HEP CONDUCTING DELICATE NEGOTIATIONS WITH ENRON

ZAGREB, July 26 (Hina) - The Croatian Power Industry (HEP) is conducting very delicate negotiations with the US company Enron because the project of construction of the Jertovec gas thermal power plant is very expensive and great caution is necessary to protect the interests of the HEP and Croatia in the best possible way, HEP director Ivo Covic said on Wednesday at a news conference, at which he also commented on some media claims regarding this issue. All options are open at the moment, Covic said. We are negotiating concrete cooperation and the reorganisation of the contract, if possible at all, in the way which would be acceptable, Covic said. Covic said efforts aimed at reaching an agreement with the US partner to the mutual benefit were continuing. It has never been said that the existing contract (on the construction of the Jertovec power plant of June last year) will not be respected, Covic said. This would be the last option if no agreement is reached, he added. We have not concealed nor are we concealing the fact that we are not satisfied with that contract, however, we cannot go against the signed documents and we will certainly implement this contract consistently also in case no agreement with Enron is reached, he said. According to Covic, the existing contract is not in Enron's interest either. It may bring certain financial benefits but this is a short-term effect. If Enron wants to be a long-term and desirable partner in Croatia, it should realise that the contract, which is difficult to harmonise with the reform of our system and principles on the European market, should be reorganised, he explained. We still have not been able to agree on the compensation for the change of the contract because Enron is seeking large amounts and concessions. This certainly requires a lot of patience and time, we are working on this and I believe we will reach a solution, the HEP director said. Covic also commented on the claim (by some media) that it had been realised too late that the protocol Croatia signed in Houston in June this year was "much worse than the old contract." The protocol was an attempt to establish the principles for changing the contract. Those principles are written in the protocol, however, the protocol also reads that it does not represent any obligation nor does it produce any legal effects. Contrary to claims in the press, in the process of negotiations after Houston, talks were held both in Zagreb and Frankfurt and it became obvious in the end that Enron had attempted to claim more than had been envisaged by the contract, whereas our representatives had tried to interpret principles from the protocol in the way which would be more favourable for the HEP, and so our stands became rather opposed by the time we were to sign the contract (July 9), Covic said. The protocol envisages several questions: the purchase of electricity at a set price, in line with a set profile and within a set deadline, the resolution of the problem of the plant's location or some other possible location for the plant, Covic said. "We concluded that in all these questions Enron was trying to increase its requests in the way which was not acceptable for the HEP, especially because the existing contractual relations provide a basis for some compensation which would be in line with the degree of implementation of this contract," Covic said. According to final estimates, Enron has so far suffered damage amounting to a maximum of some US$15 million, Covic said adding the US company had again refused to present the documentation about and specify the content and value of those costs. However, Enron's requests for compensation are several times higher and if the US company does not give up those conditions, we will find it difficult to agree to a new contract, Covic said. "We are not limited by any deadlines," he said, adding the contract was drafted so as to grant Enron alone the right to unilateral termination. (hina) rml