The Road to Hell is Paved with Good Intentions: Croatia, An Investor’s Paradise?

Lauren Simmonds

Are we talking golden eggs or lambs to the slaughter? It depends.

For the fifth year in a row, a key promotional document for the so called ”plundering” of foreign investors has been published. Behind the good intentions and solid production of this document lies the sad truth: most of the ”investment projects” in question in Croatia, cannot actually be invested in whatsoever.

As Jutarnji List reports on the 3rd of April, 2018, here’s how, in somewhat more simplified terms, it looks when an investor comes to Croatia with the genuine intentions of investing some of his or her hard-earned cash into a tourism project here….

There are many potential investment projects in Croatia’s glistening state portfolio that would be presented to a potential investor, all of them veritable sitting ducks of opportunity just waiting for someone to grab them. Or so it would appear.

Orahovica ski resort. Does that jump out at you at all? Imagine you’re an investor with some cash to burn and you’d like to see it pay dividends to you in the future. Surely you can’t go wrong with this one… Pretty pictures, nice words and happy faces, but that’s as far as it goes.

“Thanks to the beautiful nature and the continental climate with cold and snowy winters, this location is known as ”little Switzerland” and offers countless opportunities for winter sports, including skiing,” says the official description.

Of course, this is a project that would scream ”YES!” when looked at with a naive eye, an eye untraumatised by Croatia’s masochistic love for stagnation and red tape, but despite Orahovica’s apparently amazing ”opportunities for winter sports”, an ice cold shower is all an investor is likely to gain from the experience.

“Look, the project is not yet fully prepared for investors, but we’re counting on the whole process being completed very quickly. One smaller part of the land on which the resort is supposed to be is not yet owned by the municipality, but by the state. The state is ready to sell these parts and has already determined the price, but only when the ownership relations are completely cleared up can we start drafting the project documentation,” Ana Marija Petin, Orahovica’s mayor, told Jutarnji List.

Let’s move on to another obstacle! If Orahovica somehow managed to stumble upon an investor who would be willing to twiddle his thumbs for a bit and wait, it’s more than likely that he’d throw in the towel and give up entirely at the next step.

Part of the future resort includes a ​​nature park area where economic activities are naturally rather restrictive owing to the type of environment upon which it is situated, and yet, one needs to find a way to solve this more than pressing issue that would likely be a source of extreme bitter taste to any would-be investor wanting the freedom to ”spice things up”, as it were. Nobody wants to invest their cash and still be a puppet being pulled by someone else’s rather incompetent strings.

“We don’t even know whether we want to look for a foreign investor for this project or not ourselves, or whether Orahovica will just become a ski resort on its own. Personally, I think it’d be better if someone else did it, but the decision hasn’t been made yet,” Petin added in a short telephone conversation with Jutarnji List.

It is also very important for a potential investor to be properly acquainted with some rather unpleasant details: the idea of serving him up an 12.8 million euro hotel and ski resort project on a plate, a project that still has no resolved ownership status, and a project on which even Orahovica itself can’t decide ”whether or not it wants a foreign investor”. Feeling safe? Secure? But of course you are.

Of course, the intention of this isn’t to bash or single out the case of Orahovica, a wonderful area with huge potential, this isn’t personal, but this sad story is just one of many of the same.

If an investor goes to the municipality of Konjščina, which also ended up in the state’s shiny portfolio of top investments just waiting for the right person to come along, he will soon find out how the Bajeri Recreation Park project is a few universes away from any type of readiness to negotiate with possible investors.

“Our advantage is that we’ve resolved the ownership and property rights, as well as the fact that the state has projected for the project to be entirely under municipal ownership, however, we’ve got no project documentation because the Konjščina municipality can’t finance that itself. We’ve applied for a subsidy for the project documentation, but we didn’t receive any feedback,” Jutarnji List was sadly told.

The same unfortunate and almost painfully frustrating issues are faced by Šibenik’s TEF project, the Roman Forest Hotel in Daruvar, the Aqua Balissae Thermal Spa, various hotel projects, and the list goes on, and on, and on some more.

The first problem with this type of issue typically lies with the fact that when it comes to a piece of land, cities, before settling things, or even beginning with investors, need to solve ownership issues. This major issue, among a plethora of other problems, has been seen in more cases than one would care to recall.

Let’s get on to some more issues. The Croatian Ministry for State Property stated that in 2018, public tenders for just three projects from the state portfolio, all three of which are located in the wider Pula area, were planned.

One of these Pula projects was that of the former Muzil military base, a greenfield project for the construction of a new hotel and the ”Saccorgiana” camp worth a massive 80 million euro, as well as the Hidrobaza project, which is also a former military property that hopes to be transformed into a tourist complex, as opposed to merely being left to rot, which has been the case with so many others.

The announcements are therefore scheduled for this year, but the investor can never be sure or safe, and this is best illustrated by the example of the former Muzil military base.

For this attractive site and former military base, the state issued a call for potential investors back in 2015, and following two non-binding bids, the state was required to announce a tender for the submission of binding bids, which could be applied for by those who reported during the previous, first round of bids.

A whole three years later, the second phase of the bid has still not been announced, and the doubts and questions still remain: To call for a show of new, non-binding expressions of interest from would-be investors, since it’s been too long since the first time, or to go to straight to a public tender for the first time, but to allow everyone to participate because it’s too unrealistic to expect that just those who came forward three years ago will bother applying again? Complicated? Yes. Ridiculous? Yes, but in bold.

The Director of the Croatian subsidiary of the international consulting company Colliers, Vedrana Likan, has stated that the country is decisively interested in attracting foreign investors, but the story usually never gets any further than practice, which is best illustrated by the example of Croatia’s catalogue which is presented to potential foreign investors.

“It’s thicker, bigger and more expensive every year, but when you present it to investors, so they can get better acquainted with things, it becomes clear that the projects, especially the most attractive tourist projects, come with a whole host of problems whose solutions take too long to make it profitable for the investor to wait,” Likan pointed out, with a total lack of clear criteria more often than not being the main culprit.

“According to some international parameters, it’s assumed that a project that is in the ”plug and play” phase for investors, should have a fully resolved ownership status and spatial documentation, the projected value of the project, and whether or not the project fits in such a general strategy development of a specific area. Finally, and this is particularly important for project investment, it’s especially important to have feedback from the field about the attractiveness of the concept and the investor’s principal interest. If there’s no interest, then the project should not be included in the catalogue, don’t you think?” Likan asked Jutarnji List.

Indeed, she isn’t far wrong, as many projects that end up in this investment catalogue quite clearly prove that they may not have really been the best candidates for publication in this valuable, and not so little booklet.

For example, the Darda municipality project, worth about 12 million euro, through which the Slavonian municipality has been trying unsuccessfully for years to find an investor for the Esterhazy castle, who would renovate the baroque building through the 99-year concession model and open up a hotel there.

The mayor of the aforementioned municipality admitted to Jutarnji List that since the project idea was born in back 2010, investors haven’t really shown any interest in the realisation of creating tourist accommodation in the castle, although Darda has jumped through all of the necessary hoops, thus having total ownership as well as completely resolved documentation.

Therefore, it paves the way to the inevitable question of why the Esterhazy project has been nominated for the catalogue at all.

“Look, I don’t really know why it’s in the catalogue, but it’s not a priority at this point. We’re currently building a wedding hall, but I can’t see any reason why the castle shouldn’t be offered through the catalogue. So there’s always the possibility open for someone to latch onto it,” noted a determined Vukoje.

Investment projects in Croatia without permits, without bids, or without interest:

Unprocessed papers/permits:

The TEF project, Šibenik
Hotel Krvavica, Baška Voda
Bajeri Recreation Park, Konjščina
Hotel and ski resort Orahovica
Inspirit fantasy park Pazin
Reconstruction of Varaždin spa

Prepared projects that can not be realised without bids:

Hotel Croatia, Baška Voda
Wellness and spa area of V. Terme
Fort Brod Hotel, Slavonski Brod

Prepared projects for which there has been no investor interest for years:

Hotel Sport Delnice
Aquapark Zelina
Esterhazy Castle, Darda
Aqua Balissae Hotel, Daruvar

Projects for which this year’s bid has been announced:

Golf project Prukljan
Pašman resort

Is there hope for Delnice, for example? Maybe, but don’t hold your breath. Delnice’s Sport Hotel has all the documentation and is ready for an investor… and has been in such a position for five years now.

“We’ve solved everything, but the city hasn’t yet announced a bid because we’re waiting for some investors to show some interest. Investment offers for our hotel have been sent to the addresses of forty consulates in Croatia as well as to many hotel houses and we hope someone will show us some interest,” said Mayor Ivica Knežević, whose project ended up in the catalogue for the very first time last year.

The Director of the Investment and Competitiveness Agency, Zdenko Lucić, explained that the catalogue is just one of the activities the agency undertakes in the promotion of investment opportunities in Croatia, and that the country didn’t have the material to present concrete projects to potential investors before the founding of this particular agency.

The latest, twelfth edition of the catalogue includes 71 public and private projects from all over the Republic of Croatia, and Lucić explained just how the projects end up finding themselves included in this publication.

“The agency prepares the catalogues with more than 600 entities, including ministries, local and regional self-government units, public companies, the Croatian Chamber of Commerce and the Croatian Chamber of Trades and Crafts, which forward this call to their members and all of them are running projects that are being sought by investors. In order for a project to enter the catalogue, it must meet certain criteria. The agency has no influence over the stage of readiness and attractiveness of a particular project, but the time and interest of the investor is the best indicator of how marketable a particular project is,” Lucić stated.

He also points out that eleven projects worth a total of 3.9 billion kuna have been realised since the catalogue’s initial ”birth”.

In addition to the already realised projects, this year will see a public call for two more projects from the catalogue – the Prukljan golf project, for which the plans are to build accommodation capacities with a maximum of 1500 beds, and the Pašman Riviera project, which foresees the construction of a hotel resort on the island of Pašman in the Zadar region. There is apparently considerable investor interest for both of the aforementioned projects.

Prukljan and Hidrobaza are the only projects in the catalogue which are currently realistically ready for quick realisation – they have all the documentation available and completed, there is objective interest from an investor. The projects in the rest of the catalogue are still struggling with their respective (and yet collective) burdens.

The agency isn’t at fault.

“Look, it’s kind of inexcusable to offer international investors who’re willing to invest hundreds of millions of dollars in Croatia a catalogue in which the first three projects relate to microdestinations such as Daruvar, Zelina, or Konjščina, which, objectively speaking, can’t be developmental state projects. The same is true for local projects in Darda, Delnice or Kumrovec, and it’s particularly unclear why the catalogue includes projects such as the Cabuna Culture Center in Suhopolje Municipality, which a private investor can’t cash in on,” explained one well-informed consultant.

The Aquapark project in Zelina is in fact ready for investors, but there will be no such thing for now.

It can be agreed upon that the least guilt lies with the agency itself, which, with numerous hindrances and significant limitations, tries to do the best job possible in some frequently absurd, awkward situations. The guilt is much, much greater at the level of the state itself, which doesn’t know whether or not it actually wants to ”bother” potential foreign investors.

Despite the negative attitude, investment in seaside resorts and destinations continues to be of attraction, but the seemingly eternal struggles with unresolved property-legal relations or unclear time frames continue to hinder processes.

For example, before Inspirit fantasy park project in Pazin, located on a former military zone with plans to become a fun park, could be offered at a public tender, Pazin city council has to deal with, and solve, all of the outstanding property issues.

A fake love letter to investors from Croatia? Maybe, but it isn’t so black and white.

The launch of a bid is also expected for the Larun golf course project, the tender must also precede the investment for the Novi Vinodolski Recreation Park, as well as the Sports Center on Krk, the latter of which is also in the aforementioned catalogue.

Agency Director Zdenko Lucić argues that the dynamics of the call for tenders, due to the complexity of the preparation of individual projects, previously constituted a limiting factor in the promotion of projects, but emphasises that the State Property Ministry, which took over this work, greatly contributed to accelerating this process as a whole.

“Most of the catalogue projects are at a good stage of readiness, while a smaller number of projects are further prepared for the bid, so potential investors can really make their investment realisation happen as fast as possible,” emphasised Lucić, adding that as the only national investment agency in Europe, at the end of last year, the agency became a partner of the European Investment Portal project, announcing investment numerous opportunities, including those from here in Croatia.

From Kupari near Dubrovnik to former Istrian military zones, Croatia is brimming with investment potential, but with the plethora of crippling issues that continue to burden the climate for foreign investors, will the state’s loe letter to the lure of foreign cash ever be straight-forward? Or is this country merely a catfish in the entire game.


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