Zoltán Áldott on economic development in Croatia | INA | Video

Transcript

As Croatia is developing, business is key in driving its economy forward. Zoltán Áldott, President of the Management Board of INA, the top oil company in the country, talks about investment opportunities in Croatia and how to succeed in this market.

World Finance: Zoltán, INA has over 50 years of experience, tell me, what has been the key to your success?

Zoltán Áldott: [INA] is Croatia’s leading oil and gas business, it’s also strong in the whole former Yugoslavia regions, south-eastern European territories, and it’s predominantly accumulated experience in the oil and gas exploration and production, in oil refining, and oil product marketing. Our fate has been an experience accumulated as coming from a transformation from a former national company, and becoming from a national player, basically inter-regional, strong actor, with transacting big on different markets and extending it’s presence in the downstream business in the region and in upstream internationally.

World Finance: How has your company contributed to Croatia’s development?

Zoltán Áldott: INA is not only the largest industrial company in the country, and one of the largest in the region, but at the same time is also the largest investor in the country. Just last year we invested around $350m into the development of our upstream and downstream businesses, and we are set to grow that figure in the future.

We are, at the same time, one of the leading exporters, especially in the branch of crude oil largest markets surrounding Croatia, Bosnia and Herzegovina, as well as Slovenia and to the Mediterranean market in general. And at the same time, we are by nature of the business one of the largest contributors to tax payments in the country, as well as one of the largest employers into the country. Through the investments we also give work to a lot of Croatian and other enterprises.

World Finance: Well clearly INA is a leading company when it comes to economic development in Croatia, but what potential is there for future development in the country?

The onshore Croatia is a well explored area, but new technology and new ideas can bring new results

Zoltán Áldott: Our business is a vertically integrated oil and gas business. Of course, the investment operators differ in the different branches of the business. The leading activity of ours, and the most significant is the upstream activity, so exploration and production, and all of Croatia is a relatively well explored area. Still, with new technology, new ideas, new concepts, new partners there is the possibility to do more, so therefore we are focusing on the upstream to run projects which basically in the shorter term and medium term increase our production.

At the same time, we also intend to increase our exploration effort. In exploration efforts, basically we can talk about two important basins, the onshore Croatia is a well explored area, but new technology and new ideas can bring new results, and the relatively less explored area, which is the Adriatic Sea, where there is some existing joint production with Italian partners, but still there is the possibility to do more.

World Finance: Can you be more specific about INA’s upstream activities in Croatia and abroad?

Zoltán Áldott: Today we produce around 40,000 barrels today of oil and gas equivalent. We would like to increase it significantly, around 20-25 percent in the coming years, based on certain projects that we already have initiated, so these things are very tangible. These include in-house recovery projects and new gas development projects. There is a good gas and oil market in the Croatian region to take this product, so I think this is very feasible. And also applying new technologies, basically which previously were not available, and today they can stimulate more of the oil from our fields. We also try to test unconventional potential, but this is still in infancy in our region.

Basically our intention is to grow, besides the already existing portfolio, in new investments primarily in the Mediterranean region, where we have a broader knowledge and a lot of experience, but also potentially in other countries. It could be greenfield exploration activities, it could be also some acquisitions.

World Finance: Considering your business optimisation program, what do you think is the key to surviving an economic crisis?

We don’t know how the market competition will develop, so therefore it’s very important that we keep our ambitions set to the maximum

Zoltán Áldott: Commodities, oil and gas is maybe more resilient than some other sectors to economic rise or stagnation. It’s not immune to it, people have less money to spend to travel in the cars, so therefore we also see a pressure on our top line, which means we cannot grow the revenue so easily. Sometimes even year on year we see some declines. So in those circumstances it’s very important to manage the costs of the business.

We have been running in order to achieve objectives of running efficiently a three year cost optimisation program, driving out around $400mn from our cost base. It was a very successful and essential program. At the same time it was also very important to manage our balance sheet, to retain enough financial flexibility, so if even tougher circumstance come or there are some new opportunities, we have enough firepower on the market.

World Finance: INA also has a very impressive corporate governance structure, what does it involve and why is it so important?

Zoltán Áldott: Corporate governance and the business structure is very important, to be flexible enough and give the right answers in an environment, whether it’s staff, whatever it can be. Our corporate governance is resembling, given size of the company, very similarly to let’s say Anglo Saxon oil and gas businesses, so we have the three levels.

We are a supervisory board, which in our case basically is a body which ensures the representation of the largest shareholders, we have two large shareholders, basically one is a regional oil and gas group which owns about 49 percent of the shares, and the government of Croatia, which has 44 percent of the shares. Both sending a representative to the supervisory board, and this body selects the management board.

The management board, you can imagine like a board of directors, in Anglo Saxon terms, so it’s a body which is responsible for strategy directions, major projects, selection of lower level executives. And below this basically there are professionals, who we call executive directors, who are responsible for a given branch of the business, upstream, downstream, retail, finance, and they are responsible to run the operations.

World Finance: Finally, looking forward, what are going to be some of the key challenges that INA has to tackle?

Zoltán Áldott: The first, as we can call bread and butter part of the operation, is to continue to be efficient. We don’t know how the market competition will develop, so therefore it’s very important that we keep our ambitions set to the maximum, we drive out further costs that are not necessary to run the business and carry out business optimisation in our assets. That is number one.

The other is of course growth. In our business it’s very important that you find the right venue for the right project. Our growth will be based, as far as we foresee, in the upstream activity, exploration and production, in Croatia and abroad. And we need to find the right projects and the right partners there to create value for the shareholders. And of course, at the same time, it’s very important to develop the company culturally, to be able to tackle new challenges as a freshly transformed business, from a state-owned, state-managed operation, into a market driven operation.

World Finance: Zoltán, thank you.

Zoltán Áldott: Thank you also.