Bank and the Croatian Ministry of Economy and Sustainable Development signed on January 28, 2021, or the agreement between the European Investment Bank and the Croatian National Bank for Reconstruction and Development – should significantly increase financings to sustainable projects relevant for the public (water, healthcare, transport and energy infrastructure, and the national railway network and motorway) and private sectors on the Croatian market.

The aim of those agreements is to develop strategies in sectors such as renewable electricity generation and transmission, clean energy and energy efficiency measures, renovations and conversions of buildings, green mobility, and support for the Croatian economy’s transition to a circular economy.

Sustainability – Opportunities

While on the global market the use of sustainability-linked principles on granting loans incorporated in the standard loan documentation and sustainability bond principles, green bond principles, social bond principles, or sustainability bond guidelines are in regular use and develop new practices, the Croatian response to sustainable standards for finance, investments, and bond issuances being incorporated into the transaction documentation is… It is getting there.

Sustainability-linked bond principles are rarely used/incorporated into the bond documentation and there are not a lot of “green products” available on the Croatian capital markets. However, some deals on the Croatian market, such as issuance of bonds by Erste & Steiermarkische Bank d.d. whereby the International Finance Corporation subscribed for bonds in the amount of EUR 75 million in order to support the issuer’s financing portfolio, including green housing loans, give a good signal that this is moving forward. However, there is still room for developments in that sense both on the financial service providers’ side and the borrower’s side.

On one hand, the banks should offer more “green” and “sustainable” financial products and make them available on the Croatian market while, on the other hand, the borrowers should become more resilient to changes. It could be expected that the borrowers will need to be sustainable, determine their exposure to climate change, and understand the risks they will have to cover in order to obtain “green” financing for their operations. They will need to manage and mitigate environmental and social risks factors, employees, and corporate governance in a manner that allows them to be more sustainable.

In order to reach these goals, there will have to be a clear picture as to what sustainability and ESG criteria are, how those principles should be implemented into the businesses, especially in terms of the certain investment being deemed as an investment in a sustainable target and manner how to identify greenwashing. At the moment there are no clear definitions applicable.

Sustainable Finance Going Forward

Sustainable finance does not have alternatives, and as such, it has the tendency to become the market standard. It is relevant both for banks, who may provide financing only to sustainable industries and borrowers with clear ESG standards, as well as for borrowers, who will want to obtain better terms and conditions linked to sustainability-linked principles.

The current COVID-19 pandemic and the earthquake in Zagreb and the surrounding region showed how sustainability is relevant and how companies (mostly real estate companies) should be resilient to climate change and environmental matters. Thus, clear definitions and criteria for sustainability and ESG standards should be set forth in the future and going forward.

By Martina Kalamiza, Partner, Divjak Topic Bahtijarevic & Krka

This Article was originally published in Issue 8.11 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.

CMS has advised Privredna Banka Zagreb on refinancing and acquisition financing for the Danilo and Rudine wind farms. Kovacevic Prpic Simeunovic has advised buyer Professio Energia on the acquisition, financing, and refinancing the existing loans from the IFC and Unicredit Bank Austria. Schoenherr advised the sellers, Mirova and RP Global. Ostermann & Partners and White & Case advised the IFC and Unicredit.

According to Schoenherr, “Danilo and Rudine, which are among the largest wind farms in Croatia, were Mirova’s first investments in the country, where the electricity mix is composed of 40% fossil fuels (mainly oil and gas). Since their commissioning in 2014 and 2016, the Danilo and Rudine wind farms have produced on average more than 165 gigawatt-hours of green electricity each year, saving the equivalent of more than 25,000 tons of carbon dioxide per year and providing electricity to more than 40,000 people in Croatia.”

Professio Energia is a Zagreb Stock Exchange-listed renewables company, owned by Croatian institutional investors: Erste pension fund, PBZ pension fund, and Croatia Osiguranje.

Mirova is a French management company focusing on sustainable investments and an affiliate of Natixis Investment Managers. RP Global is an independent power producer with headquarters in Austria and Madrid.

“We are proud to announce the acquisition of two operating wind farms in Croatia and to be able to warmly welcome Danilo and Rudine to Professio’s operating assets family,” Professio Energia Managing Director Mario Klaric commented. “This transaction marks an important milestone in the implementation of Professio’s growth and development strategy. More than that, we strongly believe that this transaction has the potential to become the first step in a long-term partnership between Mirova, RP Global, and Professio Energia in sustainable investing in the region of southeast Europe. Together with our shareholders, we have ambitious plans for future ESG investments thus contributing to the green transition of Croatia and the complete SEE region.”

The CMS team included Partners Jelena Nushol Fijacko, Sandra Lisac, Marija Musec, and Attorney-at-Law Relja Rajkovic.

The Schoenherr team included Partner Luka Lopicic, Attorneys-at-Law Ivan Einwalter, Kresimira Kruslin, Ozren Kobsa, Petra Santic, and Ksenija Sourek, and Associate Alan Vuckovecki.

The KP&S team was led by Managing Partner Dinka Kovacevic and included Attorneys-at-Law Ignacija Puskar and Anamaria Zuvanic, and Attorney Trainees Dino Zivkovic and Ivan Bozo Zec.

The Ostermann & Partners team was led by Partner Vjekoslav Ivancic.

The White & Case team consisted of Partner Jonathan Weinberg and Trainee Solicitor Jake Seal.

The Croatian tech sector has been booming lately. With Rimac and Infobip achieving unicorn status, several other tech companies well on their way to a valuation above EUR 1 billion, and the recent successful listing of several IT companies, it seems like the Croatian tech party is going strong, and everyone is invited.

As it now looks, further expansion of the sector is all but assured. However, there is a potential barrier to this expansion and it comes in the form of Croatian IT infrastructure.

Presently physical Croatian IT infrastructure is, to put it mildly, lacking. While better than some of its non-EU neighbors, the available bandwidth is low, slow, and expensive compared to New-Europe EU members, with limited coverage outside of population centers. Additionally, almost all data centers are situated in or around Zagreb (an earthquake zone), with only one of these designated as a Tier III data center.

While the situation is not presently ideal, there is room for optimism. It is refreshing to hear that one of the three largest telecoms in Croatia (Telemach) is taking the issue seriously and is planning a EUR 200+ million investment in 5G and fiber-optic infrastructure. Several other private telecoms are announcing investments into infrastructure and the construction of Tier III+ data centers outside of Zagreb.

That is undoubtedly a very good start, but far more private investment will be needed if Croatia is to catch up with its competitors. Due to very short best-before dates in the industry, any investment into IT infrastructure should be executed and implemented as quickly as possible. Competition is fierce, demand is rising, and the quickest to provide cheap(er) high-level IT infrastructure solutions will be poised to reap most of the rewards. Several factors must align to execute such a quick investment.

Firstly, financing must be readily available for private investors. There are significant public funds (EU and local) available, and we expect the Croatian private banks to take a further step and take on more financing of IT infrastructure projects.

Secondly, an adequate legal framework must be in force, with as few as possible bureaucratic barriers while retaining adequate legal safeguards and remedies for investors and operators. Though not bad, the legal framework in Croatia is still lacking in certain aspects.

While the legislative macro level is adequately covered by EU legislation (Directive 2018/1972) and Croatian legislation (Electronic Communications Act), it is at the micro-level that potential issues arise and can have a severely detrimental effect on existing and future investment in infrastructure.

One such example is a provision of a binding rulebook/policy document (Ordinance on the manner and conditions of access and joint use of electronic communications infrastructure and related equipment) issued by the Croatian telecom regulator HAKOM regulating the refund of investments when the investor is different from the infrastructure owner/operator. The provision states (freely translated):

“The costs referred to in paragraph 2 of this Article shall be reimbursed by a one-off reduction of the infrastructure lease invoice under other agreements for the joint use of cable ducts. In the event that the full amount cannot be refunded in the current year, the remaining amount will be refunded from the next invoice and so on until the final refund of the total cost.”

The provision, in essence, implies that the investor will be refunded at an unspecified later date, and through offset of the lease, the investor will be paying the infrastructure operator for the use of the infrastructure they invested in.

Our view is that such a provision is very open to interpretation (what if the lease agreement is terminated prematurely?), can be seen as favorable to the infrastructure operator, and limits the parties’ contractual freedom. Any investor contemplating investing a significant amount will be reluctant to agree to such a provision, knowing that their investment will become someone else’s property, without any guarantees that it will ever be refunded in full.

We believe there is room for improvement and more positive interpretation by both parties and the regulator, as legal uncertainty is a sure-fire way to dissuade much-needed prospective investors from investing in Croatian IT infrastructure.

By Luka Porobija, Partner, Porobija & Spoljaric

This Article was originally published in Issue 8.11 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.

Kinstellar has announced it is entering the Croatian market by integrating the Zuric i Partneri (ZiP) law firm. While the local firm will keep its name, “ZiP is now a fully integrated office of Kinstellar.”

Kinstellar’s practice in Croatia will be led by Co-Managing Partners Dusko Zuric and Miroslav Plascar. The team has 22 lawyers, including five partners.

“The expansion to Zagreb is part of our strategy to provide full-service coverage across all of Emerging Europe,” a Kinstellar press release stated. “By joining forces, we broaden our offering in the western Balkans and leverage the resources and expertise of our firm to deliver exceptional client service.”

“We have attracted a high-quality team with strong market recognition and a close cultural fit with Kinstellar,” commented Kinstellar Senior Partner Jason Mogg. “We are confident that with this team, Kinstellar will maintain the established top-tier position in the Croatian market and enhance the regional appeal that the firm has already built. We are happy to have found a team complementary to our values and goals. We wish them a warm welcome and look forward to working together!”

“From the very beginnings of the Zuric i Partneri law firm, creating a law practice with a genuine international profile was always a driving force of our team,” added Zuric. “By becoming part of Kinstellar, a law firm with 11 offices across Europe, Turkey, and Central Asia, we have added a new value to a long tradition of pioneering the market and going forward to new horizons. We are certain that with Kinstellar we will strengthen our position in the Croatian and regional market. Looking forward to starting a new chapter together!”

The news follows a few months after Kinstellar scooped up the former DLA Piper office in Ukraine (reported by CEE Legal Matters on June 14, 2021). CEE Legal Matters spoke with Co-Managing Partners Olena Kuchynska, Margarita Karpenko, and Senior Counsel Daniel Bilak – the Management Committee of the combined team – to learn more about the merger and their plans going forward in an interview available here.

Savoric & Partners has advised Deltron on its 80% sale to Beijer Ref. Ilej & Partners, in cooperation with Karanovic & Partners, advised Beijer Ref on the deal.

Deltron is a Croatian distributor of heating, ventilation, and air conditioning systems. Beijer Ref is a Sweden-based refrigeration equipment wholesaler. Beijer Ref has, as a part of the transaction, also gained an option to acquire the remaining shares in Deltron as well.

Savoric & Partners’ team included Partner Nina Radic Kuzik and Associates Nives Kolonic and Dominik Zugaj.

Ilej & Partners’ team included Senior Partner Goran Ilej, Senior Associate Nika Jurkovic, and Associate Antun Skansi.

Nebojsa Vitez and Luka Porobija have been promoted to Equity Partners at Porobija & Spoljaric as of January 1, 2022.

Vitez specializes in Real Estate and Debt Collection. He joined Porobija & Spoljaric in 2007 and has been with the firm ever since. Prior to that, he worked for the Municipal Court in Varazdin.

According to Porobija & Spoljaric, Vitez’s “favorite professional challenge is the real estate cases, and he excels in issues arising from debt collection.”

Porobija specializes in ICT & TMT, Contracts, and Data protection. He has joined the firm in 2015 as an Associate and was later promoted to Senior Associate and Attorney in 2017 and 2018, respectively.

“Nebojsa Vitez and Luka Porobija, based on their work in this and previous years, absolutely deserved to climb to the next steps of their professional careers,” the firm announced. “Knowledge, exceptional professionalism, perseverance, and desire for new achievements have continuously been monitored and valued in Porobija & Spoljaric, so it is nice to hear that, according to their mission and vision, these abilities open the desired paths in career development.”

Marohnic, Tomek & Gjoic has advised Immofinanz on the acquisition of ENS Development in Croatia. Andelovic, Siketic & Tomic advised the sellers on the deal.

Immofinanz is a commercial real-estate company that focuses its activities on the retail and office segments of seven markets in Europe, including Austria, Germany, the Czech Republic, Slovakia, Hungary, Romania, and Poland. The core business of the company includes the management and development of properties.

ENS Development is a Croatian-based Stop Shop developer with 23 Croatian Stop Shops in its portfolio, according to AST. 

MTG’s team included Partners Josip Marohnic and Tena Tomek and Attorney Ivona Zagajski. 

AST’s team included Partner Marko Tomic and Associate Domagoj Peric.

Last week two key regulatory changes took place that will have important implications for future development of the Croatian renewable energy market.

What will change?

Firstly, on 9 December 2021 the European Commission approved the EUR 783m Croatian state aid scheme to support production of electricity from renewable energy sources (“RES”). The new scheme will enable Croatia to support renewable electricity production from various technologies (wind, solar, hydro, biomass, biogas and geothermal power plants).

Secondly, on 8 December 2021 the Croatian parliament adopted the new Act on Renewable Energy Sources and High-Efficiency Cogeneration (“RES Act”). The key amendments are centred around the introduction of a renewable energy auction support mechanism.

The RES support mechanism will be introduced by way of market premiums which are going to be paid to RES producers on top of the (reference) electricity market price. The premium will be set through a competitive bidding process (auction). The new support scheme provides for a total budget of EUR 783m (HRK 6bln) for support payments for the upcoming two years (until 2023).  

Double-sided sliding feed-in premium

Notably, Croatia will have a double-sided sliding feed-in premium in place, going along with components of a contract for difference (CfD) mechanism: If the (reference) market price is below the CfD value (i.e. strike price under the contract), the plant operator will receive this difference as a premium. If the (reference) market price is above the CfD strike price, the plant operator will be required to pay-back the difference to the Croatian energy market operator (HROTE). The premium will be paid out for a period of 12 years.

What happens next?

The Croatian energy market operator (HROTE) will finally start preparing the long-awaited first auction for large-scale wind and solar power plants, which is expected to start in the second quarter of 2022. 

By Bernd Rajal, Partner, and Petra Santic, Attorney at Law in Cooperation with Schoenherr