GEOL. CROAT. 49/2 1179 - 182 1 1 ZAGREB 1996 Professiollal pOI)er Legal Regulations in the Republic of' Croatia as Well as Oil and Gas Exploration and Exploitation Activities Zeljko MA TISA Key words: Legal regulation, Oil, Gas, Exploration, Production, Croatia. Abstract Allhough Croatia does not belong to countries lhal have an espe­ cially rich mineral wealth, il has a long tradition of mining industry. Even Ihe beginnings of inlcrnaJ oil cxp loilatioll occurred in the mid­ dle of the nineteenth century, at the lime when the oil era began with the IIrsl oil-well in North America in 1859. The mining legislation in these areas is also vcry old, and it has been recognizable by the existence or the mining provisions and laws since Ihe 161h CClllury. Special mention has to be made oflile Austri­ an General Mining Law of IR54. that was valid for all countries of the Austro-Hungarian monarchy. In Croatia it remained ill effect until 1945. Present mining legislation in Croatia has been brought into con­ fonnilY with the new legal system of the Republic of Croatia. but also with the current mining legislation of Europe, primarily ofCelltral Europe. The field of oil and gas exploration and exploitation ill Croatia is covered ch ieny by the provisions of the Mining Law but also by the Concessions Act, the Law on Geological Explorations and the Mar­ itime Code . These legal regulations allow the exploration and exploitation of oil and gas to run smoothly from it mining-and-Iegal standpoint. 1. INTRODUCTION The lengthy tradition of the exploitati on of mineral raw materials in Croatia is confirmed by numerous archeological finds from the pre-Greco-Roman times. The current mining legislation in the Croat ian state can be traced through: - Mining Regulations of Maximillian n (1573); - Mining Law of Joseph][ (1788); - Mining Law or Napoleon (1810); - Austrian General Mining Law (1854). The Austrian General Mining Law from 1854 remained in effect in Croatia until 1945 and it covered all mineral raw materials. In the J.920' s the interest in the exploration and exploitation of oil and gas increased in the territory of the then Kingdom of Serbs, Croats and Slovenes, so that the "Law on ExploraLion and Pro- Ministry of Economic Affairs of the Republi c of Cro~lti(l, Ulica grada Vukovara 78, HR-I 0000 Zagreb, Croatia. PROCEEDINGS cessing of Mineral Oils, Natural Pitch and Gas in the Kingdom of Serbs, Croats and Slovenes" came inlo force on 31 March 1922. This new law prescribed the procurement and use of concessions for exploration and exp loitation, while for all other activities the Mining Law continued to be valid. From 1945 until the present exploration and exploitalion of oil and gas have been regulaled by the regu larly revised Mining Law. With the formation of t.he Republic of Croatia in 1990, and on the basis of the Constitution of 1990, the new Mining Law was adopted in 1991; its provisions were broughL into harmony with the new legal order in the state but also with thc market economy suitable for Europe. Except for the Mining Law, activities with regard to exploration and exploitation of oil and gas arc also part­ ly regulated by the Concession Act of 1992, by the Mar­ itime Code of 1994. and by Ihe Law on Geological Explorations of 1986. 2. THE CONSTITUTION OF THE REPUBLIC OF CROATIA The Constitu tion 01" the Republic or Croatia estab­ lishes protection for the sea, the seashore and islands, waters, air space, mineral wealth and other natural resources wh ich a re of legal interest to the Republic. The Law regulates the way in which goods of interest. to Ihe Republic may be used and exploiled by the holders of the rights to them and by their owners, and provides rules governing compensation for thc restrictions they are subject to. The state guarantees the right of ownership. A for­ eign person may acquire the right. of ownership under conditions specified by the law. The sta te ensures alt entrepreneurs an equal legal status on the marke t. Monopolies are forbidden. A very important part of the Constitution is that the rights acquired through the investment of capital cannot be lessened by thc law or by any other legal ael. 3. THE MINING LA W The Mining Law (final draft) has been in effeci in the Republic of Croatia since 1995. The Mining Law estab li shed that mineral wealth is the properly of the Republic of Croatia. The mineral wealth is considered to comprise all organic and inor­ ganic mineral raw materials. namely: I. Encrgy raw materials (coal, hydrocarbons in solid, liquid or gaseolls states, all kinds of bituminous and oil rocks , other gases located in the eanh, and radioactive mineral raw materials). 2. Mineral raw materials from which metals and their compounds can be produced. 3. Non-metallic mineral raw materials (graph ite, s ul- phur, gypsum, silica sand , etc.). 4. Dimension stone. 5. All sorts of salts and salt waters. 6. Mineral and geothermal waters from which mineral raw materials can be won or whose accum ulated heal can be used for energy-produc in g purposes, except for mineral and thermal waters that are used 1'01' curative, ba!neologica! and recreational purpose or as drinking water. 7. All types of aggregates and building stone. The provisions of the Law refer to the ex ploration and exploitation of mineral raw materials. Exploration of mineral raw materials is considered to com pri se operations and testing with the aim to establish the ex is­ tence, position and form of mineral raw material deposits, their quality and quantity, as well as the exploitation conditions. According to the Mining Law, the rollowing are not considered to be explorations or mincral raw materials: gcological land prospecting, geological, geochemical, geophysical, pedological and geomcchanical tcsting undertaken to discover various mine ral s, or 10 elaborate geological maps, to test the so il, or to perform scient ific research etc. Extraction from dcposits and thc refining of mineral raw materials is consi dered to be exploi tation of mineral raw materi­ als. A concession (approval) for exploration or exploita­ tion of mineral raw materials may bc granted to a legal person with their seat in the Republic of Croatia that is regist ered for carrying out slieh activity, and to a natur­ al person that has a craft trade for carrying out explo­ ration or exploitation of mineral raw matcrials regis­ tered in the Republic of Croatia. The approval for exploration and exploitation of oi l and gas is granted by thc Govcrnmcnt of the Republic or Croatia, for techni ­ cal building stone, building sand and gravel , and brick carth it is the cou nty office that is competent for mining matters, while for all other m ineral raw materials by the Ministry of Economic Affairs. For the exploitation of mineral raw materials a com­ pensation is paid at the rate of 2.5% of the income earned from retailing the product. The compensation is paid to the municipality or lown in the territory where the explo itation was undertaken. The holder of any concession for the exploitation of mineral raw matcrials is obli ged, ill parallel with the Geologia Croalica 49(2 exploitat ion, to carry out explorat ion [or the purpose of renewing and maintaining the reserves. To this cnd hc is obliged to allocate at least 3% of the incomc earned from retailing the mineral raw material. This obligation docs not re fe r to holders of a conccssion when they have confirmed reserves of the mineral raw mater ial for exploitation during a period of a t least 2S years. Inspecti on jobs [or superv ising the exploration and exploitation of mineral raw materials are carried out by the mining inspection according to the Mining Law. 4. THE CONCESSIONS ACT Thi s act governs the ri ght to usc natura! resources and other goods, which are of interest to the Republic of Croatia. A conccssion may be granted to a domestic or foreign lega l or natural persoll for a maximum period of 99 years. The decision on a concession is made by the Cham­ ber of Representatives or the Sabor (Parli ament) of the Republic of Croatia, unless it is otherwise provided by the law. For exa mpl e, it is laid down by the Mining Law, that a conccssion for the exploration and exploita­ tion of oil and gas is granted by the Government of the Republic of Croatia, 1'01' exploration and exploitation of building stone, gravel , building gravel and brick carth is granted by the county office, while for all other mineral raw materials is granted by the Ministry of Econom ic Affairs. The decision on the concession is made on the basis or public gathering of tcnders or public invitation for tenders or upon application, unless it is providcd other­ wise by a special law, Thc Mining Law, as such, stipu­ latcd that a concession [or the explora tion and exploi ta­ tion of mineral raw materials is granted upon request. The Governmcnt of the Repub li c of Croatia, the competent ministry or the executive body of the county or of the town and the user of the concession conclude a concession contract. 5. THE MARITIME CODE The "maritime good" is of publi c interest to the Republic of Croatia and enjoys its particular protection. The " maritime good" covers internal sea waters and ter­ rilorial waters, their sea-bed and subsoil as well as part of th e land that is, by its nalure, intended for public maritime use or is proclaimed as such. It is considered to include, specifically: seashore, ports, breakwaters, building sl ips, sea-walls, sandbars, rocks, ree fs, mouths of rivers flowing into the sea, canals connected with the sea, as wcll as living and non-l iving natural resources in the sea and sea subsoil , fish , orcs. etc. Natural and legal pe rsons may be grant ed authorization for the special use and economic Lise of the maritimc good in terms of a concessIOn. The economic zone of the Rcpubl ic of Croatia com­ prises the sca space from the external border of the ter- Mati~a: Legal Rq;lIlillioll~ ill the Republic of Croatia as Well as Oil and Ca.'; Exploralion... 181 rilorial sea in the direction or the open sea to its exter- The fundamental exploration works are carried out nal border allowed by the general international law. In its economic zone the Republic or Croatia asserts its sovereig n rights with regard to exploration and exploitation, the preservation and management of living and non-living natural resources as well as to energy production utilising the sea , sea currents and wind drifts . In its economic zone the Republ ic of Croatia has the exclusive right to build artifi cal islands, plants and devices in the sea, sea bottom and sea subsoil. The use and exploration for the purpose of cxploila­ tion or natural resources within the econom ic zone is performed according to special rcgulations. As regards orcs, specia l regulations mean the Mining Law. The conti nental shelf" of thc Rcpubli c of Croatia compriscs the sea bottom and sea subsoil outside the external border oj" the territorial sea of the Republic of Croatia in the direction of the open sea up to the conti­ nental shelves oj" the neighbouring states. The Republic of Croatia asserts its sovereign righ ts over the continental shelr with regard to its exp loration and exploitation of its natural resourccs. Nat ural resources are understood to comprise mineral resources and other non-living wcalth of the sea bottom and its subsoil as well as sea creatures on and ncar the sea bot- . tom. Exploration and ex ploitation of mineral resources arc also subjec t to special regulations, which in this case, too, is Ihe Mining Law. As distinguished from the economic zone and the continental she lr, where the mining legislation is pre­ cisely determined as the competent one for exploration and exploitation of the mineral resourccs, thi s is not the case. if the internal sea waters and territorial waters are a mailer of concern. The Maritime Code and the Min­ ing Law arc in conJlic!, so lhal the solution wi ll proba­ bly be looked for in changing the controversia l provi­ sions or the Maritime Code. r or thi s reason with regard to mineral resources th e Mining Law is the " Icx spe­ cia lis". 6. THE LA W ON GEOLOGICAL EXPLORATIONS The Law on Geological Explorations from 1986 remains in effect in the Republic of Croatia. A new Law on Geological Activities is being prepared. According to the curre nt law, geological explo­ rations are considcred as: the exploration and establish­ ing of the composit ion and structure of the earth's crust (Ianci and sca-bcd ~\I1d subsoil), of mineral raw materi ­ als, exploration of shallow mineral and thelmal under­ ground waters as well as geological test ing before the construction of variolls buildings. This exploration is carried out lIsing geological, geophysical, geochemical, hydrogeological and engineering-geological mcthods, by surrace and underground works as well as by explo­ ration and structura l drilling. Fundamental and regional gcological explorat ions are activi tics of special impor­ lancc. in order to obtain the basic geological data concerning lhe composition and st ructure or the eart h' s crust, and to establish possibilities for locating mineral raw mate­ rials, or to determine engineering-geological, hydrogeo­ logical , geophysical and petrological characteristics of rocks. Fundamental exp loration is also considered to include elaboration of geological maps on the scales of 1 :25,000; I :50.000; I: 100,000; 1:200,000 anc! smaller sca les. Regional geological explo ration works are car­ ried out in order to acquire the data concerning the composition and structure of the earth 's crust of the given region and to locatc deposits of mincral raw materials and aqu iferous complex struct ures. Detailed geolog ical exploration works arc carried out in order to obtain the data concern in g the origin, position and [arm of the deposits or mineral raw mah~ri­ als, and to establish their quan tity, quality and possibili­ ties and condit ions of their explo itati on. These explo­ ration works are performed in conformity with the pro­ visions of the Mining Law. Detailed geological explo­ ration works are also carried out in order to explore underground waters, and lO obtain the data for taking measures aimed at environmcnt protcction. 7. THE EUROPEAN ENERGY CHARTER The contract with accompanying acts on acceptance of the European Energy Charter was signed by Croatia in Lisbon in Deecmber 1994. The Europcan Energy Charter refers to accelerating economi c growth by measures for the libera tion of investments and trade in energy sec tor taking into account the need fo r the most cfficient exploration, pro­ duction, transformation, storage, transportation, distrib­ ution and use of energy. The contracting parties, signatory slates to the Char- ter, bind themselves, among other things, to: ac t to promote access to internat ional market s in order to develop open compctitivc market for energy materia ls and products; take the necessary steps to allow the free passage 01" energy materials and products through their territory over the trading grounds; promote the access and transfer of energy technology across the trading and impartial grounds; establish conditions for access to the capital market for companies and citizens of other contracting par­ ties for the purpose of financing trade and invest­ ments of economic activities in the energy sector; al low access to investment in the energy economy over the ir territory along with the adequate protection of sllch investments; a lso al low the entrance and temporary stay of natural persons in the territory of the contracti ng party, who will be, as key personn el, employed with the investor; ,<2 retain the state soYCrcigll ity over the energy products. They decide in particular within their te rrito ry on areas that are available for exploration , on the rene­ wal or rese rves, and on levels of exploitation and exhaustion of deposi ts; they determine and apply var­ iOlls fees, rentals , and financial payments; they deter­ mine sa fety measures and conditions [or cilvironlllcill protection, and their participation in exploration and exp loitation of energy goods. Certain s ignatory stales have the right 10 transitiona l adjustment measures thai may last up to 5 years , and Croatia is among them. The existing legislation of the Republi c of Croatia in Ihe energy sector provides no hindrance to the implementation of the Charter. Geologin CrO:lticn 49/2 8. CONCLUDING REMARKS The mining legislation in the Republic of Croatia is based on the previolls Austrian General Mining Law of 1854. Consequently, the tradition of mining legislation in our count ry is very long. During the very short peri­ od of ex istence of the Republic of Croatia (since 1990) the m in ing legislation has been brought into harmony with the new legal order in the state but also with the mining legis lation that exists in European countries , especial ly those of Central Europe. The legal regulations in the field of exploration and exploitation of oil and gas arc contained in the Mining Law, but also in some other laws that arc today in force in Croatia. Here is reference made primarily to the Con­ cessions Act and to the Maritime Code. Current legal regulations in the Republic of Croatia make it possible that, from the legal sta ndpoi nt , the processes of exploration and exploita tion of oil and gas can operate .in an orderly manner. In the course of time they will be improved, as will be required by the mod­ ern mining-and-oil legis lation in Europc.