Overview (October 2009) - International Law Office

Changes to Regulatory Framework
Institutional Framework
Market Structure

Changes to Regulatory Framework

The reform of Croatian energy law commenced in earnest in July 2001 when the Energy Law was passed along with the following set of laws, which separately regulate specific energy sectors:

• the Law on the Electrical Energy Market;
• the Law on the Oil and Oil Derivatives Market;
• the Law on the Gas Market; and
• the Law on the Regulation of Energy Activities.

These laws establish the legal framework for:

• the restructuring and reorganization of the energy sector;
• the opening-up of the energy market; and
• the regulation of energy activities.

The reforms encompass the restructuring of energy entities and the establishment of a new legal and institutional framework determining market rules, the obligations of public services and the separation of energy activities into market and regular activities.

Energy legislation has become one of the most important aspects of Croatia's accession to the European Union, including the obligation to harmonize with EU energy legislation and the organizational standards of the internal EU market. The existing legal and regulatory framework was inadequate; thus, legislative changes were necessary. Consequently, in December 2004 Parliament passed another set of energy laws, namely:

• the Law on Amendments and Additions to the Law on Energy;
• a new Law on the Electrical Energy Market; and
• a new Law on the Regulation of Energy Activities.

Further legislative developments occurred in 2005 with the enactment of the Law on the Production, Distribution and Supply of Heat Energy, in 2007 with the Law on Amendments and Additions to the Law on the Gas Market and additional legislation in early 2009.

Institutional Framework

The Energy Regulatory Agency (HERA) was established in 2002 and is responsible for the licensing of enterprises in the gas, electricity, district heat, and oil and oil derivatives markets.

HERA's activities include:

• supervising the application of all tariff systems and prescribed compensation;
• organizing and carrying out tender procedures;
• providing opinion or consent on draft regulations in the energy sector;
• supervising the quality of services provided by energy undertakings;
• participating in energy policy design; and
• settling disputes on the performance of regulated energy activities.

HERA also advises the government on proposals on tariff item amounts and proposals on the amount of compensation for connection to the network. It also monitors (i) the extent to which the transmission system operator and the distribution system operator fulfil their obligations pursuant to the Energy Act and laws governing individual energy activities, and (ii) the degree of transparency and market competition. In addition to issuing licences for carrying out energy activities and temporarily and permanently revoking those licenses, HERA also issues rulings on granting producers eligibility and can temporarily and permanently revoke these rulings.

Energy Market Structure

The Croatian Electricity Company (HEP) is legally unbundled - there is one generation and one transmission company. The natural gas market structure involves one producer or wholesaler and storage operator and one gas transport company, Plinacro, which is legally unbundled and state owned. There are 398 distribution companies or public utility supply companies. Transportation, distribution and tariff supply price is regulated (ie, a tariff system). Wholesale price is set by government decree. State oil company INA has been privatized, with the privatization of HEP expected soon.

For further information on this topic please contact Don Markusic at Odvjetničko društvo Borić & partneri doo by telephone (+385 1 4924 500), fax (+385 1 4924 529) or email (don@markusic-solicitor.hr).