Nacional, July 01, 2000
The First Diplomatic Miss by Racan’s Government
Only six months after the elections, Ivica Racan’s government is already involved in its first serious diplomatic incident. To make matters worse, they have run up against American ambassador William Montgomery, to date the most reliable political partner for Croatia
Only six months after the elections, Ivica Racan’s government is already involved in its first serious diplomatic incident. To make matters worse, they have run up against American ambassador William Montgomery, to date the most reliable political partner for Croatia. After Montgomery’s warnings to the government on the evening news on Sunday, July 9 that the Croatian government is obligated to fulfill the international obligations which they signed only weeks ago, deputy Premier Goran Granic commented that such an action was inappropriate, and that the statements made by Enron negotiator Zdenka Gast were "outside the boundaries of good taste". As a result, the relations between Croatia and the United States have, without any serious political reason, seriously degraded.
Not Accepting Obligations
On June 13, the State Department denied an article in Nacional which stated that the political relations between the United States and Croatia, as well as the upcoming visit by President Mesic and Premier Racan to the White House are connected to the successful signing of the Enron deal with Croatian Electric (HEP). However, Montgomery’s appearance on the evening news, and the reaction by Deputy Premier Granic, and all that which is to come, is the best acknowledgement that Nacional was in the right. The conflict between Enron and HEP, whether anyone will acknowledge the fact or not, has already had serious political consequences in the relations between the two countries, and there is reason to believe that the troubles are not nearing their end.
This all began with Ambassador Montgomery’s statement on Croatian Television that he was very concerned that the Croatian government had not respected the Protocol which had been signed between Enron and HEP in Houston on June 8. Montgomery said: "The Americans and residents of most countries in the West take agreements, signed contracts and fulfilling obligations very seriously. Your government signed a Protocol with Enron in Houston a few weeks ago. Deputy Premier Goran Granic, Minister of the Economy Goran Fizulic, and Public Works Minister Radimir Cacic were present at the signing, which was signed on behalf of HEP by its director Ivo Covic. Both sides led very intense negotiations.
Enron knows to respect the conclusions which were reached. We expect that your government will fulfill the conditions of the agreement signed only weeks ago. Keeping your word is much more important than respecting the agreement which is in the interest of both sides. When something is signed, then it is important to keep that given promise. Therefore, I expect that HEP and Enron will soon sign the contract which is outlined within the Protocol. I also expect that the Croatian government will fulfill the outlined conditions."
Granic’s Reactions
This explanation by the American ambassador immediately aroused loud reactions from the Goran Granic.
The Deputy Premier commented on Montgomery’s appearance on the next evening news on Monday, July 10, stating that it was inappropriate for Montgomery to give political appraisals while negotiations were still in process. Granic went one step further to say: We believed that a lesson was learned from the former government that it is not good to mix politics and economic negotiations. I do not want to comment on the statements by Mrs. Gast, for they were outside the normal boundaries of good taste. She has the right to comment in public, but in so doing she has outlined her position towards the Croatian government and future cooperation with the government.
In accusing Montgomery of giving political appraisals while negotiations were still underway, Granic made a serious mistake.
The American ambassador spoke on Sunday at 8 p.m., only four hours prior to the deadline for the contract to be signed, according to the agreement which the Croatian government signed in Houston. And Montgomery did not speak on his own initiative, but rather on the initiative of television reporters. Prior to this, he warned Premier Ivica Racan on Friday July 7 that the deadline to sign the contract was that Sunday, July 9.
Eternal Mystery
However, not even this was enough stimulation for someone from the government to speak with the American representatives.
And so, the ministers in Racan’s cabinet have continued with their well-practiced habit of avoiding agreed contracts and deals, and when they don’t know what to do, they don’t answer phone calls from their foreign partners. Nacional’s reporters have already witnessed this, as have other foreign businessmen and their ambassadors. According to their claims, the members of the Croatian government have often conducted themselves in an infinitely unprofessionally manner, in not answering questions and phone calls, and not responding to suggestions to hold discussions.
This has, according to the claims of foreigners, become the norm, and therefore, it is not surprising that after the change in government, the horrible business image of Croatia has not been improved in the world. This conduct by Croatian ministers has dealt a serious blow to the credibility of the entire government and its readiness to cooperate with foreign companies.
Minister Granic can be as upset as he wants with Ambassador Montgomery, but the American side is not to blame for this latest conflict with Enron.
It is a well-known fact that Ministers Granic, Fizulic and Cacic, together with HEP director Covic, travelled to Houston on their own initiative, that the Protocol was drawn up according to their wishes, and that after a full thirty days they have not managed to finish what was started with the deal.
They have now explained that they do not wish to sign the deal with Enron, as the conditions put forth by Enron are too demanding. How they have only discovered this now, and not in Houston, will certainly remain an eternal mystery. Such conduct by the Croatian government has rightfully upset the Enron representatives and will certainly discourage all potential foreign investment in the future. If the government is to conduct itself in such a manner before international corporations, how will they treat companies with lesser influence? This is the main question among diplomatic circles in Zagreb.
Uncertainty
Sources close to the State Department have already expressed their astonishment due to the manner in which the Croatian government is conducting itself with respect to Enron.
It is simply unbelievable with just how much ignorance the Croatian government is handling the deal which they themselves signed in Houston.
Racan’s cabinet cannot pull out now by saying that this is a contract signed by the former government under Matesa.
The Protocol in Houston was signed in the presence of several of his ministers, and all of the Croatian demands were integrated into the Protocol.
It is a very clean and strong documents, and so I cannot understand such an attitude on the part of the Croatian government towards this obligation.
A diplomatic representative from the United States told Nacional that in all democratic systems, such conduct would result in, at the very least, the dismissal of HEP director Ivo Covic, if not of the responsible ministers as well.
Goran Granic is also not correct when he claims that it is not good to mix politics and economic negotiations.
This would simply be impossible to avoid, which is also evidenced in the fact that the Croatian government participated in all stages of the negotiations between HEP and Enron.
In Europe, as well as in the United States, politicians do not dictate how economists should conduct themselves, but there the situation is completely different from ours here.
In the world, it is large companies who significantly influence political decisions. Croatian politicians will soon become aware of this fact.
It is significant to note that the official date for the visit to the White House by President Mesic and Premier Racan has still not been confirmed.
It was tentatively scheduled for August 9, which is a very unsuitable period, on the one hand because the party conventions are underway in the United States, and on the other due to summer vacations.
Had the Croatian government conducted itself correctly with respect to the American multi-national firms Enron and Bechtel, there would surely not be any uncertainty surrounding the state visit to the United States.
Mesic and Racan would not only be going on a working trip, but would certainly be received with full state ceremony.
It will be particularly interesting to see what will occur if Republican candidate George W. Bush is to win the US Presidential Elections this November.
It was recently made known that Enron and its president are the largest financial sponsors for Bush’s campaign.
Considering that the new Croatian government has publicly accused Enron on several occasions of trying to rob Croatia, the Republicans do not have an especially positive picture of Croatia.
Thus it is astounding that Premier Racan would allow his ministers to conduct themselves with such ignorance towards their American partners, and that, as Racan himself likes to say, for a kilo of meat, they are killing the whole cow.
There is no doubt that following the newest tricks in the deal with their foreign partners, Croatian will become an even less desired destination for foreign capital.
It is certain that there are few people who, after the bad experiences on the part of Enron, will decided to get into the adventure of investing in Croatia.
Although Deputy Premier Granic has attempted to show that the deal reached with Enron in Houston was a success for the Croatian negotiators; he is now trying to show that this was just another miss on the part of the government.
Penalty or Compensation
There is additional trouble in that the Protocol specifies that in the case that the Croatian side does not complete the draft contract within a 30-day deadline from the signing of the Protocol, then the former agreement will again be in effect. It is now very certain that the Croatian side will have to pay between 30 and 40 million dollars.
Either as a penalty for not abiding by the first agreement or as compensation for the current expenditures by Enron to date in preparing to build the gas powerplant at Jertovec.
Enron was one of the rare world companies ready and willing to invest in Croatia. The gas powerplant at Jertovec with a 240-megawatt capacity was one of the few foreign investments in Croatia.
The value of the entire job was to total 175 million dollars, which was in full to be provided by Enron. Although the agreement between Enron and HEP was revised by two leading world accounting houses who both concluded that the deal was both correct and good for Croatia, it is obvious that it is in someone’s interests to break the deal off regardless of the damaging consequences for the Croatian economy, as well as its politics.
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