From the Business Deal of the Century to Catastrophe

AIM Zagreb, 20 June, 1998

When three years ago representatives of Croatian authorities signed a contract with French enterprise Bouygues on concession for construction and subsequent exploitation of one of the major Adriatic roads, the so-called Istrian "Y" - which connects the two northern points of Istria with the south of the biggest Croatian peninsula - great enthusiasm spread around Croatia because it seemed that this business deal would finally mark the beginning of truly big foreign investments in development of Croatia's infrastructure, so important for tourism.

The then Croatian prime minister Nikica Valentic spoke of "Y" as a great success of Croatia and one of the best moves of his government, and the official optimism which was spread far and wide, was whole-heartedly joined by minister of reconstruction Dr Jure Radic, who claimed that the French had given by far the best and economically justified offer, in fact the only valid one in a series of bad ones, while the then minister of maritime trade, transport and communications Ivica Mudrinic declared that it was, indeed, fortunate that the French had agreed to take the deal because Croatia not only had no money of its own for construction of such significant roads, but neither did it have enough for their exceptionally expensive maintenance. The French were, in fact, given the concession for exploitation of "Y" until the year 2022.

The public was served the attractive story about entrance of foreign capital which would construct the road, take its share of the profit and after a reasonable period of time, withdraw from the country leaving the road to the state of Croatia and its citizens. Indeed, such a scenario should not be unacceptable. Moreover, for countries without much capital, contracts of this kind should really be a convenience. That is why voices of few critics were immediately proclaimed frivolous, dilettantish grumbling of oppositionists with petty-political - dishonourable, of course, motives. Awakening from the day-dream was, therefore, a terrible shock for Croatian, but especially the Istrian public. Details of the contract with Bouygues were treated as top state secret. Secrecy of the contract and details about the concession were warranted by the signature of the prime minister himself, who had guaranteed by the letter of intent already that data about the concession would not become known to the public.

Soon it became clear what was the reason for this. The "deal of the century" of the Croatian government turned out to be a classical neocolonialist operation the French party had completed perfectly, but the achievement of Croatian negotiators was catastrophic, and their motives extremely dubious. The contract on concession - signed for the Croatian party by the minister of maritime trade, transport and communications, Zeljko Luzavec, and in the name of Bouygues, by its director Jean Pierre Combot, prescribed - in its ultimate result - extra profit for the French and loss for Croatia. Exact calculation of Croatian critics of this contract shows precisely that Bouygues will draw from Croatia, while the concession lasts, 2.6 billion German marks of profit, which is a capital that cannot be considered as negligible even in France. But how will the French make such a profit?

The contract on the "deal of the century" gave, for example, the Ucka tunnel to the French to exploit, although it was built back at the time of Socialism with the money donated by the citiizens of Istria. Only from the toll money charged for passage through the tunnel - which already at the time of signing of the contract the French raised to 20 kunas (about 5 German marks) - in the concession period from the tunnel they got as a gift, the French will collect no less than 850 million German marks, without having invested a single lipa or pfennig into it! The contract also says clearly that the Croatian party must not build a road alongside the "Y" which would be a competition for it. If the Croatian party would decide to reduce the toll which the French can raise as they please, the contract prescribes that the difference between the French price and the price the government sets shall be paid to the French by the state from its money, that is, from the budget. The culmination of the contract is the fact that the French will not construct - as the whole public expected - a semi-highway, but an ordinary fast road with two tracks, for which toll is not charged anywhere in the world.

The price at which the French will construct "Y" is six million marks per kilometre, while Croatian constructing enterprises had offered to do it at a price below two million marks per kilometre! By signing the contract, Croatia has also undertaken the obligation to pay France 60 million German marks for covering the deficit in cash flow of the French enterprise, and it has calmly exempted the French from paying value-added tax, and all the other taxes. It should be said that the value-added tax introduced in Croatia in January this year is paid even by drug and infant-food manufacturers, but not by the French. Although at the time of signing of the contract, there was no VAT, last year - when VAT was planned - the two contracting parties signed a special annex to the contract which specifies that Bouygues need not pay this tax! According to the contract, the French are entitled to build toll stations wherever they please; they have the right to determine the currency in which the toll will be charged, and they can use the land and other public services free of charge. Majority of these conveniances, the contract says, will be used by the concessioner (enterprise officially called BINA Istria, in which Bouygues has 51 per cent of the shares) until the year 2022.

Although the contract prescribes that the French will engage 70 per cent of Croatian construction capacities, ever since the beginning they have done everything to eliminate Croatian enterprises from the job. Croatian capacities are interesting only as a source of cheap manpower who are treated literally as colonial workers. To recent threats that they would go on strike because obligations from the contract concerning salaries were not met, the French immediately threatened with mass sacking, which caused outbursts of justified rage in Istria. Recent placement of toll stations caused demonstrations in Istria, so the government was forced to meet the obligation from the contract to pay the toll from the budget which is next to catastrophe because it is big money.

All these facts - and indeed there are more - turned the initial, optimistic image of the "deal of the century" into a scene of pure business disaster. In view of the fact that the Croatian negotiating team had studied and elaborated details of the contract for almost a year, the question is - what was the reason for such inconvenient provisions. Croatian negotiators could have signed such a contract blindfolded, because it is hard to imagine more favourable provisions for the French. If, on the other hand, this concessor had given the best offer, what was the worst like!?

Not long after publication of some elements of the contracts, Croatian journalists published data about the French enterprise Bouygues. Journalists found out some quite unbelievable data, like for instance that in the past 14 years this enterprise has not built a single kilometre of road in its home country, that 250 law-suits have been instigated against it, and that its shares have been removed from the stock exchange because of suspicion about various dishonourable business deals. French journalists have published a list of 45 names of various entrepreneurs and politicians from various countries who had received commissions from Boygues in order to sign contracts markedly inconvenient for them.

All this threw a new light on the deal of the century and raised serious doubts in the public about corruption of some Croatian high officials, primarily of Hrvoje Sarinic, Nikica Valentic, Jure Radic and Ivica Mudrinic, although nobody managed to prove anything concrete. But, it is hard to believe that a group of experts could oversee such disadvantages. Some suspicion fell on president Tudjman himself because the contract with the French was signed at the time when Croatian president was in the official visit to Paris, at the time when Croatia was pushed into serious isolation by the international community, which it has essentially never come out of.

All these doubts have forced first the deputy of the Liberal Party Bozo Kovacevic, and then three deputies of the IDS, Damir Kajin, Ivan Jakovcic and Dino Debeljuh, to demand establishment of an investigation commission which should offer answers to fundamental questions concerning the Istrian "Y"; among other how it was possible that such a big business deal was signed without an internatianal public competition which is compulsory by law. The assembly committee which is in charge both times immediately rejected the proposal to start parliamentary investigation. Somebody obviously very influential does not wish details about the business deal with the French to come out in the open. Because the commission would most probably extend the list of the 45 excellently paid mediators who received commissions from Bouygues for signing colonial contracts all around the world. Who has the power to constantly prevent formation of such a commission and who is doing it, for the time being, can only be guessed - probably some of the mentioned four Croatian officials, but the question is whether the list is not broader, or higher in the sense of hierarchy.

In any case, there is almost no way for Croatia to get out of this business deal. Breaking of the contract is impossible without an enormous damage to the image of the country and withdrawal of possible new investors. The regime is, however, still powerful enough to prevent opening of the investigation the results of which would be anything but pleasant. But, the scandal called "Y" is too big for the culprits of such a business catastrophe to remain concealed. The only question is - for how much longer?

BORIS RASETA