ZAGREB, October 24, 2018 – Finance Minister Zdravko Marić told a government session on Wednesday that in the period from 2010 to September 2018 the government had issued 7.5 billion kuna worth of guarantees for the Uljanik shipbuilding group, of which 4.29 billion kuna had been activated, while the government said that all contracts on the construction of vessels to which the state collateral referred would be checked together with prosecutors.
Based on government decisions, in the period from 2010 to September 2018, government collateral in the amount of 7.5 billion kuna was issued for the financing of new vessels and for current liquidity, Marić said. “State guarantees in the amount of 2 billion kuna were used to build nine new vessels that were delivered to their clients, and those state guarantees were returned to the Finance Ministry and withdrawn. Active guarantees currently amount to 4.29 billion kuna, since the amount of some 1.21 billion kuna was not used up,” said Marić.
The 4.29 billion kuna refers only to the principal, Marić said, noting that the amount did not include fees for contract termination, unpaid fees for guarantees and loans, and interest, for which the state guarantees in the same proportion as for the principal.
He added that data from the Uljanik Group and the Jadranbrod shipbuilding company on the degree of completion of vessels showed that construction work on a large number of vessels had not even begun but that funds had been spent on their construction. The data shows that funds in the amount of 1.07 billion kuna, for which state guarantees were issued in the amount of 855.96 million kuna, were not spent for the construction of those ships.
The Finance Ministry has so far received calls from banks for payments in the amount of 1.1 billion kuna, plus interest and fees, Marić said, adding that due to the announced cancellation of contracts for the construction of four ships, he expected more calls for the repayment of advance payments in the amount of 431 million kuna, plus interest and fees.
Currently, 365 million kuna is due for payment, and the ministry has still not received calls for payment but banks have announced them, he said.
“When everything is added up, by the end of 2018 the Finance Ministry expects a minimum payment in the amount of 2.35 billion kuna, plus interest and bank charges. The amount will grow if more ships are cancelled. Banks have announced potential cancellation of loans that are still not due for payment but ships for which they were issued were cancelled, so it is possible that the payment of another 237 million kuna will be requested,” Marić said.
He added that by the end of the year at least 2.349 billion kuna would be paid from the state budget and that the amount could be even bigger.
This year’s budget includes reserves for state guarantees in the amount of 265 million kuna, of which 118 million kuna has been spent so far, Marić said. “The amount we are talking about is ten times higher than what was originally planned as reserves for guarantees,” said the minister.
He stressed that banks would continue to charge interest on all activated state guarantees and loans and would ask that the state pay it. That is why the government has entrusted the Finance Ministry to take the necessary steps to pay the activated state guarantees that were approved to the Uljanik Group so as to avoid further unnecessary expenses related to interest.
Once payments for activated guarantees are made, the Finance Ministry will submit to the Financial Agency orders for the collection of its claims from the Uljanik Group. Since it will not be able to settle its claims by distraining the group’s accounts, the ministry will seize vessels on which it has lien.
He stressed that guarantee activation would have a negative impact on budget liquidity in terms of the need to ensure additional funding.
According to the ESA 2020 statistical methodology, payments made upon activation of state guarantees are treated as capital expenditures, which in this case may have a negative impact on the account balance, namely the general government budget deficit/surplus, and consequently on the public debt, said Marić.
He nonetheless expects the public debt to GDP ratio to continue falling until the end of the year but noted that it was not entirely clear how Eurostat and the national statistical office would treat the capital expenditures incurred.
Prime Minister Andrej Plenković said that apart from instructing the Finance Ministry to do what was necessary with regard to activated guarantees in the coming period, the government had also decided that all contracts on ship construction to which state guarantees referred would have to be reviewed in cooperation with the Office of the Chief State Prosecutor. “We… will analyse in detail their legal effects and in doing so try to protect Croatia’s interests in the best possible way,” said the prime minister.
The government also entrusted the Finance Ministry to take steps with the aim of making payments in line with the activated state guarantees approved to the Uljanik Group in order to avoid further interest expenses.