Energy 44

In 1997, Croatia launched structural reforms in the energy sector, with an aim of creating a new legal framework (completely aligned with the acquis communautaire), liberalisation of the energy markets, restructuring of the main energy companies and their privatisation. An adequate legal framework was established, allowing for the fulfillment of the set objectives. Restructuring of the main energy companies was completed: Hrvatska elektroprivreda (HEP) and INA-Industrije nafte. A special company in charge with the natural gas trasnport has been

established - PLINACRO. Privatisation of the petroleum company INA-Industrija nafte began on the basis of a special act.

A complete opening of the electicity market was envisaged for 1 July 2008 and of the gas market for 1 August 2008. All institutions important for non-discriminatory and safe market operations have been established: Croatian Energy Regulatory Agency, Croatian Energy Market Operator, HEP-Transmission System Operator d.o.o. and HEP-Distribution System Operator d.o.o. (electricity) and Gas Transportation System Operator (a task entrusted to PLINACRO).

A model of bilateral market was selected for the initial opening of the electricity market in Croatia, which is based on electricity trading through bilateral contracts. A customer and a supplier are the parties to a bilateral electricity supply contract, whereas bilateral electricity purchase and sale contracts are concluded between a supplier, trader or manufacturer. As regards the allocation of cross-border transmission capacity, the appropriate rules on allocation and use of cross-border transmission capacity are applied.

The legal framework and strategic documents concerning the energy sector development determine the efficient energy use and cogeneration, as well as the use of renewable energy

sources, to be of a special interest to the Republic of Croatia. The Environmental Protection

and Energy Efficiency Fund (co-)finances programmes, projects and activities in the field of environmental protection, renewable energy sources and energy efficiency. In the field of renewable sources, incentives for electricity production from renewable sources were introduced (feed-in tariffs).

As regards the issue of energy supply safety, the Agency for Compulsory Stock Reserves of Oil and Oil Products has been established.

The biofuel quality regulation determined the indicative objective of 5.75% share of biofuel in total annual consumption of petrol and diesel fuels, which should be realised by 31 December 2010. The biofuels act and the respective subordinate legislation will be adopted by end- 2008 and will completely regulate this area.

The Government of the Republic of Croatia has accepted the Plan for development, modernisation and construction of the gas transport system in the Republic of Croatia from 2007 to 2011, in which supply and mounting of equipment is envisaged which will enable functioning of the secondary market and development of gas network in the south of Croatia, as a result of which obligations arising from the acquis communautaire relating to transport system will be fulfilled. It is estimated that the existing supply capacity will not be sufficient in the period after 2009 due to a significant consumption growth. A further development of supply capacity for natural gas is thus planned by means of:

• an increase in pipeline capacity of the gas supply line from the Russian Federation

through Slovenia by 500 million space metres – in 2010;

• construction of supply line through Hungary – in 2012;

• construction of LNG terminal in north Adriatic – in 2012;

• construction of additional storage for Croatia’s needs – in 2010.

In the field of energy, the Republic of Croatia is a party to several international agreements affecting regional co-operation in South-Eastern Europe: Energy Charter Treaty, Umbrella Agreement on the Institutional Framework for the Establishment of Interstate Oil and Gas Transportation to Europe – INOGATE and Energy Community Treaty.

As regards the Energy Community Treaty, the Republic of Croatia has completely opened its electricity and gas market considerably earlier than envisaged by that Treaty. Croatia

regional electricity and gas market in South-Eastern Europe. The Croatian electricity transmission system is extremely well connected with the neighbouring systems and it enabled in 1999, after putting into operation 400 kV of line between Croatia and Hungary, the first connection of the former CENTREL system with UCTE system. Construction of 400 kV transformer station Ernestinovo in south-eastern part of Croatia and reconstruction of the respective cables allowed for a reconnection of the UCTE electric synchronous zones 1 and 2. Successful connections represent a key condition for the establishment of the electric energy market in South-Eastern Europe and its connection with the EU market.

In the field of natural gas and in terms of the Energy Community Treaty, the Republic of Croatia has proposed several projects. This primarily refers to a construction of underground

storage Benič_{anci with a capacity of 2 million space metres, which will have regional}

importance, and construction of a LNG terminal in the northern part of the Adriatic Sea, with a final capacity of 14 billion space metres per year. In addition, Croatia participates actively in negotiations concerning the gas transportation from the Caspian Sea region further to the EU territory. One of the projects includes a South-European Gas Ring Pipeline from Turkey to Slovenia, which is indicated by the EU as a priority line for gas supply. Another project relates to the Ionic-Adriatic Pipeline as a branch of the Trans Adriatic Pipeline which goes to Italy and which should pass through Albania, Montenegro, Bosnia and Herzegovina and Croatia to Italy.

For the purpose of implementation of the measures envisaged under the Energy Community Treaty, the Republic of Croatia has formed a working group consisting of the representatives of the Ministry of Economy, Labour and Entrepreneurship, Ministry of Environmental Protection, Physical Planning and Construction, Ministry of Culture, Croatian Energy Regulatory Agency, Hrvatska elektroprivreda, INA-Industrija nafte and company PLINACRO, which monitors the implementation of provisions and prepares documentation for the implementation of the Treaty provisions. The working group has accepted the report on the energy supply safety in the Republic of Croatia, which has been submitted to the Secretary of the Energy Community Treaty. As regards the Treaty, in the 2008-2010 period, additional measures concerning supply safety will be defined and measures will be adopted in the event of force majeur. One of the important tasks is also an obligation to transpose the

acquis communautaire in the field of environmental protection under Annex II of the Energy

Community Treaty, which will be realised in the 2008-2010 period.