Commission Report and New South Interconnection Agreement: Croatia to Start Gas Pipeline Construction Only After Market Testing

(Patria) - The authorities of the Republic of Croatia insisted that a provision be incorporated into the South Interconnection Agreement allowing for the unilateral termination of this intergovernmental treaty through diplomatic channels. According to documentation in the possession of Istraga, which forms an integral part of the Agreement to be signed today in Dubrovnik, numerous provisions insisted upon by Croatia have been incorporated into the initial draft of the Agreement prepared by the Government of the Federation of Bosnia and Herzegovina. Furthermore, Croatia insisted on including a provision in the Agreement stating that it would commence work on the South Interconnection only after market testing. The full report of the negotiation commission published by Istraga.ba is presented below.

“The title of the Agreement, which read: ,,Agreement between Bosnia and Herzegovina and the Republic of Croatia on the Construction of the South Interconnection Gas Pipeline of Bosnia and Herzegovina and the Republic of Croatia“ on the route Zagvozd (HR) - Posušje (BiH) - Novi Travnik / Travnik with an branch to Mostar“, after the negotiations were completed, has been corrected and now reads:

"Agreement between the Council of Ministers of Bosnia and Herzegovina and the Government of the Republic of Croatia on the Construction of the Gas Pipeline ,,South Interconnection of Bosnia and Herzegovina and the Republic of Croatia“”, it is stated in the report.

The introductory part of the Agreement has had the part of the sentence referring to the obligations from the Treaty on the Establishment of the Energy Community of Southeast European Countries deleted, and the following provisions have been added:

"taking into account the geostrategic importance of the LNG terminal on the island of Krk and the growing capacity of the Republic of Croatia for the import and transport of liquefied natural gas (LNG); “

taking into account that the Republic of Croatia, as a member state of the European Union, through the LNG terminal on the island of Krk and its developed gas transmission system, represents one of the key entry points for natural gas supply and strengthening of supply security in this part of Europe;

"given that the infrastructural, geostrategic, and market position of the Republic of Croatia gives this project special significance for Bosnia and Herzegovina, the Republic of Croatia, and the wider region, including the diversification of natural gas supply routes and sources;

"on the route Split – Zagvozd (Republic of Croatia) – Posušje (Bosnia and Herzegovina) -Tomislavgrad-Šuica- Kupres – Bugojno – Novi Travnik/Travnik and the route Posušje-Grude-Široki Brijeg-Mostar; with branches towards Livno, Gornji Vakuf-Uskoplje, Donji Vakuf and Jajce, and a branch for Čapljina and an additional route Kladanj - Tuzla ensures the diversification of natural gas supply routes and sources.” The words: ,,(LNG Krk, IAP-gas from the Caspian region, etc.)“ were deleted from this statement,” it is stated in the document of the negotiation team.

Article 1 further states, “instead of the part relating to the statement on the interconnection point of the main gas pipeline, the following has been stated:

,,The interconnection point of the gas pipeline of the Croatian and Bosnian-Herzegovinian gas transmission systems is defined by WGS84 coordinates (ellipsoidal coordinates relative to the WGS84 ellipsoid) as follows:

Article 3 has been amended and now reads:

,,The line dividing property between the contracting parties is identical to the common state border as defined by the interconnection point from Article 1, Paragraph 2 of this Agreement.“

An provision has been added to Article 4 which reads:

,,The procurement of works, goods, and services necessary for the construction of the gas pipeline will be carried out in accordance with the regulations governing public procurement and/or in accordance with other applicable financing rules in force in the Republic of Croatia and Bosnia and Herzegovina, depending on the financing method that each contracting party will subsequently define, applying the principles of transparency and non-discrimination.“

A new Article has been added to the Agreement at the insistence of the Government of Croatia.

,,Article 5.

MINIMUM NATURAL GAS QUANTITIES

The Bosnian-Herzegovinian party undertakes to conclude a separate Agreement with the Croatian party, prior to the commencement of works on the project referred to in Article 1 of this Agreement, which will regulate the minimum annual lease of transport capacity through the interconnection referred to in Article 1 of this Agreement.

The Croatian party will commence works on the project only after the successful completion of the binding market testing procedure (binding Open Season), based on which gas transport agreements have been concluded with users on the interconnection, or after the conclusion of the separate Agreement referred to in Paragraph 1 of this Article, in both cases to an extent that ensures the economic viability of the project.

The separate Agreement referred to in Paragraph 1 of this Article will also determine the legal liability of the contracting parties, the jurisdiction for resolving any disputes between the contracting parties in case of inability to find a solution through diplomatic means, and other matters for regulating mutual relations,” the report states.

The original Article 5 becomes Article 6, from which the last paragraph stating:

,,The competent authorities referred to in Paragraph 1 of this Article shall, within 30 days of the entry into force of this Agreement, establish a joint operational body composed of representatives of both contracting parties, for the purpose of implementing the activities from this Agreement.”

Article 6, therefore, becomes Article 7 and has been significantly amended to read:

OPERATIONAL IMPLEMENTATION OF THE PROJECT

For the implementation of the project in the state territory of Bosnia and Herzegovina, the competent authorities in Bosnia and Herzegovina are responsible, in accordance with the constitutional order and the division of competencies in Bosnia and Herzegovina, and for the implementation of the project in the state territory of the Republic of Croatia, the competent authorities of the Republic of Croatia are responsible, in accordance with the legislation of the Republic of Croatia. The activities of operational project implementation are carried out in cooperation between the commercial companies participating in the project as investors (hereinafter referred to as the ,,Companies“), which each contracting party designates in accordance with its internal legal regulations in force in the state territory of its country. The competent authorities referred to in Article 6 of this Agreement shall, within 30 days of the entry into force of this Agreement, exchange notifications regarding the names and registered offices and authorized representatives of the Companies referred to in Paragraph 2 of this Article. The competent authorities shall continuously exchange notifications about any changes in the names, registered offices, and authorized representatives of the Companies, and about the progress made in the project implementation. The contracting parties, each within its competencies and in accordance with the internal legal regulations of their countries, support the implementation of the South Interconnection Gas Pipeline project of Bosnia and Herzegovina and the Republic of Croatia, including the activities of the Companies designated in accordance with this Agreement, without establishing exclusive rights and respecting the principles of transparency, non-discrimination, and market neutrality,” reads the new provision of the Agreement.

The original Article 8 becomes Article 9, has been amended and now reads:

,,For the management, maintenance, and control of the connection of the transmission systems at the interconnection point, and the associated handover facility, the investors shall conclude a separate agreement no later than the date of issuance of the operating permit.”

The original Article 9 becomes Article 10, the first paragraph has been amended and now reads:

,,The contracting parties agree, each within its competencies and in accordance with the applicable regulations that apply to them, to consider possibilities for simplifying customs procedures related to the project implementation. “

In paragraph 2, the last sentence has been added:

,,and for the Republic of Croatia, in accordance with the customs regulations of the European Union.“

The original Article 10 has been deleted, a new one has been added and it is now Article 11, which reads:

,,Article 11.

BORDER ZONE

The contracting parties shall, in accordance with the internal legal regulations of their country, endeavor to simplify and expedite procedures related to the temporary engagement of workers and service providers from the territory of one contracting party in the territory of the other contracting party for the needs of project implementation, whereby this Agreement does not derogate from applicable internal regulations on border crossing, residence, and employment of foreigners. Persons authorized for the preparation, design, construction, and technical supervision of the gas pipeline may, during the execution of planned works on the construction of the gas pipeline referred to in Article 1 of this Agreement, move and stay at construction site locations along the state border, in accordance with the instructions and requirements of the competent border control and security authorities of the contracting states, and without affecting the valid border crossing regime. Movement and stay referred to in Paragraph 2 of this Article are permitted during the works on connecting the gas interconnection in the area on both sides of the state border located within 100 meters of the state border line, with the obligation of prior notification and obtaining consent from the authority competent for border control of the contracting state on whose territory the works are being carried out. Persons referred to in Paragraph 2 of this Article, at the request of the competent border control authorities of the contracting states, are obliged to identify themselves with valid documents required for crossing the state border. The Companies shall, at least 15 days before the commencement of works, provide the competent border service of both contracting parties with a list of names of the persons referred to in Paragraph 2 of this Article, as well as the dates and time periods for the planned execution of the works referred to in Paragraph 2 of this Article.“

The original Article 12 becomes Article 13, which has been amended and supplemented and reads:

Article 13

FINAL PROVISIONS

This Agreement shall enter into force on the thirtieth (30th) day from the date of receipt of the last written notification whereby the Contracting Parties inform each other, through diplomatic channels, about the fulfillment of the conditions stipulated by their internal legislation for its entry into force. Each Contracting Party may terminate this Agreement in writing through diplomatic channels. In such a case, this Agreement shall cease to be effective six (6) months after the date of receipt of the notice of termination. This Agreement may be amended and supplemented by mutual written agreement of the Contracting Parties. Amendments and additions shall enter into force in accordance with Paragraph 1 of this Article. This Agreement shall be implemented in accordance with the internal legal regulations of the contracting states and with respect for the obligations arising for the contracting states from international treaties binding them. This Agreement shall not prejudice border delimitation issues and shall not create obligations that would be contrary to the valid regulations of the European Union applicable in the Republic of Croatia,” the agreement states.