2009 CROATIA INVESTMENT DISPUTE AND EXPROPRIATION

UNCLAS ZAGREB 000375

SENSITIVE
SIPDIS

E.O. 12958: N/A
TAGS: EINV KIDE OPIC CASC HR
SUBJECT: 2009 CROATIA INVESTMENT DISPUTE AND EXPROPRIATION
CLAIMS REPORT

REF: STATE 49477


1. (SBU) Summary. Post has been following one ongoing case
involving a U.S. investor attempting to purchase a subsidiary
of the Croatian railroad in a privatization tender. The
investor claims the Croatian Railroad (HZ) has refused to
return a 150,000 euro deposit after the two sides could not
agree on the terms of sale during negotiations on a
privatization deal last fall. Post has intervened on the
investor's behalf on numerous occasions, first with the
Croatian Privatization Fund (HFP),then the Ministry of
Economy and the Railroad, and then with the Minister of
Transport. Despite numerous correspondence and meetings,
including intervention by the Ambassador, the railroad has
refused to return the deposit. End summary.


2. a. Claimant A

b. Date of dispute: November 2008

c. Claimant A was the only bidder for the privatization of a
railroad car construction and repair facility in Cakovec,
Croatia. After notification that they were the successful
bidder, claimant A submitted a draft contract and a 150,000
euro deposit as required by the tender rules. The claimant's
draft contract was rejected by the HFP acting on behalf of
the railroad. The new requirements the HFP laid out
fundamentally changed the terms of the deal, in claimant A's
view, in a way that was unacceptable to them. These included
questions over the land ownership, and a substantially
different ownership structure for the company than had been
indicated prior to the tender. Subsequent discussions failed
to iron out these difficulties and claimant A requested the
return of their deposit in November 2008. Since that time,
the money has been moved from the HFP into the account of the
HZ and the HZ has refused to reconsider the decision to hold
the money.

Claimant A retained a local attorney and then approached
the U.S. embassy for assistance. Embassy economic and
commercial officers initially made contact with the HFP and
HZ in order to encourage both sides to continue discussions
to resolve their dispute. When numerous meetings did not
succeed in resolving the case, the Ambassador raised the
issue with the Minister of Economy, who referred the case to
an office director. Several meetings with this director
failed to move the issue forward. The Ambassador wrote to
the Minister of Transport to raise the issue. After several
weeks, and in response to a renewed inquiry from the embassy,
the Minister replied that the matter had been referred to a
state secretary in the Ministry for further research.
Claimant A told us he was not initially interested in
pursuing remedy in the courts, largely because the
notoriously inefficient court system can often take years to
render a decision in such cases. However, he now believes he
has an obligation to his shareholders to bring the matter to
court.


3. Claimant Information: Claimant A: Kostas Alexakis,
Olympic Investors LLC, acting as consultant to York Capital
Management - no privacy act waiver signed.


4. Last contact with claimant on this issue: May 2009.
BRADTKE