Croatian Legislation with Regard the Seabed Hydrocarbons 1st ADRIATIC MARITIME LAW CONFERENCE 26 - 28 May 2016 Portorož, Slovenia Doc. dr. sc. Mišo Mudrić Department for Maritime and Transport Law Faculty of Law, University of Zagreb

Hydrocarbons Exploration and Exploitation (i) Current Status Hydrocarbons Exploration and Exploitation (i) 106 mil. t On-shore Oil Off-shore Oil 45 oil fields 74 bil. m3 On-shore Gas 57 + 22 gas fields 18 bil. m3 Off-shore Gas

Key Primary Legislation With regard the Hydrocarbons Exploration and Exploitation of Hydrocarbons Act Mining Act Offshore Hydrocarbons Exploration and Exploitation Safety Act Hydrocarbons Reserves Determination Exploitation Field Determination Exploration and Exploitation Field Registry Mining Projects Preparation and Audit Mining Facilities Construction and Utilization Mining Plans Preparation Mining Measurement Performance Field Rehabilitation Liability Provisions Security and Protection Provisions Necessary Personnel Qualifications Hydrocarbons Management, Exploration and Exploitation Exploitation License Issuance Exploitation Contract Issuance Fees and Charges Inspection Supervision Prevention of Major Accidents Mitigation of Negative Effects to the Marine Environment Operator’s Obligations Non-Exploitation Object Owner’s Obligations

Further Concessions Act Mineral Raw Minerals Management Strategy Relevant Legislation Concessions Act Mineral Raw Minerals Management Strategy Environment Protection Act Physical Planning Act Forests Act Agricultural Land Act Geological Exploration Act State Survey and Real Estate Registry Act Management and Disposition of State Owned Property Act Obligations Act … Variety of secondary legislation…

Hydrocarbons Exploration and Exploitation Permit Procedure Hydrocarbons Exploration and Exploitation Public Tender for hydrocarbons exploration and exploitation, Government Applications by the interested parties; potential Investors

Most Advantageous Bidder Choice of the best bidder, Ministry of Economy, based on the recommendation of the Expert Commission, (possible) members: Ministry of Construction and Physical Planning, local self-government unit, Ministry of Maritime Affairs, Transport and Infrastructure Approval for hydrocarbons exploration, Ministry of Economy

Contract Evidence Between the State and the Investor That all property issues have been resolved, Investor Other requirements – Ministry of Economy, Ministry of Finance, relevant inspection body

Exploration Phase Commercial Discovery No Commercial Discovery 5 years maximum + 6 months extension x2, Investor Commercial Discovery No Commercial Discovery Permit and Contract revoked Rehabilitation obligation Investor

Hydrocarbons Reserves Study And Approval Study – Investor Approval – Ministry of Economy Pre-Exploitation Phase Investor

Pre-Exploitation Phase Further Steps to be Undertaken (i) Conceptual Mining Project Investor – to be approved by the Ministry of Economy Study of the Environmental Impact Authorized institution – Ministry of Environmental and Nature Protection: Decision over the Study’s acceptability; Followed by the Conceptual Project implementing the Study’s findings (Investor) Location Permit Ministry of Construction and Physical Planning Exploitation Field Ministry of Economy – based on the Decision on the hydrocarbons quality and quantity, and the location permit

Pre-Exploitation Phase Further Steps to be Undertaken (ii) Main Mining Project Investor – including the evidence on having settled all property issues – to be approved by the Ministry of Economy Concession Grant and Contract Ministry of Economy – Contract – concessionaire’s information, fee, duration; Maximum duration – 40 years (+5 if necessary for rehabilitation) Main Construction Project Investor Construction Permit and Utilization Permit Ministry of Economy

From Investment to Profit Average Duration From Investment to Profit Public Tender Pre-Exploitation Phase Can last for 1 to 2 years Average duration of 3 to 5 years Public Tender Exploration Phase Pre-Exploitation Phase Exploitation Phase Exploitation Phase Exploration Phase Total average of 15 years (possibly longer in the off-shore sector) Maximum – 40 years (plus 5 years for rehabilitation) Up to 5 years (plus 6 months extensions x2)

Safety Issues Four Categories: Major Accidents Four Categories: Explosion, Fire, Loss of Control, Uncontrollable Leakage – high probability of loss of life, serious injuries, pollution and damage in maritime and land zones Serious Damage to Offshore Object – high probability of loss of life, serious injuries, pollution and damage in maritime and land zones Any other Accident – high probability of loss of life, serious injuries, pollution and damage in maritime and land zones Event causing or likely causing a disadvantageous or negative effect on the environment

Safety Issues Main Obligations Operator and owner of the non-exploitation object (sub-contractors, license holder) – under obligation to undertake all appropriate measures to: Prevent the occurrence of major accidents Mitigate the negative effects of major accidents Risk Management System – acceptable level of risk with regard the possibility of major accidents occurrence Necessary requirement with regard the license – in accordance with EEHA (including risks, dangers, sensitive maritime and onshore areas, mitigating and rehabilitation) License holder – financially liable for prevention and mitigation damage and costs to the nature and environment, mandatory insurance (prevention, rehabilitation, recovery with regard the nature and environment damage)

Safety Issues Competent Authority Commencement and discontinuation – pending the adoption of major accidents report by the Coordination Coordination: appointed by the Government, consists of: Ministry of Economy, Agency for Hydrocarbons, Croatian Registry of Shipping, Ministry of Maritime Affairs, Transport and Infrastructure, Croatian National Protectorate Agency, Ministry of Environmental and Nature Protection, and, Agency for Explosive Atmosphere Hazardous Areas Evaluation of all relevant documentation, evaluation of operator’s capabilities, state bodies coordination and cooperation, annual reports, cooperation with relevant European bodies, definition of license holder’s, owner’s and operator’s responsibilities, identification of anticipated danger with regard the offshore activities, determination of risk supervision measures and incident response measures, determination of risk management system, determination of nature and environment protection measures, determination of independent verification resolution.

Major Accidents Reports Safety Issues Major Accidents Reports Major accidents report (to be prepared by the operator) – includes: operator’s or owner’s policy with regard the major accidents prevention; safety management; supervision mechanisms; nature and environment protection; independent verification system explanation; offshore object intervention plan To be reassessed every three years or sooner if so requested by the Coordination Removal or repair – hazardous substances isolation; well rehabilitation; determination of relevant risks; emergencies response measures License holder – must inform the Coordination with regard the offshore object’s movement; provide additional information: Major accidents scenarios; basic risk supervision rules description; major accidents risk reduction to an acceptable level; safety challenges (including the underwater cables and pipelines); possible major dangers resulting from offshore activates performance

Offshore Intervention Plans Safety Issues Offshore Intervention Plans Offshore Intervention Plan (operator or owner) Unpredictable events, major accidents, major dangers Adequate manpower, equipment and know-how (with regard the predictable conditions and events), analysis of predictable dangers, early warning system, dispersion tools analysis Aligned with the local and regional, and national Plan of interventions in case of the unpredicted pollution of sea (Official Gazette, 92/08, 80/13) National Center for Sea Search and Rescue Coordination Plan of Interventions All competent state bodies and other entities cooperation Cross-border pollution cooperation (regional plan, Sub-Regional Plan for Adriatic Sea, Official Gazette, International Agreements, 7/08) EU Civil Protection Mechanism

The necessity of further legislation Legal Gaps The necessity of further legislation Insurance Mandatory insurance: Investor; License holder; Knock-for- knock? Responsibility and Liability Scope of damage? Definition of damage? Strict Liability or Presumed Fault? Croatian Maritime Code – what rules to apply in case of any sort of an accident? Croatian Obligations Act – general contractual and tort rules? Limitation of Liability?

Thank You for Attention 1st ADRIATIC MARITIME LAW CONFERENCE 26 - 28 May 2016 Portorož, Slovenia