What is happening in the Parliament?

Croatian Newsletter about topics including: Labour Law – Draft Labour Act Realestate Law – New regime for projects planned on the State owned land Financial market – New Leasing Act Environmental Protection – Do you need the environmental permit? Energy Law – Foundation of Agency for hydrocarbons Term of the Month – Vendor Due Diligence

Labour Law – Draft Labour Act

On the agenda of the meeting of the Croatian Government held on 23 January 2014 there was a proposal of the new Labour Act. The Government gave its support to the proposal and moved it forward into the parliamentary procedure. The new Labour Act should replace the existing text of the Act published in 2009 and amended in 2011 and 2013. If the proposal gets the support of the Parliament (which is very likely because of the great majority of votes of the ruling coalition in the Parliament), the following most important changes will occur:

  • it will be possible for the employers to organize uneven distribution of weekly working hours with the goal of flexibilisation of working hours;
  • the provisions on the part-time work will change with the goal to make this type of flexible work more attractive for the employers;
  • the requirements for the work on a separate work place (usually the so called “work from home”) will be less burdensome for the employers;
  • the process of termination of employment contracts, including cases of mass redundancy, will be less burdensome for the employers;
  • the obligation of application of a collective agreement will be more defined.

We will keep you regularly informed on further developments in the process of adopting the new Labour Act.

 

Realestate Law – New regime for projects planned on the State owned land

On 27 January 2014, the new By-law on granting the right to build and the easement right on the State owned land has been published. This By-law is important for any investor planning a project on the State owned land. Below you may find the most important news:

  • Framework: the right to build and the easement right remain legal basis for an investor to build on State owned land (without actually having to buy the land). In the new regime, however, the right to build can be granted almost exclusively as a result of the public tender procedure (former system offered more possibilities for direct negotiations) while the easement right remains to be directly negotiated. Thus the easement right is more easily obtainable, as well as cheaper as there is no risk of a third party outbid. The right to build remains more attractive for the investors that still need to secure financing for their project, as it is acceptable as security for repayment of a loan;
  • Price: the new regime also brings new prices that need to be paid in case of touristic projects and renewable energy projects. Usually, investor pays a fee which is calculated by the court expert – it is either value of the right to build or decreased value of the land on which easement is to be created (plus settling the cost for the court expert appraisal). The new regime, however, foresees different prices in case of touristic projects and renewable energy projects which now depend on the turnover. For touristic projects, the fee for the right to build cannot be lower than 1.5 nor higher than 6% of the annual turnover from the business located on the State owned land. For the renewable energy projects there is an additional fee in the amount of 1.5% of the annual turnover from the proceeds from sale of electricity.

Currently, there are no tenders for granting the right to build on the State owned land. This is because usually, such tenders (for granting the right to build on the State owned land) are published only after investor expresses interest to construct on a certain location.

 

Financial Market – New Leasing Act

A new Leasing Act (“Act”) has been published in the Official Gazette no. 141, dated 27 November 2013. The Act came into force on 5 December 2013 thus replacing the former Leasing Act from 2006. The new Act brings some new solutions regarding the leasing, by which legislator obviously wanted to comprehensively regulate and improve the legal regulation of the respective matter. The key highlights of the new Act may be found herein after.
Thus, the new Act extends the scope of business activities that can be conducted by leasing companies. Namely, companies can now benefit from the leasing and renting of the leased objects that are returned to the leasing company at the end of the lease period. The above mentioned was not possible under the former Leasing Act. Furthermore, the Act foresees that a leasing object may be procured  from an individual, as opposed to the former act which allowed the purchase of the leasing object only from legal persons i.e. entities. Additionally the Act provides a legal framework for conducting business activities by leasing companies that are considered as EU residents. In this sense, the leasing company registered in one of the Member States, may perform leasing activities in Croatia directly or through a branch office. The rule also applies vice versa, i.e. to Croatian leasing companies looking to operate in the EU.
The new Act provides additional requirements for leasing companies in terms of risk management, system management and process supervision. To that end, the new Act introduces provisions on the requirements related to the organizational structure of the leasing company, internal audits, separation of business processes and internal controls system.
The full implementation of the Act can be expected  as of June 2014, which is the term for the Croatian Agency for Supervision of Financial Services (Croatian abbreviation “HANFA” ) to adopt all implementing by-laws  prescribed by the Act.

 

Environmental Protection – Do you need the environmental permit?
In July last year, new Act on Environmental Protection has been published, introducing new system of the environmental protection. Instead of obtaining the IPPC (Integrated Pollution Protection Control) operators of industrial installations now need to obtain the so called “environmental permit”. Until recently it was not clear who will need to obtain this environmental permit – it was only announced that it will include wider circle of industrial installations than the IPPC. In January this year, the new By-law on the environmental permit which includes the list of affected industrial installations has finally been published.

It is important to stress that in case that you are a producer or in the waste management business, even if until now you didn’t need to have the IPPC it does not necessarily mean that you don’t also need the environmental permit. Due to high misdemeanour penalties (up to EUR 120,000) we advise you to check whether this new system affects you. Note that the deadline for the existing installations to be brought into compliance is 07 June 2015 for the installations that until now needed no IPPC, but 07 January 2014 for all other installations.

 

Energy Law – Foundation of Agency for hydrocarbons
The Parliament has adopted the Act on Agency for Hydrocarbons (the “Act”) on its 12th session held on 24 January 2014. Within 30 days as of the day when the Act enters into force, the Government shall appoint the Steering Committee comprised of a president and 8 members, representatives of various ministries, Centre for Monitoring of Business Activities in energy Sector and Investments and State Office for Management of State-owned Assets. The Management Board of the Agency shall consist of the president and 3 members, all appointed by the Government following a public tender procedure.

The initial capital for the Agency shall be secured from the state budget, whereas in the future it will be financed from the proceeds from sale of documentation for exploration and exploitation of hydrocarbons and from a part of proceeds from exploration fee paid by the investors.

The Agency shall act as operational support to competent bodies in the domain of exploration and exploitation of hydrocarbons and permanent geological storage of gas. Namely, the Agency shall participate in all activities related to tender procedure and issuance of exploitation permits, monitors investors in fulfilment of their contractual obligations, controls investor’s expenses, reports to European Commission etc.

Moreover, the Agency is the one that will be in charge of collection and preparation of documents that shall be presented to potential investors for their acquaintance with the hydrocarbon potentials in Croatia.

We would like to remind you here that the Government has already commissioned, following a direct negotiation with a Norwegian company Spectrum Geo, the exploration of potential of seabed of the Adriatic Sea. Moreover, the Ministry of Economy has issued a public tender in December 2013, for advisory services in preparation and implementation of a public tender procedure for exploration and exploitation of hydrocarbons in Adriatic Sea and it is highly likely that these services will be commissioned from the British consultants IHS Global.

 

Term of the Month – Vendor Due Diligence
Investors now require a greater degree of information prior to committing their own resources. Vendor due diligence is a due diligence investigation commissioned at the very outset of the disposal with the aim to review the business or asset that is to be offered. Although such a report can be kept for vendor’s purposes only, more often it will be shared with potential purchasers. This is why a good due diligence report should provide a consistent sales message, whilst maintaining independent view in order to instill confidence in the potential buyers.

Why do a vendor’s due diligence?

  • gives the vendor the chance to identify and respond to any issues affecting the value of the assets about to be sold and therefore makes the vendor well prepared for the negotiations;
  • time savings can be significant if, for example, there are a number of potential purchasers, the business is complex, multi-jurisdictional or high value;
  • provides the foundation for the disclosure letter (which we will address in more detail in the next newsletter).

This is why a good due diligence report should provide a consistent sales message, whilst maintaining independent view in order to instill confidence in the potential buyers.