BUSINESS NEWS BULLETIN, NO 112

BUSINESS NEWS BULLETIN No 112 March 13 - 19, 1999 CONTENTS: ? DIRECT FOREIGN INVESTMENT IN CROATRIA US$2.04bn 2 ? INTERNAL DEBT HRK13.49bn LATE IN JANUARY 2 ? STATE BUDGET INCOME REACHES HRK2.3bn IN JANUARY 2 ? JANUARY INCOME FOR PUBLIC SPENDING HRK5.53bn 2 ? UNCOLLECTED DEBT REACHES HRK15.6bn IN LATE JANUARY 2 ? CASH INFLOW OF TRADING COMPANIES HRK25.2bn 3 ? MANUFACTURER'S PRICES OF INDUSTRIAL PRODUCTS RISE IN FEBRUARY 3 ? 313,736 UNEMPLOYED PERSONS IN CROATIA IN FEBRUARY 3 ? CROATIA RECORDS 6 PER CENT DROP IN NUMBER OF TOURISTS 3 ? PRICES IN CATERING AT JANUARY LEVEL 3 ? FINANCIAL MARKETS 3 ? DISCOUNT RATE INCREASED TO 7.9 PER CENT 4 ? ZAGREBACKA BANK PRESENTS NON-CASH SERVICES 5 ? MEDIMURSKA BANKA POSTS HRK17m PROFIT 5 ? GOVERNMENT APPROVES OPERATING PLAN FOR THIS YEAR?S SPRING SOWING 5 ? ENDORSED BILL ON PENSION BASIS 6 ? THE BOARD FOR STRATEGIC DECISIONS CONSIDERS ECONOMIC STABILITY 6 ? MINISTRY OF AGRICULTURE AND FORESTRY TO MONITOR THE USE OF INCENTIVES 6 ? HRVOJE POZAR ENERGY INSTITUTE ESTABLISHES COUNCIL OF EXPERTS 6 ? VIP NET PROMOTES ITS EQUIPMENT SUPPLIERS 6 ? BRODOSPLIT SIGNED US$40M SHIPBUILDING CONTRACT 7 ? ZET SOON TO SIGN AGREEMENTS WITH MERCEDES AND MAN 7 ? TALKS HELD ON THE CONSTRUCTION OF GORICAN-ZAGREB HIGHWAY 7 ? COST OF INA?S INFORMATION SYSTEM SWITCHING TO THE YEAR 2000 EXCEEDS US$3.5m 7 ? SINJ SUPERVISORY BOARD DECIDES TO START BANKRUPTCY PROCEDURE 7 ? SPACVA TIMBER INDUSTRY TO MAKE PROFIT 7 ? OSIJEK SUGAR FACTORY STARTS PAYING FOR LAST YEAR?S SUGAR BEET CROP 8 ? IPK RATARSTVO-STOCARSTVO STARTS SOWING WORKS 8 ? NEW IPK OSIJEK OIL FACTORY TO START OPERATING BY SEPTEMBER 2001 8 ? PANONSKA PIVOVARA BREWARY REPORTS A LOSS 8 ? NAMA'S RECOVERY SCHEME BACKED UP ? RESPONSE FROM PBZ AWAITED 8 ? MREZNICA DEPARTMENT STORE OPENS IN DUGA RESA 9 ? EUROPLAKAT PROREKLAM LAUNCHES INTERNET PAGES 9 ? CROATIA?S PUBLIC SPENDING TOO HIGH 9 ? BOSNIA-HERZEGOVINA AND CROATIA COMMITTED TO LIBERALIZING TRADE 9 ? CROATIAN CRAFTSMEN PARTICIPATE AT GRAZ FAIR 10 ? 150,000 TOURISTS FROM BOSNIA-HERZEGOVINA TO VISIT CROATIA THIS YEAR 10 ? SUNDRIES 10 1. ECONOMIC INDICATORS DIRECT FOREIGN INVESTMENT IN CROATRIA US$2.04bn At the end of the third quarter last year, direct foreign investment in Croatia reached about US$2.04bn. Most of it ? 42.9 per cent ? flowed into the pharmaceutical industry, followed by a 14.5 per cent inflow in financial brokerage. Significant investments were made in cement production ? 5.2 per cent of the total investment value ? and in glass production ? 4.3 per cent. Most foreign investment came from the U.S.A. ? US$838.9m, followed by half a billion US dollars from Austria and US$89.6bn from Switzerland. (Source: State Bureau of Statistics) INTERNAL DEBT HRK13.49bn LATE IN JANUARY Croatia?s internal debt reached HRK13.49bn late in January this year, HRK205.13m less than late last year. Medium and long-term debt amounted to HRK12.99bn, while short-term debt, related exclusively to treasury bills, reached HRK506.4m. A month earlier, short-term debt was HRK59.4m bigger. The amount of debt arising from the so-called old foreign currency savings deposits was HRK6.23bn. Large series I to IV bonds accounted for HRK3.4bn, JDA and JDB bonds accounted for HRK22.82m, and series I to V bonds for the bail-out of banks represented HRK3.05bn. According to the projections by experts of the Croatian Finance Ministry, Croatia?s internal debt is expected to reach HRK9.62bn by the end of the year 2000. STATE BUDGET INCOME REACHES HRK2.3bn IN JANUARY An income of HRK2.31bn was recorded in the state budget this January. The HRK2.2bn tax earnings, which accounted for the largest part of that sum, included HRK339m from income tax, a drop of 2.9 per cent on the same month last year, which is due to an increase in non- taxable income. Earnings from profit tax reached HRK131m, and the VAT income amounted to HRK1.1bn. Total expenditures and borrowings minus repayments reached HRK2.96bn in January (Source: Ministry of Finance) JANUARY INCOME FOR PUBLIC SPENDING HRK5.53bn The actual inflow of income for public spending was at HRK5.53bn in January this year up 2.7 per cent against the same month last year. 66 per cent of that amount ? HRK3.65bn ? was accounted for by natinal, local and municipal government income, up 4.3 per cent against January 1998. Non-budgetary funds, which are filled from salary-related contributions, increased by 0.6 per cent to HRK1.81bn, and represented 32.7 per cent of the total amount of actual income for financing public spending. State-owned companies, communities and administration accounted for only 1.2 per cent of the total amont collected ? HRK68.62m - 17.6 per cent less than last year. (Source: ZAP clearing house) UNCOLLECTED DEBT REACHES HRK15.6bn IN LATE JANUARY The number of unexecuted payment orders due to the fact that there was not enough money in the debtors? accounts with ZAP clearing house, continues to grow. ZAP posted HRK15.6bn unexecuted payment orders in late January this year, up 8.3 per cent against the previous month and up 56 per cent against January last year. According to ZAP's data, which shows only the debt of registered owners, 26,482 companies were insolvent in late January, down 0.1 per cent against December and up 23 per cent against January last year. These companies employed 187.904 workers, up 3.1 per cent compared to December. Privately owned companies, 22,436 of them, reported the largest amount of unexecuted orders which reached HRK8.9bn. By activities, wholesale trade and mediation posted the largest amount of unexecuted orders which reached HRK3.4bn. 58.2 insolvent companies had their accounts frozen for over a year and they accounted for 67.9 per cent of the overall debt. 4,151 companies had their accounts frozen from 181 to 360 days, 3,099 companies from 61 to 180 days, 1,278 from 31 to 60 days while 2,551 companies had their accounts frozen for up to 31 days. Due to unpaid taxes, 12,417 legal persons had their accounts frozen on January 31, up 50 per cent compared to a year ago. ZAP accounted for such a big rise in percentages by changes in the order of forced collection in effect from November last year. Legal persons' cash assets in drawing accounts reached HRK10.1bn on January 31 this year, down 3.7 per cent against the previous month and down 23.4 per cent against January last year. CASH INFLOW OF TRADING COMPANIES HRK25.2bn Cash inflows registered in the accounts of entrepreneurs-trading companies with ZAP clearing house amounted to HRK25.2bn in the course of January this year. This represents a nominal increase of 1.5 per cent against the same month last year. At the same time, outlays reached HRK25.8bn, up 0.5 per cent. Operating income, which account for 86.2 per cent of all cash inflows, and consist of collected income from the sale of products and services, amounted to HRK21.8bn, a 3.9 per cent increase against January last year. According to ZAP?s data, record outlays were reported for material, commodities and services - HRK15.5bn, up 5.6 per cent against January last year, and they accounted for 60.1 per cent of overall outlays. Public spending - value added tax, taxes and local taxes, contributions and income tax - amounted to HRK2.6bn in January, 14.4 per cent less than in the same month last year. Paid net salaries rose by 3.7 per cent to HRK1.5bn, which accounted for 5.6 per cent of the overall outlays of entrepreneurs-trading companies. MANUFACTURER'S PRICES OF INDUSTRIAL PRODUCTS RISE IN FEBRUARY Manufacturer's prices of industrial products in Croatia posted in February a 0.8 per cent rise against January and remained the same compared to February last year. The prices of power and capital products rose by 3.9 and 1.0 per cent respectively against January. The prices of durable and non-durable consumer goods remained at their January level while the prices of intermediary products, except power, fell by 0.01 per cent. By the areas and segments of the national classification of activities, mining and digging reported the highest rise in prices, which amounted to 19.5 per cent. The manufacturer's prices of industrial products in the first two months of this year decreased by 0.5 per cent compared to the same period last year. (Source: State Bureau of Statistics) 313,736 UNEMPLOYED PERSONS IN CROATIA IN FEBRUARY 313,736 people were unemployed in Croatia in late February, up one per cent against the previous month and up 7.6 per cent against late February last year. 875 persons, down two per cent against December, lost their jobs in February due to the fact that their employers closed business. This puts at 22,747 the total number of persons who lost their jobs due to this reason, a 0.75 per cent increase against January. This figure does not include people who lost their jobs owing to their company's rehabilitation. 7,112 persons from the unemployment list were employed, down 17.1 per cent compared to the same month last year. 91.745 persons were first-time job seekers, up 0.7 per cent compared to late February last year. The largest number of unemployed people, 108.502, was reported among qualified and highly qualified workers. 51,530 people received unemployment benefit, up 2.8 per cent against January and up six per cent compared to February last year. (Source: State Bureau of Statistics) CROATIA RECORDS 6 PER CENT DROP IN NUMBER OF TOURISTS 85,168 tourists visited Croatia in January, a decrease of 6 per cent on the same month last year. There were 28,467 foreign tourists in the country, a fall of 3 per cent, and the number of domestic tourists dropped by 7 per cent. 251,781 overnights were recorded in January, a drop of 7 per cent against January 1998. Down 5 per cent, foreign tourists? overnights were at 83,880, and a drop of 8 per cent was recorded in the overnights of domestic tourists. (Source: State Bureau of Statistics) PRICES IN CATERING AT JANUARY LEVEL Prices in the catering industry in Croatia remained in February at their January level and rose 1.5 per cent against the same month last year. Compared to February last year, a record rise of 2.3 per cent and 2.1 per cent was reported in the price of overnights and food respectively. Non-alcoholic beverageswere 1 per centmore expensive, while the price of alcoholic beverages dropped by 2.3 per cent. In the first two months this year the price of catering services rose by 1.6 per cent compared to the same period last year. (Source: State Bureau of Statistics) 2. FINANCIAL MARKETS MOST TRADED STOCKS AT THE ZAGREB STOCK EXCHANGE, MARCH 16 - 19, 1999 No Stock Final price (HRK) % change Turnover (HRK) % change 1. Zagrebačka banka 0 646 -0,84 3.300.507 9,06 2. Trgovačka banka 1.700 6,25 2.263.070 2.533,93 3. Karlovačka pivovara 400 28,21 936.500 3.801,43 4. Podravka 79 12,86 752.066 195,95 5. Pliva 585 -3,16 367.616 -97,16 6. Riječka banka 60 - 149.490 - 7. Varaždinska banka 70 4,48 54.265 -45,82 8. Kraš 60 15,38 28.603 -20,77 9. Zagrebačka banka 3E 270 - 26.350 - 10. Zagrebačka banka 2C 560 - 26.320 - TURNOVER 7.949.168 -62,51 CROBEX 745 -2,00 TRADED STOCKS AT THE VARAŽDIN OTC MARKET, MARCH 15 - 19, 1999 No Stock Final price (HRK) % change Turnover(HRK) % change 1. Karlovačka pivovara 340 6,25 170.000 165,63 2. Ericsson Nikola Tesla 90 0,00 89.832 -69,70 3. Našice cement 480 - 21.660 - 4. Varteks 25 - 19.025 - 5. Jadranski naftovod 1.100 - 14.590 - 6. Kraš 58 - 14.384 - 7. Splitska banka 35 - 3.500 - 8. Bjelovarska banka 3.100 -3,13 3.100 -80,63 9. Jadran turist 35 - 2.1000 - 10. Jadran hoteli Crikvenica 300 - 600 - TURNOVER 338.791 -18,08 VIN 285 0,35 EXCHANGE RATE - HRK Curency Unit 15-March-1999 19-March-1999 % change USD 1 6,955228 6,956010 0,01 DEM 1 3,890430 3,886955 -0,09 ITL 100 0,392973 0,392622 -0,09 GBP 1 11,286951 11,314650 0,25 ATS 1 0,552969 0,552475 -0,09 CHF 1 4,755711 4,763086 0,16 JPY 100 5,888273 5,938202 0,85 EURO 1 7,609019 7,602223 -0,09 (Source: Croatian National Bank - HNB) SHORT-TERM SECURITY ISSUES Date Issue Maturity Amount subscribed (kn) Interest rate 16-03-99 MinFin T-bills 42 - days 305.600.000 10,60% 17-03-99 HNB T-bills 35 - days 83.200.000 9,50% 17-03-99 HNB T-bills 91 - days 200.000 10,50% 17-03-99 HNB T-bills 182 - days 8.000.000 10,50% 17-03-99 HNB T-bills (repo auction) 5 - days 498.229.103,70 12,57% Total amount of subscribed MinFin T-bills as of March 16, 1999: HRK 736.200.000 Total amount of subscribed HNB T-bills as of March 17, 1999: HRK 461.800.000 3. BANKING AND FINANCE DISCOUNT RATE INCREASED TO 7.9 PER CENT Reports by interim administrators appointed late in January this year to run Gradska Banka d.d. Osijek, Komercijalna Banka d.d. Zagreb and Zupanjska Banka d.d. Zupanja, represented the key item on the agenda of this week?s meeting of the Council of the Croatian National Bank. The interim administrators have been commended by the Council members for the work done so far. Although these banks presently account for only 3.15 per cent of Croatia?s overall banking assets, the comprehensive and thorough debate about the way to resolve the banks? current crises continues. It will go on until the end of next week at the latest, in order to allow some more time for carrying out some additional analysis and harmonizing the activities with some other state bodies within whose competence the consequences of the decisions on the destiny of the banks fall, with a view to protecting the interests of the depositors and reducing the negative impact on the state budget and the credibility of the entire banking system. The findings of the interim administrators confirm that the banks are insolvent and that their potential losses by far exceed their guarantee capital. To a great extent, the banks also share the key management features which brought them to the verge of collapse: poor asset management, funding growth through high-interest loans, large placements to inter-connected companies,the concentration of decision-making in the hands of one person or a narrow circle of people without suitable internal control systems, violations of regulations, and even abuse that falls within the competence of the judiciary bodies. At the same meeting, the Council of HNB, the Croatian central bank, decided to launch some changes in the monetary policy. By increasing the discount rate from 5.9 to 7.9 per cent annually it sends an additional signal to banks and savings banks to the effect that they should not expect the monetary policy to become less rigid. Although the pressure on the exchange rate has diminished over the past two weeks and the demand and supply in the foreign currency market have become more balanced, the Council decided to gradually reduce from the current 50 per cent to 40 per cent in April and 30 per cent as of May the availability of treasury notes denominated in foreign currencies as a mortgage for lombard loans - a measure expected to strengthen the demand for kuna-denominated treasury notes. ZAGREBACKA BANK PRESENTS NON-CASH SERVICES Late last week, Zagrebacka Banka (ZABA) presented ZABA 24, the bank?s range of non-cash services which allow citizens to carry out banking transactions regardless of time and distance. ZABA 24 includes a number of business areas, these being Zabafon (phone banking), information centre, Telebanking ? Retail and Corporate Banking, Eurocard / Mastercard authorization, ATM and POS terminal supervision. ZABA enables its estimated 31,000 users to check the state of their accounts and transactions, order cheques, pay bills in kunas and carry out financial transfers within Zagrebacka bank. With about 7,000 Zabafon calls a day, last year, Zabafon recorded a turnover was HRK314m. Telebanking, whose monthly turnover reaches HRK20m, has 6,000 ZABA users and receives 1,100 calls a day. In addition provided by Zabafon, exchange lists since 1990 and e-mail link with Zagrebacka bank are also available on Telebanking. The information centre is in charge of informing customers on the bank?s range, and exchange lists are sent to subscribers one day ahead. Zagrebacka bank claims that today every fifth transaction takes place out of the bank, that is through ATMs, Zabafon, telebanking and other ZABA services. The bank also announced its new Internet pages would be available as of April 6. The new web site, which was presented by the bank, contains as many as 800 pages and will offer the same services as Telebanking. MEDIMURSKA BANKA POSTS HRK17m PROFIT Medimurska Banka d.d. based in Cakovec performed well last year and reported a HRK17m profit. The bank?s assets grew at the rate of 18 per cent reaching HRK1.1bn. The bank?s supervisory board proposed to the shareholders? assembly to earmark HRK9m for the payout of dividend, which would amount to HRK28 per share. The rest will be directed into reserves. Last year, Medimurska Banka granted over 7,000 retail loans worth a total of HRK77m. Corporate loans were granted to over 1,000 craftsmen and trading companies putting overall placements at the end of the year at HRK660m, up 30 per cent against a year earlier. Of special importance was the DEM10m credit line granted by the European Bank for Reconstruction and Development (EBRD), which benefited a number of successful trading companies. Medimurska Banka is committed to winning another credit line from EBRD. 4. ACTIVITIES OF GOVERNMENT, MINISTRIES AND STATE INSTITUTIONS GOVERNMENT APPROVES OPERATING PLAN FOR THIS YEAR?S SPRING SOWING In the open part of its meeting this week, the Croatian Government, among other things, endorsed the operating plan for this year?s spring sowing season, under which 711,400 hectares of land should be sowed, 11.4 per cent more than last year. 103,000 hectares of the area planned to be sowed will be covered by invcentives, of which soybean, sunflower, sugar beet and malt barley will account for 36,000, 32,000, 29,000 and 6,000 hectares respectively. Sowing incentives will be paid from this year?s budget, with half of the amount disbursed in the period between April and June, and the rest in the period between October and December, i.e. following the harvest. The first part of the incentives for the sowing of malt barley, sugar beet, soybean and sunflower will be paid in the form of raw materials i.e. mineral fertilizer, seed, fuel and pest control substances. In addition, the Government decided to initiate the procedure leading to the signing of a US$7.3m loan agreement between IBRD, the International Bank for Reconstruction and Development, and the Republic of Croatia, to finance the project of technical assistance related to institutional and legislative changes aimed at facilitating the growth of the private sector in Croatia. The amount of the loan ? which comes with a 15- year maturity and a 5-year grace period - includes the one per cent initial commission. The interest rate is six-month LIBOR increased by a 0.39 per cent annual margin. The project, among other things, includes financing the Agency for the Protection of Market Competition, the Securities Commission and Central Deposit Agency, designing a study aimed at improving the land registry through the State Land Surveying Authority, creating a methodology and introducing a system of monitoring consumer prices by the State Bureau of Statistics, supporting the State Agency for Savings Deposits Insurance and Bank Rehabilitation in the process of privatizing three state-owned banks, etc. In addition, the Government gave the green light for initiating the procedure leading to the conclusion of an agreeement with the IBRD, the International Bank for Reconstruction and Development, for a US$80,000 donation for the development of a national plan for dealing with the millenium bug, to be disbursed through the Ministry of Science and Technology. US$24,000 of the donation are earmarked for consulting services provided by local and foreign experts; US$16,000 are intended to cover the cost of training and US$17,000 will be used to fund training courses for senior administrators. The Government proceeded to endorse the participation of JANAF, the Adriatic oil pipeline company, in setting up and becoming a member of international consortium for the transportation of oil through Druzbadria system. The project would allow oil to be exported on the global market from Russia and other countries of the former Soviet Union through JANAF and the oil-transportation port of Omisalj. The transportation route, whose total length is 3,200 kilometrs, would start in Russia and would run through belarus, Ukraine, Slovakia, Hungary and Croatia, where it would utilize the existing 300-kilometer-long JANAF system, with a parallel pipeline yet to be built. The countries involved in Druzbadria project signed a protocol in Zagreb in October last year. ENDORSED BILL ON PENSION BASIS In a closed part of its meeting this week, the Croatian Government, among other things, accepted a draft law which sets the basis for caluclation retirement benefits by including 1994 and 1995 salaries. The draft law defines as salary received in those years the salary paid by the employer based on job contract minus mandatory contributions and tax from income. The Government also accepted the bill on changes and amendments to the law on court registry and passed a decision extending the deadline for submitting applications for renewal. Under the decision, the applications for renewal can be filed by May 30, 1999, because a large number of persons have so far been unable to file a request for having their housing problem solved. The Government passed a decision to temporarily open Dvor-Bosanski Novi border crossing between Croatia and Bosnia-herzegovina for international traffic because the two current border crossings are closed due to the rebuilding of bridges across the Sava river. THE BOARD FOR STRATEGIC DECISIONS CONSIDERS ECONOMIC STABILITY The Board for Strategic Decisions of the Presidential Council on Monday held a session chaired by Croatian president Franjo Tudman. The board considered the current economic situation, measures necessary for preventing critical situations as well as measures aimed at stimulating development and strengthening economic stability. The Board will inform the general public about the conclusions of its discussion. MINISTRY OF AGRICULTURE AND FORESTRY TO MONITOR THE USE OF INCENTIVES According to the participants at a meeting held at the Ministry of Agriculture and Forestry, the use of state incentives for agriculture will be closely monitored and any abuse will be punished. Under the operational plan for the spring sowing presented at the meeting, manufacturers will for the first time get a part of the incentive before the most important spring work. The Ministry of Agriculture and its services will control all the wheat producers who were granted in fall a part of the incentive in money or production material. According to the agriculture and forestry minister Ivan Durkic, all producers who are not using the incentive in keeping with the provisions will be liable to sanctions. However, the Ministry will take into account the fact that last year's fall was extremely rainy and that certain producers couldn't comply with the agreed terms. The ultimate punishment for manufacturers who do not observe the agreement is to ban them from the incentive system. In order to obtain the information on the actual situation in the use of incentives, the Ministry's services will interview incentive users and a special commissions will control the sowing areas. Under the Government's decision, half of the incentives for the spring sowing will be paid in mineral fertilizers, diesel fuel, protection instruments or seed. The deadline for the Ministry to pay the incentive money to the manufacturers of production material should be set soon. HRVOJE POZAR ENERGY INSTITUTE ESTABLISHES COUNCIL OF EXPERTS The council of the Hrvoje Pozar energy institute was established in the Ministry of Economics last Friday. The council consists of representatives from 32 government institutions and agencies, as well from the university, Hrvatska Elektroprivreda (HEP), Croatia?s electricity utility and INA, the country?s oil company. The task of the council will be to coordinate energy research in order to make it possible for science to support Croatia?s current and future power needs. The council, which represents a national coalition of power institutions aimed at improving energy management in Croatia, is to hold meetings at least twice a year or more often if necessary. 5. COMPANIES VIP NET PROMOTES ITS EQUIPMENT SUPPLIERS VIP-net group, concessionaire of Croatia?s first private GSM network, late in February signed agreements with selected suppliers of telecommunications equipment Ericsson-Tesla and Siemens. By selecting these two suppliers, Vip-net confirmed its commitment to co-operating with Croatian business partners, i.e. those companies which are already present in the Croatian market, said Boris Nemsic on behalf of the board of VIP-net, Croatia?s second digital mobile telecommunications. The total value of the investment under the three-year agreement with Ericsson and Siemens is US$60m, which includes only the cost of the equipment without additional costs, the cost of building the facilities etc. The new GSM network is due to start operating on July 1 and should cover 50 per cent of the population of Croatia. This is the first stage of the building of the network, which is primarily geared towards covering with the useful signal large cities, tourist resorts and traffic routes, while the subsequent stages should extend the network across the country, says VIP-net?s Network Infrastructure Office. Once the second stage is completed in 21 months, the network should cover 90 per cent of the population, and 36 months from now, i.e. once the third stage has been completed, the network should cover the entire country. BRODOSPLIT SIGNED US$40M SHIPBUILDING CONTRACT The Split-based Brodosplit shipyard and Diocletian Shipping Limited have signed a US$40m contract on the construction of four ships. The first ship is expected to be delivered in the second half of 2000, the second ship two months after that and the third another two months after the second. These multi-purpose 113-meter long ships have a carrying capacity of 8,500 tonnes. They will be run by 2,850kW major engine and will reach the speed of 14.5 knots. Under this contract, which will become valid after the receipt of the first money order from the Canadian financial partner, Brodosplit's slipways will be busy almost until mid 2001. "This presents an important financial incentive and a serious business for Brodosplit, especially now that the situation in shipbuilding is very difficult", said a spokesman of the Split-based company after the signing of the agreement. ZET SOON TO SIGN AGREEMENTS WITH MERCEDES AND MAN Before the end of this month, ZET, the Zagreb local transportation company, plans to sign an agreement with Euroline, the local agent representing Mercedes in Croatia, and with MAN, Germany?s bus maker, for the purchase of 20 classic MBO 405 N2 and 20 MAN NL 263 buses respectively. The investment is worth about HRK101m. The buses should reach Croatia by mid-July this year at the latest, in order to meet the increased demand for transportation related to the holding of the Second World Military Games in Zagreb. ZET is currently planning a new service network to make sure the new buses start running as soon as they are delivered. TALKS HELD ON THE CONSTRUCTION OF GORICAN-ZAGREB HIGHWAY Economic and political experts involved in the construction of Gorican-Zagreb highway this week held talks in Varazdin on the continuation of works on the remaining sections from Varazdin to Breznicki Hum and the completion of works on Komina-Breznicki Hum section. According to the participants at the meeting, the works on Komina-Breznicki Hum are expected to be finished by late summer this year while the completion of works on Breznicki Hum-Varazdin tracks depends on concessionaires who will carry out the works independently. The major goal is to close the financial scheme for the construction of the highway. The preliminary study has been made and will be presented to the World Bank. According to plans, the works on the remaining sections are expected to start on April 1. The highway should be constructed by late 2000 if the works proceed at the planned pace. General projects for the remaining sections have already been designed and experts are currently working on special feasibility studies. The fact that 20 approvals are necessary for obtaining a building permit is slowing down the whole project. Difficulties in regulating the Bednja river present another obstacle. In addition to this, contracted workers demand the money for the works they have done so far. COST OF INA?S INFORMATION SYSTEM SWITCHING TO THE YEAR 2000 EXCEEDS US$3.5m INA, the state-owned company, which has 2,000 personal computers, 77 information subsytems, about 70 foreign applications, over 200 processing systems and a complex communication network, has not yet calculated the full cost of getting its information systems ready for the new millenium. However, according to a rough estimate by INA?s experts and leaders of the Project Y2000, the cost is likely to exceed US$3.5m. Given that the mentioned project faces a deadline that can not be extended, the minimum it needs to achieve is ensure that the vital business functions continue in the year 2000. The project involvs systems that are critical for the company?s business, which would be jeopardised if they didn?t function properly, and systems whose failure could cause serious problems, reduce the efficiency of the company and blunt its competitive edge. This primarily concerns collection systems, stock control, production and distribution. INA embarked on the activities aimed at fighting the millenium bug in its information systems as early as 1997 by taking stock of the company?s existing information technology. SINJ SUPERVISORY BOARD DECIDES TO START BANKRUPTCY PROCEDURE Following the decision made by the supervisory board of Sinj d.d., the largest building company in the Cetina region currently employing 200 workers, the company has declared bankruptcy. The available figures show that the company has an equity of HRK13m, its debts reach HRK20m and it has HRK7m in receivables. SPACVA TIMBER INDUSTRY TO MAKE PROFIT Spacva, the Vinkovci-based timber producer, is planning to close the year with an income of DEM41.5m and a profit of more than DEM5m. The projected DEM22.5m exports will account for about 54 per cent of the company?s total sales. Pilana d.o.o., the company?s sawmill, is expected to account for the largest part of the exports, DEM15.5m, and fine plywood exports are to reach the highest exports of DEM5.59m. Finala, Spacva?s final production plant, is likely to record good performance in domestic sales rather than on the foreign market. DEM1.3m in exports are expected in that plant. The company?s business plan for 1999 envisages the cutting of 60,000 square metres of log. Laminated parquet is to have the largest output, 250,000 square metres, and will be followed by standard parquet, 180,000 square metres and plywood, 2,760 square metres. Finala d.o.o. is to retain its traditional door production, and new types and dimensions with quality final surface treatment will be introduced to this line. According to the business plan, the company intends to produce 6,390 doors. Spacva is also planning to produce 15,180 square metres of the so-called country style floors, the company?s new products. OSIJEK SUGAR FACTORY STARTS PAYING FOR LAST YEAR?S SUGAR BEET CROP Contract farmers of IPK Tvornica Secera Osijek, the Osijek-based sugar factory, will soon start getting paid for the sugar beet that they delivered last year. According to the management, the sugar factory has completed all the prepartions for paying the over HRK40m debt to suppliers. The Croatian Government has recently given the green light for the factory to issue HRK104m worth of promissory notes to pay the debt owed to the producers for last year?s deliveries of sugar beet and fertilizers, and for this year?s spring sowing. The management says after the Finance Ministry endorsed the promissory notes, the sugar factory discounted them through Privredna Banka Zagreb bank. This year's sugar beet sowing season is already under way. Tvornica Secera Osijek will sow approx. 12,000 hectares to meet its quota. During last year?s processing season, it processed 517,035 tonnes of sugar beet which yielded 57,415 tonnes of sugar, 1,575 tonnes short of the plan. IPK RATARSTVO-STOCARSTVO STARTS SOWING WORKS IPK Ratarstvo-Stočarstvo Osijek has recently started the sowing of spring barley which will cover an area of 50 hectares. The company has announced that the sowing of sugar beet, which will occupy 3,500 hectares, is also expected to start these days. This year, however, edible oil plants are to cover the largest sowing area. Sunflower will thus be sown on 4,500 hectares, and soya on 2,000 hectares. Owing to difficulties related to placing corn on the market, the company intends to reduce the area sown with corn to approximately 4,000 hectares. Different sorts of fruit will also be part of this year?s sowing works and will cover an area of 100 hectares. IPK Ratarstvo-Stocarstvo warns that the company?s major problem is how to finance the sowing works and purchase the necessary reproduction material. NEW IPK OSIJEK OIL FACTORY TO START OPERATING BY SEPTEMBER 2001 The management of IPK Osijek Cepin oil factory plans to modernize and expand the plant for processing oil crops by September 2001 as part of the DEM66.8m project entitled IPK Osijek 2000 Edible Oils. The Croatian Government recently gave its guarantee for a loan granted to the oil factory by the Frankfurt-based AG Dresdner Bank. Interest rate for 85 per cent of the loan, i.e. DEM56.8m, reaches 5.075 per cent annually, and the time of repayment is from 2001 till 2010. Interest rate for the rest of the loan amounts to 7.45 per cent, and the time of repayment is from 2001 till 2004. After the modernization, Cepin oil factory will process mostly sunflower, oil rape and a very small amount of soy. According to plans, the factory should also produce margarine and mayonnaise. Selected technological equipment in the plant will enable flexible management of the production of various final products. Modernized plant will daily process 500 tonnes of sunflower, 450 tonnes of oil rape and 400 tonnes of soy. In addition to that, the plant's daily turnover of margarine and mayonnaise is projected at 36 and 12 tonnes respectively while the turnover of bottles containing edible oil is expected to reach 6,000 per hour. According to the oil factory's management, the planned production is brought in keeping with the projected situation concerning the market and the competition in Croatia and with the level of needs in other countries of the Balkan peninsula, especially with the demand in Bosnia-Herzegovina, Macedonia and Albania. PANONSKA PIVOVARA BREWARY REPORTS A LOSS Panonska Pivovara brewery closed last year with a nearly HRK30m loss which will be covered from retained profit from previous years, says the company?s management. The loss is attributable to poor sales and a liquidity crisis, but it is also partly due to investment over the past year, in which DEM5m were invested in new Tuborg bottles and crates. The company was last year hit by the exchange rate, since it borrowed DEM3m from a foreign lender to finance the building of the brewery. The company?s management sees a resolution of the present problems in increased sales supported by a strengthened promotional effort. In the future, the company plans to focus on end users rather than distributors. NAMA'S RECOVERY SCHEME BACKED UP ? RESPONSE FROM PBZ AWAITED Nama's major suppliers, together with the Trade Union of Employees and small shareholders, has endorsed the program of business and financial restructuring of the company designed by Josko Zavoreo, the president of Nama's managing board, in mid-January this year. Dukat, Franck, Kras and Podravka a few days ago signed contracts on continuing a regular delivery of goods to Nama department store chain. According to Zavoreo, from this week's Tuesday Nama started filling its empty shelves with goods from its major suppliers. The managing board of Privredna Banka Zagreb bank (PBZ) has not yet revealed its final attitude concerning Nama's restructuring program. The program envisages the merging of all Nama's credits from PBZ or those credits, which are guaranteed for by the bank, and proposes the extension of maturity to ten years. Nama's management expects PBZ to accept the program. The reprogramming is worth DEM60m. Zavoreo warns that Nama's restructuring will not be successful unless all the proposed measures are accepted and implemented and unless all the agreements are made by the half of this month. MREZNICA DEPARTMENT STORE OPENS IN DUGA RESA The 3,500-square-meter Mreznica department store re-opened in Duga Resa on Thursday. The department store had closed down two years ago due to financial difficulties that led to a bankruptcy. The Croatian Government invested HRK20m to allow the department store to reopen, and put it up for privatization. The store?s owners include Mreznica d.d. , Sloboda based in Velika Gorica and some smaller companies. The department store currently employs 29 workers and plans to employ another 20 in the next few months. EUROPLAKAT PROREKLAM LAUNCHES INTERNET PAGES Europlakat Proreklam, Croatia?s largest public advertising company, has recently launched in Zagreb its Internet pages. Besides the basic data about the company itself, the pages include information about the location of the company?s advertising space, its size, rates and advertising terms and conditions. The Internet address is www.europlakat-proreklam.hr. The company has operated in Croatia for almost nine years now, as part of Europlakat International, Europe?s largest public advertising group. It holds about 40 per cent of the market share of Billbords and about 80 per cent of City Lights spaces in Croatia. Last year, the company served 135 clients and reported a turnover of HRK29.3m, 16.3 per cent more than a year earlier. This year, it plans to increase its turnover by 20 per cent. So far, the company has invested HRK23m into the equipment for expanding its advertising network. This year, Europlakat Proreklam plans an investment of HRK7m. 6. INTERNATIONAL COOPERATION CROATIA?S PUBLIC SPENDING TOO HIGH Public spending in Croatia?s too high in comparison with some other countries, west European included, but the health of the Croatian financial sector is still good overall, said on Wednesday in Zagreb Arntraud Hartmann, head of the World Bank for Croatia. Given the current situation in Croatia, more attention needs to be paid to public spending which is currently too high in comparison with west European countries, for example Germany, said Hartmann. During her three-day visit, Hartmann is scheduled to meet with the Croatian government officials in order to review the programmes currently financed by the World Bank and some projects for the potential aid with the reform of the judiciary system. The level of spending must be brought down to a sustainable level, and at the same time ensure the functioning of the public service, which needs to be made leaner and meaner, said Hartmann and added that, in her assessment, the two biggest spenders were the Croatian healthcare and pension funds. The World bank has already designed a plan for the reform of the healthcare system, and another one is in the pipeline. There is some concern regarding some banks, but the position of the World Bank is that the overall condition of the financial sector is still good, said Hartmann. The World Bank will fund institutional development with a loan for the adjustment of the financial sector, because the World Bank?s policy is to avoid direct financing of the banks. The 1996 technical assistance plan envisages aid for institutions which deal with the financial system. Answering a question about the value of future loans, Hartmann said that they would range between US$100m-120m annually, which would primarily depend on Croatia?s macroeconomic policy. Since 1993 the World bank has granted Croatia a total of US$821.9m in loans. In the past, most of the funding targeted the traffic sector (i.e. the agreement with HZ, the Croatian railway company). BOSNIA-HERZEGOVINA AND CROATIA COMMITTED TO LIBERALIZING TRADE The Republic of Croatia and Bosnia-Herzegovina will strive to liberalize trade between the two countries, especially the exchange of industrial and agricultural and food products and services, said Croatia?s economics minister Nenad Porges on Wednesday in Zagreb. "We have agreed to strive to liberalize the trade in keeping with the rules of the European Commission, the European Union and the World Trade Organization, and we will work simultaneously along three tracks: liberalizing trade in industrial and agricultural and food products and services, with special attention being paid to the rules about the origin of goods, said minister Porges at the press conference following the working meeting with the delegation of Bosnia-Herzegovina which addressed the signing of the trade agreement. A meeting of the delegation of the Croatian government and the Council of Ministers of Bosnia- Herzegovina was held at the Ministry of Economics on Wednesday marking the beginning of negotiations leading to the conclusion of a trade agreement between the two countries. Minister Porges said attempts would be made to bring the whole process to an end by June 1999. The new trade agreement should replace the one currently in place, with one entity which "in the view of both sides, as well as OHR, can not meet the provisions of the Dayton peace agreement or the constitution," said Croatia?s economics minister. He added that the first working meeting had addressed the issue of the starting positions based on the already submitted draft trade agreement which the Croatian Government had ratified in mid 1998 and which Croatia expects Bosnia-Herzegovina to submit a written opinion about.The Bosnian-Herzegovinian side thinks the negotiations need to be accelerated and expects the expert groups and negotiating teams to meet by the end of April at the latest. It also believes that the agreement will be signed before June this year. 7. FAIRS AND EXHIBITIONS CROATIAN CRAFTSMEN PARTICIPATE AT GRAZ FAIR HOK, the Croatian Chamber of Crafts, will stage a joint exhibition promoting Croatian building industry at the Graz spring fair. "Grazer Messe International", the Graz spring fair, to be held from May 1 through 9, is among the leading fairs targeting both business people and a general consumer public. Last year, the fair featured 31 Croatian companies among 1,300 exhibitors from Austria and 16 other countries. It was visited by 240,000 people. The fair consists of four sections: housing, building, gastronomy and agriculture. A range of thematic units, such as "nation", will allow the countries to promote their specific features. Other themes include women, children and young people, sport and leisure and single people. The Graz spring fair will feature a wide range of consumer goods. 150,000 TOURISTS FROM BOSNIA-HERZEGOVINA TO VISIT CROATIA THIS YEAR An estimated 150,000 tourists from Bosnia-Herzegovina are likely to visit Croatia this year. 750,000 overnights are expected from BiH tourists, an increase of 13 to 15 per cent on last year. Over the past three years, the number of BiH tourists has doubled against their number in the first war year, said Marijan Bulat, head of Hrvatska Turisticka Zajednica (HTZ), the Croatian tourist board, on the occasion of the 26th Interturs trade fair held in Sarajevo. Interturs is the third trade fair since the war and is aimed at reconstructing the Sarajevo tourism exchange. As a favourite destination of tourists from Bosnia-Herzegovina before the war, Croatia is regaining this position now the war is over and certainly intends to remain attractive to tourists in the future, Bulat pointed out. 8. SUNDRIES HOTELIERS WARN OF PROBLEMS AHEAD OF TOURIST SEASON Although the Croatian hotel companies embarked on the preparations for the upcoming tourist season as early as last year, 15 days before the scheduled beginning of the season, the conditions for improving the country?s tourist portfolio have not yet been fulfilled. According to the 12th meeting of the Council of Hotel and Catering Companies Association, part of HGK, the Croatian Chamber of Commerce, the Croatian tourist industry still faces multiple problems ranging from the dire economic situation in the country, insufficient credit lines to finance the modernization of the tourist companies, to the crisis in Kosovo and Turkey, which have diverted potential tourists from Croatia. The Ministry of Tourism has for this year projected a 10 per cent growth of turnover in the tourist industry against last year?s 5.5 million arrivals and 31.3 million overnights. Tourist companies will this year receive HRK150m from the state budget through the Ministry of Tourism to help them upgrade their portfolio and an addfitional HRK2.4m will be disbursed by the Ministry of Tourism to finance in-service training for the existing staff employed in tourism. Participants at the meeting sent a letter to the local self-government authorities in the Bay of Kvarner area objecting to the failure by the local authorities to recognize tourism as the main industry in the region. Problems arising from a too high price of utilities charged from tourist companies all the way along the Adriatic region were highlighted. Spokesmen for KUH, the Croatian camping association, pointed out the need to accelerate the process of resolving the ownership of the land on which camping sites are built. Either the land must become somebody?s ownership, they said, or somebody must be awarded a concession. Members of the Council of the Association of Hotel and Catering Companies passed a set of rules on the acceptable amount of outage, breakdown and crackup in catering. FRUIT STATION CELEBRATES 50th ANNIVERSARY This year, the Croatian fruit station is celebrating its 50th anniversary. The fruit station has developed from the former Institut za Vocarstvo, Zavod za Vocarstvo and Vocarski Centar, all the three of which are Croatia?s major fruit research institutions. The station, which is expected to take back the name of Vocarski Centar (fruit centre), will specialise in laboratory testings of soil, fruit and vegetables.