Croatia in Focus, br. 11/12, January/February 2006

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Government of the Republic of Croatia, Office for Public Relations10000 Zagreb, Trg sv Marka 2; tel: +385 1 63 03 050, 45 69 248,fax: +385 1 63 03 446, 63 03 [email protected]; http://www.vlada.hrTomislav MazalSandra PuhovskiSanja Milinović, Suzana Kovačević, Jasna Sruk Vlah, Dubravka Belas,Ida Ćosić, Igor Žarković, Nataša Hison, Paula Popravak, Vera ZebićMassol design&marketing, www.massol.hrKersch Offset1500

Croatia In Focus, Croatian Government Bulletin

Croatia In Focus No. 11/12 January/February 2006

NEWS FLASH

DIPLOMATIC TOUR

CROATIA AND NATO

CROATIA - YOUR CHOICE FOR BUSINESS

DEVELOPMENT OF GAS SUPPLY SYSTEM

BUSINESS NEWS

INTERVIEW: DAMIR POLANČEC

ENTREPRENEURIAL AND FREE ZONES

EU UPDATE

CULTURE

2006 - THE YEAR OF TESLA

GOSPIĆ TOWN

KRKA NATIONAL PARK

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PM Sanader and Busek on Regional

Free Trade Zone

Earlier this month Croatian Prime Minister Ivo Sanadermet with Special Coordinator of the Stability Pact forSouth Eastern Europe Erhard Busek. On this occasionthey discussed the latest European Commissionproposal for the establishment of a regional free tradezone involving five Southeast European countriescovered by the Stabilisation and Association Process.The proposal has stirred much controversy in Croatianpublic enhancing the fear that the zone could slowdown the process of Croatia’s admission to the EU or

lead to the restoration of Yugoslavia.After the meeting PM Sanader and Mr. Busek held jointpress conference and both of them completely removedsuspicions about the restoration of Yugoslavia.

PM Sanader said that Croatia’s cooperation in thebuilding of stability and peace in Southeast Europe,including through closer trade relations, will not slowdown but rather speed up the country’s integrationwith the EU. The more Croatia helps the internationalcommunity in establishing stability and peace andpromoting economic development in the region, the

sooner it will join the European Union.The PM reiterated that the purpose of all initiatives onSoutheast Europe was regional political stability andbetter business conditions.

“Nobody in Europe is considering the establishmentof a new Yugoslavia or any other form resembling

the former Yugoslavia, and there is no chance of thathappening,” PM Sanader said.

He recalled a meeting in Salzburg in August 2005at which prime ministers from countries covered bythe Stability Pact, their colleagues from Bulgaria andRomania, and Austrian Prime Minister WolfgangSchuessel discussed the option of a free trade zone orits inclusion into an enlarged Central European FreeTrade Agreement (CEFTA), with the participantsopting for Sanader’s proposal on CEFTA.

Participants in a subsequent CEFTA summit inZagreb agreed to lower admission criteria, so that inorder to be able to join CEFTA a country no longerneeds to be a member of the WTO, but only expressits intention to join.

“We believe that CEFTA provides a good frameworkfor free trade because it eliminates all politicalallusions about the restoration of Yugoslavia,” PMSanader said. He went on to say that it was importantthat Romania and Bulgaria remain CEFTA members

until their admission to the EU and that Ukraine beinvited to join CEFTA too.

In his address, Mr. Busek said that the EU’s effortswere aimed at strengthening stability and developing

NEWS FLASH

PM Sanader and Erhard Busek



the economy of Southeast Europe. He pointed to thefact that there were 31 bilateral free trade agreements in

the region and that such a large number of agreementspresented an obstacle for business people.

“That is why we in the Stability Pact have proposed a freetrade zone, with only one agreement,” Mr. Busek said.

Commenting on the controversy which the ECproposal has stirred among the Croatian public, Mr.Busek said that such a response had been expected,but that it was unfounded.

He said that PM Sanader’s proposal for the

establishment of a free trade zone under the aegisof CEFTA was very well accepted and thanked theCroatian government for lowering the membershipcriteria during its presidency of CEFTA, whichBosnia-Herzegovina and Serbia and Montenegrohave already benefited from by announcing theirintention to join the WTO.

He also said that Sanader’s proposal for Ukraine’smembership of CEFTA was interesting and that theCroatian proposal for the establishment of a free trade

zone under the aegis of CEFTA proved that Croatiahad the leading political and economic role in the

region, as well as on the path to the EU.

Croatia makes greatest progressin developing sustainable media in

South-East Europe

IREX, a US-based non-profit organization, has

assessed that Croatia has made the greatest progress

among south-eastern European countries in creating afavourable climate for independent media.

The Media Sustainability Index (MSI) 2005 providesa “comprehensive qualitative and quantitativeanalysis of media development in twenty countriesacross Europe and Eurasia”.

The MSI index covers analyses of freedom of speech,plurality of media available to citizens, professional journalism standards, business sustainability of

media, and the efficacy of institutions that supportindependent media.

Croatia has got the grade somewhat above 3 with 4being the highest mark. The mark between 3 and 4

means that Croatia has media “that are consideredgenerally professional, free and sustainable”.Panellists, who have been engaged by IREX in adebate on Croatia’s media scene, have agreed that“journalism in Croatia is more professional andsophisticated compared with all countries in theregion, including Slovenia, Hungary and the othernew EU members”.

Panellists also conclude that politically motivatedcensorship in the Croatian media is “extremely rare,existing only marginally in some local media”.

2nd Crans Montana Forum in Zagreb

The 2nd Crans Montana Forum called “Croatia– Europe’s Gate to the Southeast” will be held inZagreb on April 5 – 7, 2006.

“Croatia – Europe’s Gate to the Southeast” is theoverarching theme of the Forum that will bringtogether eminent figures from Croatia and Europe’s

political and economic circles with the goal of presenting the potentials of Croatia’s dynamic andgrowing economy. Taking into consideration thepreparations for Croatia’s accession to the EuropeanUnion and the importance of the European path for allthe countries of the region of Southeast Europe, thisis one of the most important tasks to be dealt with bythe government and the state administration.

The Crans Montana Forum is a renowned institutionthat for almost two decades now has been promotinginternational dialogue and partnership between

business and politics as well as among businessthrough its eminent meetings and summits. TheForum will gather Heads of State, Prime Ministersand senior members of governments of the EuropeanUnion, South-Eastern Europe as well as high levelrepresentatives from the EU and other internationalorganizations, diplomats, government officials,experts and prominent business sector decisionmakers from Croatia and Europe who will play themost important role in this gathering.

For more information about the Forum, please visit: http://www.mvp.hr/cmf/en



First joint session of Croatian and HungarianGovernment was held on 26th January 2005 inBudapest. It was the first session of CroatianGovernment held outside of Croatia, and second heldtogether with a government of another country, afterthe session with Slovenian Government in June 2005in Brijuni.

After the session Croatian Prime Minister Ivo Sanaderand Hungarian Prime Minister Ferenc Gyurcsanyemphasized that Croatian-Hungarian cooperationmay be an example to Southeast European countriesand the wider region and two countries wish to buildthe future on cooperation and friendship which willbring prosperity to both peoples.

Speaking at the press conference PM Sanader and PMGyurcsany said the two countries had no outstandingissues and cooperated in many areas.Croatia and Hungary don’t share only the past butalso the future, said PM Gyurcsany.

He pointed out that Hungary saw Croatia as a Europeancountry and announced further support to Croatia inefforts to join the European Union and NATO in theshortest time possible.

Gyurcsany said that, apart from ministerial agreements,there is a framework agreement between the twogovernments, which defines Hungarian support toCroatia for joining the EU as soon as possible.

The two prime ministers signed a statement onCroatia-Hungary cooperation in united Europe and adeclaration on energy cooperation. The latter supportsthe construction of a joint transmission line betweenErnestinovo and Pecs, the linking of the two countriesgas supply systems near Donji Miholjac, Croatia,and the drafting of a study on transport of liquefiedpetroleum gas from the Adriatic to Central Europe.

PM Sanader said that Croatia and Hungary will doeverything to be independent in terms of energy.

DIPLOMATIC TOUR

PM Sanader and France President Chirac

Joint Session of Croatian and Hungarian Government

Members of the Hungarian and Croatian Governments



He also added that Croatia had decided to build an

LNG terminal in the Adriatic and that the Gas SupplyCommission would discuss it next week. He stressedhow Croatia was interested in an alternative gassupply route through Hungary.

On governments session there were also discussionsabout border cooperation, economic and infrastructurecooperation, cooperation in the protection of minorities,culture and education and environmental protection.

Two governments signed a number of bilateral

documents, including letters of intent on minoritiesand cooperation in a joint approach to nationaldevelopment and the regional policy.

Two governments fully supported joint organisationof the 2012 European Football Championships.Preparations are going well and organising the eventwould mean a lot to both countries as well as theunited Europe project, said PM Sanader.Gyurcsany added that the championship would alsohelp infrastructure projects, and there was a wish tocomplete the Budapest-Ploce highway by 2010, a

road and a bridge across the Mura by 2007, as wellas rail and airport projects.

PM Sanader and PM Gyurcsany expressed readiness of

both countries to do everything to get organisation of thefinal of the European Championships - EURO 2012.

The two prime ministers, members of Croatian andHungarian Governments, and leaders of football’sassociation visited jointed facilities of Croatian andHungarian football’s association.

On this occasion two prime ministers exchanged thecolours of the national teams, both with number 21.Number 21 is significant, it represents 21st century in

which Croatia and Hungary will be winners, and I hopewinners of organisation of Euro12, said PM Sanader.

Croatian PM Sanader also visited Croatian stateself-government where he announced that CroatianGovernment will soon get a decision about co-financing building of Croatian-Hungarian educationalcentre Miroslav Krleža in Pecs.

During his visit to Budapest Croatian PM Sanader alsomet the President of the Republic of Hungary LászloSólyo. President Sólyo said that in every occasion of

meeting with European officials he has emphasizedsupport Croatia.

PM Gyurcsany and PM Sanader



CROATIA AND NATONATO`s support for Croatia’s

Membership Ambitions

Croatian Prime Minister Ivo Sanader at the end of Januaryvisited the headquarters of NATO in Brusells where hemet NATO Secretary-General Jaap de Hoop Scheffer.

After the meeting Scheffer said NATO allies supportCroatia’s ambitions to join the alliance.It is crystal clear that NATO allies support Croatia’sambitions. The door to NATO is open, NATO willhelp Croatia as much as it can in that process, whichis based on individual achievements, Scheffer said.

We expect a signal from NATO at the summit in Riga(28-29 November), although we know that enlargementwill not be a topic of the summit, but Croatia has done alot in meeting the membership criteria and I am certainthat something will be stated, PM Sanader said.

When we speak about NATO, I personally, mygovernment, and the Croatian legislature speak about

values such as freedom, democracy, the rule of law, afree market economy, and human and minority rights,

PM Sanader said.He also added that this should be explained to theCroatian public and that support for NATO wouldincrease. For that we need the support of NATOmembers and several NATO countries have alreadyexpressed readiness to work with us so that we couldsend a clear message to Croatians about what NATOis, PM Sanader said. Scheffer said that NATO wasready to help raise the support of Croatian citizens forNATO membership.

During visit to Brussels PM Sanader met ElmarBroke, the chairman of the European Parliamentforeign affairs committee. He informed Broke of steps which Croatia was making to meet conditionfor full membership of the European Union. Brokepointed out Croatia’s progress on the road towards theEU as an example which other southeastern Europeancountries can follow.

PM Sanader and Secretary-General de Hoop Scheffer



Peace Mission in Afghanistan

The International Security Assistance Force (ISAF)Peace Mission in Afghanistan exists in accordancewith the Bonn Agreement of December 6, 2001. ISAFis approved by a UN Security Council Resolution.The primary role of ISAF is to assist the Government

of the Islamic Republic of Afghanistan in stabilisingthe country, providing a safe and secure conditionsfor the reconstruction and establishing the authorityof the Government throughout the whole country.The Mission is led in six-month turns by the GreatBritain, Turkey and Germany. In order to securecontinuity of the Mission, on August 11, 2003NATO took over its coordination and command. Itis NATO’s first mission outside the traditional Euro-Atlantic region.On a political level, the decisions are made by the

North Atlantic Council (NAC) after having consultedall the non-members countries that are taking partin the Mission in order to have an effective politicalpresence in Afghanistan. The Republic of Croatia isamong these countries.At this moment, the Mission counts some 11,500soldiers from 36 countries. The Croatian MilitaryPolice unit participates in the peace-keeping mission inaccordance with a decision by the Croatian Parliament of December 12, 2002 and a final decision by the CroatianPresident Stjepan Mesić of February 13, 2003.

The Croatian contribution at the beginning was basedonly on participation of the members of the Croatian

Armed Forces - Military Police in the region of theAfghan capital of Kabul, but in August 2005 Croatiasends medical experts in a joint medical teamwith Albania and Macedonia, also aspirants toNATO membership.The Croatian civilian component joins ISAF inJanuary 2005 in accordance with the “Joint declaration

on civilian cooperation within a German ProvincialReconstruction Team in Feyzabad in Afghanistanbetween the Governments of Croatia and Germany”and based on the “Conclusion on acceptance of theJoint Declaration” drawn by the Croatian Governmentat its session on September 17, 2004.

The Croatian civilian and army personnel inAfghanistan is being rotated on six-month basis.According to a decision by the Croatian Parliament of July 1, 2005, Croatia increased its contingent from 50

to 150. The main force would be an infantry company,whose departure is announced for February 2006.The Republic of Croatia, as a responsible memberof the international community, wishes to contributethrough its role within ISAF in building and keepingof peace and stability in the world as well as infighting the main threats to security.Moreover, Croatia wants to join NATO and thatrequires a lot of quality preparation. Participation inNATO-led operations, as the peace-keeping missionin Afghanistan, gives opportunity to the CroatianArmed Forces personnel to work together with the

troops from NATO member countries. In that waythey gain experience and skill for future joint tasks.

Croatian MP in Afganistan



TAX SYSTEM IN CROATIA(PART TWO)

Value-added Tax (VAT)

Value-added tax (VAT) is paid by:• an entrepreneur that delivers goods or providesservices;• importer;• a domestic entrepreneur for services provided byan entrepreneur domiciled abroad. An entrepreneurwhose annual amount of delivered goods and services(after reducing it by the amount of non-taxable

deliveries) was not higher than HRK 85,000 in thelast calendar year is not subject to VAT.

Also, he/she/it is not allowed to specify tax amountsin his/her/its invoices and may not deduct the taxcharged by other entrepreneurs. The tax base in thiscase is the charge for delivered goods or services.

The tax rate is 22% and 0%.

The VAT rate is 0% for:• all types of bread;• all types of milk;• professional, scientific, artistic, cultural andeducational books, students’ books (pedagogyand education: primary, secondary and universityeducation) printed on paper or on other text carriers,including CD-ROMs,video and audio tapes;• medications specified in the Decision on ListedMedications by the Croatian Institute for HealthInsurance;• surgically implanted products (heart valves, artificial joints, etc);

• scientific periodicals;• public motion picture presentation services;• services pertaining to organised tourist stays paidby bank transfers from abroad(accommodation or bed andbreakfast, half or full board in alltypes of commercial facilities,agency commission for thementioned services, tours, busand boat transfers)*.

* From January 1 2006 tax rate for

these services is 10%

Tax exemptions in croatia

• lease of residential premises;• services and delivery of goods by banks, savingsbanks, savings and loan co-operatives, insurance andre-insurance companies;• organisation of games of chance in gamblingestablishments and game parlours; betting;• services and goods delivered in private practicesby medical doctors and dentists, nurses, physical therapists and biochemical laboratories;• medical treatment services in health-careinstitutions;• services and delivery of goods performed by socialwelfare institutions;• services and delivery of goods performed by childand youth welfare institutions, institutions of highereducation and students’ halls of residence, students’restaurants and similar facilities;• services and delivery of goods by religiouscommunities;• services and delivery of goods by public culturalorganisations;• trade in gold ingots conducted by the CroatianNational Bank, in domestic and foreign payment

instruments, securities; trade in financial claims,securities and company holdings;• membership fees for associations established underspecial regulations, on condition that the membership feehas been set according to criteria equal for all members;• delivery of goods or services by an association, oncondition that the volume of deliveries within oneyear does not exceed HRK 85,000.

Exemptions for imports

• temporary imports exempted from import duties andfinal humanitarian aid imports - excluding petroleumand refined petroleum products, tobacco and tobacco

CROATIA - YOUR CHOICE FOR BUSINESS

VAT TAX RATES IN CROATIA

22% 10% 0%



products, alcohol and alcoholic beverages;• import of gold in gots by the Croatian National

Bank, of domestic and foreign legal paymentinstruments, as well as securities and holdings incompanies;• import of goods considered personal luggage orgoods for personal use as provided by customsregulations, up to a total value of HRK 300, unlessthe goods are intended for re-sale;• import of goods in postal parcels and otherconsignments up to a total value of HRK 300, thatare received by Croatian or foreign citizens from natural persons and for which the receiver need notpay any fee to the sender, as provided by customsregulations;• import of advertising materials and specimensreceived from abroad and free of charge by statebodies, companies, institutions and other legaland natural persons, as provided by internationalconventions;• import of used household appliaces, objects andpersonal belongings by natural persons on thegrounds of moving to and taking up residence inCroatia, as provided by customs regulations;• import of decorations, medals and awards received

at international events, and of presents received aspart of activities pertaining to international relations,as provided by customs regulations;• import of trademarks, patents, models andacompanying documentation, includingapplication forms for patents or innovations thatare sent to instiutions dealing with copyright andindustrial property rights, as provided by customsregulations;• import of documents, forms and data carriers;• import of products originating from agriculturalproduction, cultivation of soil, live stock raising,forestry, fish farming and bee keeping performed onland in the border areas of a neighbouring countryand owned by Croatian nationals that live in borderareas, and import of live stock offspring and otherpastoral products from cattle held on such propertyfor the purpose of fieldwork, grazing or wintering,as provided by customs regulations;• import of goods that Croatian nationals andforeignnationals with permanent residence in the Republicof Croatia have inherited abroad, as provided by

customs regulations;• import of goods (except petroleum and refined

petroleum products, tobacco and products the reof,alcohol and alcoholic beverages) given as donations

to humanitarian, health, educational, cultural,scientific, religious and social institutions, amateursports clubs, local selfgovernment and governmentadministration bodies, as well as the import of goods by the above mentioned entities which arepurchased with money received as donation fromabroad;• goods brought in to the country by scientists,writers and artists as their own works, as providedby customs regulations;• services pertainig to the im port of goods when thevalue of such services is included in the tax base;• transportation of imported goods as a serviceprovided in Croatia by Croatian Railways;• import for the purpose of transit through thecustoms area of the Republic of Croatia, includingtransportation and all ot her forwarding services.• reimportation of goods in an unchanged conditionby the same entity that exported them, on conditionthat such goods are exempted from customs dutiesunder customs regulations.

Tax exemptions for exports

• export delivery of goods and improved goods,including transport and all other shipping services;• delivery of goods to a free zone, store houses andcustoms ware houses, and delivery of goods withinfree zones, store houses and customs warehouses;• delivery of goods and services to diplomaticmissions and embassies, on the condition of reciprocity;• services in Croatia that domestic entrepreneursprovide to foreign entrepreneurs engaging in

maritime, air or river transport;• delivery of goods and services in Croatia (exceptpetroleum and refined petroleum products, tobaccoand products the reof, alcohol and alcoholicbeverages) that are paid from foreign cashdonations made to humanitarian organisations,health, educational, cultural, scientific, religiousand social institutions, amateur sports clubs, localand regional self-government and governmentadministration bodies.

To be continued in the next issue.



DEVELOPMENT OF GAS SUPPLY SYSTEMLast month the Government of the Republic of Croatia announced a project of development of gas

supply system in Croatia for the period until 2010.The project will cost around 450 million US$, and itwill be realized in two stages.

The first stage - the construction of gas pipelinefrom Pula via Karlovac to Slavonski Brod - shouldbe completed by the end of this year with the costof 276 million US$. This stage also envisagesthe construction of Baranja system in the easternCroatia and SCADA system thanks to which it willbe possible to control the whole Croatian gas supplysystem from one control room. One of the mostimportant parts of the project is the construction of Pula-Karlovac pipeline, which will make it possiblefor gas to be transported from the Croatian part of the northern Adriatic directly to the mainland. Sofar, it has been transported via Italy and Slovenia.Pula-Karlovac pipeline will be 190 kilometers long,with the capacity of 1.5 billion cubic meters a year,which covers the total production of the northernAdriatic fields. The great strategic importance of this pipeline lies in the fact that it connects domesticproduction with domestic transport system. Besides,

it also has significant economic importance becauseit enables the development of supply systems of the counties of Istria, Primorje-Gorski Kotar and

Karlovac, and construction of a possible futurepipeline to Dubrovnik.

The programme for modernization, developmentand construction of Croatian gas transport system,drawn by the Government, is conceived in threemain directions. Beside the Pula-Karlovac pipeline,projects for gas systems of Lika and Dalmacija, aswell as for central and eastern Croatia have alsobeen planned. The programme will be implementedin the above-mentioned two stages.

The Government’s priorities in the second stage areBosiljevo-Split pipeline, whose construction shouldbe done by 2009 or 2010, and construction of DonjiMiholjac-Slavonski Brod pipeline as a new supplydirection of the European ‘Nabucco’ project. Thisproject envisages the construction of gas pipelinesfrom the Caspian region, thus making Europeindependent of the Russian gas. The Croatian supplydirection in this project is Donji Miholjac-SlavonskiBrod. It should be constructed by 2011, and provideCroatia with some 2.5 billion cubic meters of gas ayear, which almost equals to the total consumptionof gas in Croatia today.

In order to have an additional gas supply, Croatiawill build a terminal for liquefied natural gas (LNG)

so as to ensure thecountry’s energyindependence. It willprobably be situatedon the Island of Krkand supplied withliquefied natural gasby ships, and thereforeit will represent anew supply direction.Its capacity will befour times biggerthan today’s gasconsumption inCroatia. Beside theCroatian oil companyINA, the projectwould involvecompanies E.oNRuhrgas, OMV,

Total, Geoplin andRWG-Trangas.Croatian gas supply system



Wizz Air to launch flights from Split

to LondonA low cost air company, Wizz Air, will introduce flightsfrom the coastal Croatian city of Split to London as of 1 May and will offer more frequent services betweenthe Croatian capital of Zagreb and London.

Wizz Air will offer flights from Split to LondonLuton Airport three times a week with flights fromZagreb to London every day as of 1 May.During the summer season, it will launch flightsfrom Split to the Hungarian capital of Budapest

on Saturdays.A promotional fare for the Split-London until 14February will see one-way tickets start from 43euros, including taxes and charges.Three weeks ago, Wizz Air announced the start of its activities in Croatia with flights between Zagreband London. Wizz Air is the 23rd airline company tobe using services of the Zagreb airport.

World Bank Report

In its new report World Bank said that Croatia hasmade significant progress in integrating into theworld trading system and if it continues with reformit may set an example to other countries in South-East Europe.The report entitled “From Disintegration toReintegration: Eastern Europe and the Former SovietUnion in International Trade” says that Croatia iswell positioned within the world trading system.

Croatia is in a good position and has been makingsignificant progress not only in reform and trade

liberalisation as a member of the World TradeOrganisation, but has also been working on a series

of behind-the-border reforms, the lead author of thereport, Harry Broadman, said at a press conference.

He stressed the importance of energy marketreform, including the privatisation of the HrvatskaElektroprivreda (HEP) power company and the INAoil company, as well as the reform of public spendingand the introduction of greater fiscal discipline.

The World Bank report concluded that most of the 27 countries of Eastern Europe and the formerSoviet Union, which formed an isolated tradingblock during communism, were benefiting fromtheir reintegration into the world trading system.

“Croatian Quality” and “OriginallyCroatian” signs

A total of 134 Croatian products carry the “CroatianQuality” sign, while 74 Croatian products wereawarded the “Originally Croatian”, sign, as theconfirmation of authenticity, the Croatian Chamberof the Economy reported earlier this month.

The Croatian Chamber of the Economy launched

the campaign “Let’s Buy Croatian”, so as to raiseawareness about the quality of Croatian products andconfirms the authenticity of the quality of Croatianproducts. Last year, the name of the campaign waschanged into “Let’s Produce and Buy Quality”. Thecampaign has entered its second phase as a result of Croatia’s drawing closer to the EU.

The Croatian Chamber of the Economy had launchedthe campaign because it wanted to promote thequality and competitiveness of Croatia’s productsand encourage the Croatian industry to come up

with new products that would find their place on thedomestic and foreign markets.

BUSINESS NEWS



INTERVIEWDamir Polančec,

Vice President of the Government

Last year has been marked with several positive trends:

the Zagreb-Split highway was completed, the payment

of the state debt to pensioners started, several incentive

measures to stimulate enterprise were undertaken:

Internet services for e-business - hitro.hr (One Stop

Shop), e-katastar (Land-registry) and e-regos (Central

Register of Insured Person) - were inaugurated, the

foreign trade trend is turned around - the exports grew

faster than the imports, macroeconomic stability was

kept on an acceptable level, the tourist season was

the most successful so far. The Government of the Republic of Croatia moves on with a clearly defined

economic development programme.

About all that and about plans for this year we have

talked with Vice Prime Minister in charge of economy

Damir Polančec.

In your opinion, what was the most positive moment

last year?

I would like to single out one in 2005 - start of Croatia’sEU entry talks. The talks would be an additional

engine for the restructuring of our economy becausethe adoption and implementation of the Copenhagencriteria will bring significant changes in legal andfinancial framework. As a consequence, we shall havean economy functioning in much safer conditions, moreindependently, with more entrepreneurial energy andmore foreign investments.

One of the negative moments in Croatia, and in the

world, was the appearance of the bird flu. Although

some said Croatia acted too euphorically, the

World Health Organization suggests our model of procedure to other countries with the cases of H5N1

virus infection.

I am convinced that we reacted as we should have. It was avery serious matter and it was necessary to undertake allthe available measures to reduce danger and possibilityof infection. With effective and timely measures wehave achieved what no other country with the bird fluvirus did: not one case of the disease was registeredamong poultry. The European Commission did notban the import of the poultry meat and meat products

from Croatia. The Government paid compensation forculled poultry according to the market prices and gave

support to the poultry industry. Croatia has showed theworld to know how to react in crisis situation. Besidethat, the public was all the time informed of what was

going on. The Croatian citizens deserve to know thetruth about all the important issues, so the Government,as always, informed them about what was going on.

What is the secret of the last year’s tourist season?

This tourist season was the best ever according to thecapacity occupancy rate. In the first nine months themagical number of 50 million overnight stays waspassed over. I believe that the secret of such a season liesin the fact that Croatia no longer offers only sun and sea

to its guest, but after its comeback on the tourist map, awhole range of new tourist possibilities appeared - fromcultural heritage or culinary tours to sea-cliff climbingor cruising. I am convinced that the season behind us is just the first in a row of even more successful seasons,and my conviction is being supported by articles in theforeign press where Croatia is described as the world’smost desirable tourist destination.

In the Pre-accession economic programme for 2006-

2008 period you brought before the Croatian public

and the European Union goals and plans of economic

policy and programme of structural reforms. Whatis it all about?



The implementation of this programme will secureeconomic development that will bring Croatia to the

side of EU member states. Croatia is becoming modern,open, democratic, law abiding and stable state. This isat the same time the framework and the foundation of aricher life for Croatian citizens. Economic growth willrise above 4 %. Along with an increase of economicactivities in private sector, the state will also activelycontribute to economic growth by spending 16 billionkuna on infrastructure and capital projects. We shallkeep macroeconomic stability through fiscal policy. Inthis year we plan to carry out a strong fiscal adjustmentof 0,9 percent points thanks to which we shall havea budget deficit of 3,3% GDP. In the year 2007 thiswill result in accomplishment of the Maastricht criteriaof 3% GDP. Along with stabilizing of public andforeign debt and development of capital market,various important measures for further improvementof entrepreneurship and investments will go on.They include the reduction of business expenses,privatization, and what is very important, shorteningof procedures through justice reforms.

You have mentioned privatization. What are the

plans of the Republic of Croatia in this field?

In this year we intend to speed up the privatizationprocess considerably in order to increase productivity,secure competitiveness of Croatian companies and

increase the number of foreign investors in Croatia aswell as the value of foreign investments. Inefficient

public companies are the pull-back for furtherdevelopment of private sector, therefore we shallproceed with successful restructuring of CroatianRailways and start restructuring very important exporteconomic branch - shipbuilding. Having in mind theEuropean energy directive according to which by 2008all EU member states must open their energy market toforeign competition, we shall go on with adjustment of HEP (Croatian electric power supplier) to prepare it forthe open electricity market.

The importance of foreign investment need not to be

stressed separately. What are your plans in attracting

foreign capital?

In the framework of the economic development strategyand by learning from other successful EU members, weshall continue conceiving project and initiatives that willensure fast and successful development in particulareconomic fields.

Opening of EU entry negotiation opened a new businessperspective for Croatia, because strong foreign lobbyist

companies are now interested in Croatia and offerpossibilities of cooperation. As I earlier pointed out, it isour goal to create European market conditions with highlevel of competitiveness and low level of corruption.



In order to ensure faster development of entrepreneurship, Government of the Republic

of Croatia is proposing laws for simplificationof administrative procedures and elimination of bureaucratic barriers. Government is also elaboratingthe strategy of binding small, medium and largecompanies in order to increase effectivenessand international competitiveness of Croatianentrepreneurship.Croatian Government gives special attention to smalland medium entrepreneurship in development of current and future entrepreneurial and free zones,core of settlements, towns and regions development.Measures of economic policy will ensure the supportfor entrepreneurial development of manufacturing inthose zones, in accordance with general strategy andpriorities of economic development of Croatia.

Entrepreneurial Zones

Entrepreneurial zones are supposed to spurdevelopment. The main goal is an increase in thenumber of entrepreneurial zones to an average of 20in each county, as well as an increase in incentives

for new zones. The strategy behind the government’seconomic development program is based on

entrepreneurial zones and assistance to small andmedium-sized businesses, especially those that are just starting. The end result should be an increasein domestic production and a reduction of Croatia’snegative trade balance.In setting up the zones, the government counts oncooperation from local government bodies and isready to provide financial assistance. The programalso envisages tax benefits for entrepreneurs operatingin entrepreneurial zones, including exemption fromprofit tax.Additional stimulation will be offered to businessesset up in entrepreneurial zones designated to be areasof special state interest.The government expects these entrepreneurial zonesto aid in the development of small and medium-sizedcompanies near every large town.This project aims to encourage and rapidly buildentrepreneurial zones in local and regional governmentlevels for equal development, rapid growth of entrepreneurship and increasing employment withinthe Republic of Croatia.

ENTREPRENEURIAL AND FREE ZONES

Entrepreneurial zone



By directly investing in entrepreneurial zones,Croatian government is creating the conditions for theintroduction of a series of incentives for developing

small and medium entrepreneurship, primarilyunder favourable terms to entrepreneurs during theconstruction of business premises on land that iscompletely equipped with infrastructure.

Free Zones

A free zone is part of the territory of the Republicof Croatia, specially segregated and designatedfor commercial activities conducted under certainconditions. The zone may consist of a number of

separate areas.The Free Zone Act is compliant with the laws indeveloped countries, with business characterised byflexibility – without administrative barriers.A zone may be established in areas such as seaports, airports, river ports and next to internationaltransportation routes.

Reasons for establishing free zones are investmentincentives, employment, introducing new technologiesand equipment, modernisation and improving businessand industrial networking.

Activities conducted in the free zones includemanufacturing, warehousing and processing goods,

port activities, wholesaling and agency services incommercial trading, banking and other financialservices and insurance services.

As for taxes, zone user pay tax on profit at 50% of theprescribed rate. Zone users who build or participate inthe construction of infrastructure utilities in the zoneto a value exceeding 1,000,000 kuna shall in the firstfive years of business of operations in the zone beexempt from paying tax on profit.

There are many business advantages of conductingbusiness in a free zone such as: goods are stored inthe zone free of charge. For goods stored, used orconsumed in the free-trade zone, there are no tariffs

or value-added taxes (VAT) nor are any other economicpolicy measures applied.

For goods produced in the free-trade zone which areimported into the Republic of Croatia, tariffs and value-added taxes (VAT) are paid according to the value andtariff rates for the built-in components of the importedmaterial, and not according to the value and tariff ratefor the finished product.

For all other information regarding Free andEntrepreneurial Zones please visit Ministry of

Economy, Labour and Entrepreneurship web site onwww.mingorp.hr

Entrepreneurial zone



Memorandums on two ISPAProjects signed

Two memorandums on the financing of ISPA projectson the reconstruction of a railway and development of water supply and waste water management systems,worth around 111 million euros, were signed lastmonth in the eastern town of Vinkovci.

The memorandums, which provide for thereconstruction of the railway line Vinkovci-Tovarnik-state border and a programme for the development of water supply and waste water management systems

in Karlovac, were signed by the state secretary atthe Ministry of European Integration and ForeignAffairs, Marija Pejčinović Burić, and the head of theEuropean Commission Delegation, Vincent Degert.

The two projects are the first Croatian projects to befinanced with EU funds from the ISPA (Instrument for

Structural Policies for Pre-Accession) programme.

The railway reconstruction project is worth 75.6million euros, with the EU providing 28.7 million andthe Croatian government 46.9 million euros.

The programme for the development of water supplyand waste water management systems in Karlovac isworth 36 million euros, with the EU providing 22.5million euros and the Croatian government 13.5million, of which ten million will be a loan from theEuropean Bank for Reconstruction and Development.

The signing of the memorandums was attended

by Foreign Minister Kolinda Grabar Kitarović,Agriculture, Forestry and Water Management MinisterPetar Čobanković, the Minister of the Sea, Tourism,Transport and Development, Božidar Kalmeta, FinanceMinister Ivan Šuker, Karlovac and Vukovar counties’prefects, parliamentary deputies, and representatives of the Croatian Waters and Croatian Railway companies.

EU UPDATE



Modern Gallery

If you drive in the evening through busy HebrangovaStreet or just stroll along Zrinjevac Square, on theirsouthwest crossing you would notice a beautifulhistorical building, known as the Vranyczanymansion. It would be just one of many typicaldowntown mansions, were not its shell-like cornerloggia, above the portico, lighted with mysteriouspink light. This magical touch by architect ŽeljkoKovačić, who was in chargeof the reconstruction of thegallery, will surely attractyour attention to one of theoldest and most prominentgalleries in Croatia.

After thirteen years of reconstruction, the ModernGallery opened the door on its100th anniversary with a newpermanent display that looksinto 200 years of Croatian art.The author of the display is theGallery’s director Igor Zidić.

The display includes 650works by Croatian artists of the 19th and 20th centuriesand it represents only the tenthpart of the Gallery’s holdings.Paintings, sculptures, medals,graphic art and drawings, butalso videos, installations andphotographs are connectedchronologically and in termsof style in an ambiancewhere showrooms openthemselves to a visitor, oneafter another, in a smoothand inspiring manner.

This specific anthology of modern and postmodernCroatian art shows thestrength and originality of artists who, thanks to theircreativity, enriched and

placed Croatian art in thecontext of European fine art.

While each of about thirty showrooms represents aseparate thematic unit, at the same time each of them is

also a part of a big chronological whole. To single out anartist from such a distinguished list in this short articlewould be unjust in the same way as some artists wereunjustly not included in the display due to lack of space.But what is certain is that not one art lover will be ableto resist to this luxurious exhibition of the finest nationaltradition, to this place of concentrated talent, originalityand freedom of Croatian fine art aristocracy.

CULTURE

Modern Gallery in Zagreb



I n g e n i o u s ,v i s i o n a r y

mind, a manahead of histime, whoseideas worldhasn’t stillfully realized,words are inwhich PrimeM i n i s t e rIvo Sanaderd e s c r i b e dNikola Tesla.

M a k i n greference toexperts, PMSanader added

that it is speculated that the question of wireless energytransmission was resolved in legacy of Nikola Tesla.

In memory of the great inventor, Croatian Governmentpronounced year 2006 the year of Nikola Tesla.Croatian inventor, electro-technician and physicistNikola Tesla was born in Smiljan, not far from

Gospić, on 10th of July 1856. He went to high schoolin Gospić and Karlovac, and studied engineering inGraz (Austria). He also studied in Prag, from wherehe went to Budapest and took employment in Centraltelegraph office of Hungarian government. He activelyparticipated in engineering the first telephonic centre inthat city. From the highest significance for the historyof electrotehnics is that in Budapest Tesla found theprinciple of nattily magnetic field. By this ingeniousdiscovery Tesla will enable the making of first electromotors of alternating current, and thus it’s appliance inthe widest range.

In aspiration to give effect to his discovery in practice,Tesla moves to Paris and takes employment in Edison’scompany centre for Europe, where he gains greatreputation.

In 1884, Tesla moves to New York and works forEdison’s laboratory. But, in order to apply his system of alternating current, as appose to system of direct currentwhich was applied by Edison, Tesla cancels cooperationwith Edison and starts independent work.

In 1887 Tesla founds his own laboratory, which wasfollowed by registrations of his patents to protect

his system of production, transmission and usage of alternating current.

He realized his inventions in the field of poly phasesystems of transmitting electric energy, elaboratedthe effective method of usage of alternating current,effectuated the principle of rotating magnetic field andperfected induction motor.George Westinghouse, well known Americanmanufacturer and inventor, repurchased Tesla’spatents, and his project, based on Tesla’s inventions,won the tender for building the most modern and thebiggest hydraulic central of that time – Niagara Fallshydraulic central, which also marks final victory of Tesla’s alternating current system. Today, besides the

central, there is a monument to the famous genius.On the peak of his fame and success, Tesla doesn’t exceptthe position in Westinghouse’s factory, but continuesfurther researches in his own laboratory in New York.

In 1889 he constructs his first generators for highfrequented electricity, that way gaining very highvoltages, and this part of electrotechnics will dominatefurther Tesla’s work.

In that, up to then entirely unknown and unexplored,

field, Tesla will reach genius inventions, which are usedtoday as a base for many fields of electrotehnics (electromedicine, radiotechnics and radar-tecnhics …).

In 1895 fire destroyed Tesla’s laboratory, and alldevices and machines in it, as well as notes andtechnical documentation, which brought Tesla almostat the beginning, and stopped or even completelydisabled development of his innovations. However,Tesla managed to overcome this tragedy, and in 1899and 1900 built his new laboratory in Colorado, in whichhe experimented with his strongest transformers.

He built a model of a ship, which he controlled fromdistance by electromagnetic waves. After returningfrom Colorado, he built giant radio station on LongIsland, which was supposed to make contact with allparts of the world. However, Tesla’s ultimate goal wasto achieve wireless transmission of energy. Due tolack of financial funds, in 1906 he was forced to stopworking on that project. That was also his only ideawhich he wasn’t able to effect in practise.

Nikola Tesla’s life journey was ended in 1943 inNew York.

2006 - THE YEAR OF TESLA



Gospić, Capital of Ličko-senjska County, is situated inthe southwest part of Lika. Once isolated, today Gospić

is connected by modern roads with Croatia’s inlandthrough Otočac and Korenica, and with Adriatic coast,through road to Karlobag and highway to St. Rok andZadar, which will accelerate its economic developmentand renewal of war destroyed economy.

City of Gospić gives special attention to stimulationof small and medium entrepreneurship, especiallyagricultural production, through development of familyagricultural economies, agricultural manufacturing of autochthon products and through services of countrytourism. Special value of this area is its unpolluted

ground, which gives numerous opportunitiesfor production of ecologically healthy food andecologically pure seed material. This is traditionallystock-farming area, with mixed characteristics of stock-keeping and farming. Traditional diet of inhabitantsof Lika was based on meet and milk products, whosecharacteristics today also remain incontestable ecologicorigin. Especially famous meet products are broilerlamb, prosciutto, and trout, and among milk productsvarious types of cheese (Paški, velebitski, škripavac)and basa (goat milk product made in special manner).

Among side-dishes, potato and cabbage are especiallyappreciated as products of ecological fields of Lika.

Intensifying of agricultural production will open animportant place to country tourism. Villages Brušane,

Trnovac and Smiljan have all important preconditionsfor its growth; ecologically agricultural production and

numerous various natural conditions for developmentof hunt, sport-recreation, excursion and other formsof country tourism. Besides that, nearness of alreadyaffirmed tourist destinations, as are Karlobag, Pag,Novalja, Plitvice, opens enough possibilities foragricultural products placement and for binding of “blue” and “green” into an integral tourist offering.

By withdrawal from big industrial zones, a crucial stephas been made in conducting before mentioned strategyand accepting small and medium entrepreneurship asonly healthy option of economy renewal. Accent is put

on the technologies and programs which don’t pollutethe environment and which are related to existingresources and promote them in a defined way.

By building traffic routes, preconditions for fasterdevelopment of tourism in Gospić County were made.Besides the hotel in Baške Oštarije, other developmentsof mountain and winter tourism started in mountainVelebit. Historical monuments, as are Nikola Tesla andAnte Starčević natal houses, are about to contribute tothis development significantly.

Gospić is a town of splendor history, rich present anddefinitely a town of future which gives sensations of pleasure to its friends, casual passers and all those whoare yet to visit it.

GOSPIĆ TOWN



KRKA NATIONAL PARKNational park “Krka” is established in 1985. The areais entirely situated within the Šibenik-Knin County

and covers 109 km2 of the most beautiful part of theKrka river with a narrow belt along its banks; fromthe estuary at the canyon in the western edge of theKnin field to Skradin Bridge, and the lower part of the Čikola river.The Krka River rises at the foot of Dinara Mountain.Its spring is a natural karst well, interesting andunique, situated under 22 m high waterfall Topoljskibuk made by Krčić, the tributary of the Krka River.The spring of the Krka River is well visible duringsummer when Krčić is usually dry. Although it is notincluded in the border of the National Park, this area is

legally protected and very attractive for the visitors.

The Krka River is 72,5 km long. The freshwaterstream is 49 km long, brackish water stream is 23,5km, and a total downfall is 242 m. It makes its wayto the sea along the karst region through the canyoncliffs to 180 m high, forming travertine barriers.

It is very exceptional and rich river with 2 confluences,5 tributaries, 11 lakes, and the ruins of 10 fortressesand the Roman amphitheatre.

Travertine is a common phenomenon in the Nationalpark. It is limestone deposited from water, creatingwaterfalls as a result of permanently forming travertine

barriers or sills. The limestone is accumulated anddeposited on the underwater objects and vegetation,

building travertine sills and other geomorphologicalforms with the help of algae and moss.Travertine is a common phenomenon in the surface

streams of Dinaric karst, but only rarely formslayers for creating waterfalls, as on the Krka River.They have gentle structure, sensitive to naturalchanges and human activities. That is why theprotection and preserving of travertine waterfallsas unique natural phenomena is the most importanttask. Due to travertine barriers and the permanentprocess of forming travertine, the Krka River withits seven waterfalls represents the natural and karst

phenomenon. These waterfalls are: Bilušića buk (22,4m), Ćorića buk or Brljan (15,5 m), Manojlovačkislapovi (series of waterfalls 59,6 m high with themain step of 32 m), Rošnjak (8,4 m), Miljacka slap(23,8 m), Roški slap (25,5 m) and Skradinski buk (17steps with the total height of 45,7 m). Skradinski bukis the biggest travertine barrier in Europe.Most travertine in Skradinski buk is less than 10,000years old. In the area of former river courses there is“dead travertine”, approximately 125,000 years old.The present conditions are best for travertine

precipitation and can be traced along the entire courseof the Krka River. The Krka is still creating layersand the beginnings of future waterfalls and barriers.

According to distribution of variousplant and animal species, the NationalPark belongs to the Mediterraneanregion, and the presence of differenttypes of habitats shows an extraordinaryrichness of the flora and fauna.860 plant species and sub-species havebeen recorded in the Park area, with

a great number of Illyrian - Adriaticendemic species.Roški slap with its canyon vegetation isespecially rich in plant species. Skradinskibuk provides the possibility for observingplant species on travertine barriers.18 kinds of fish, 10 of these endemic,classifies the river, in ichtiologicalterms, as a natural monument of greatvalue. Amphibians and birds aboundin the river pools and marsh meadows,

while reptiles abound in scrubs androcky areas.



The Krka River is ornithologically most valuable

part of Europe with numerous of birds (221

species) and of great importance for their springand autumn migrations. 46 species of mammals

have been found in the Park. The habitats of

endangered species, like wild cats and otters are

especially important. A special animal community

permanently or temporarily live in 90 registered

caves and pits. The biggest and the most famous

underground animal is Human fish ( Proteus

anguinus). The colonies of bats have been

registered, with 18 protected species temporarily

or permanently living in the several caves of the

Park, where the long-fingered bat colony (Myotis

capaccinii) is the most numerous.

Many traces of ancient settlements can be found in

the Krka region, as well as historical and cultural

monuments.

There are the ruins of several medieval Croatian

forts from the 14th century: Kamičak, Trošenj-

town, Nečven-town, Bogočin-town and Ključica-

one of the most important defensive structure

in Croatia, according to its dimensions and

preservation.

The most precious jewel among the sacral objectsis the Franciscan monastery dating from 1445, and

a church built in 1576 on the island of Visovac.

They are surrounded by the park consisting of rare

plants, containing a rich collection of artefacts,

and cultural and historical documents. In the

upper part of the Krka River, in the widened part

of the canyon, the Krka monastery (St. Arhanđel)

is situated, first mentioned in the 15th century as

an endowment of the empress Jelena.

Numerous water mills and stamping-mills onRoški slap and Skradinski buk are of exceptional

historical and cultural importance, and they serve

as monuments of rural architecture and economic

past. They are a perfect example of coexistence

between people and the river. The water mills

have been restored and put back in service.

The visitors can see stamping mills, rolling

devices, areas used for washing and a loom,

including a professional presentation and possible

participation in the process of weaving.

NP “Krka” is open through the year. The visitors

can visit the park by boat, by motor vehicles usingpublic roads, and on foot using sidewalks and

paths. The official waterway entrance is in Skradin

where the visitors take boats to Skradinski buk,

and the roadside entrance in Lozovac where the

visitors take a bus or use the pedestrian path.

Skradinski buk, the island of Visovac, Roški slap,

upper course (canyon of the Krka River) and the

Krka monastery can be visited by organized boat

tours.

Today the Krka River abounds with natural beauty,scientifically unknown, with the important cultural

and historical places, and different ways of its unfailing

water supply in the stony Dalmatian region.

Over the centuries the river was a dividing

boundary line between the people, but today it is a

valuable link in connecting them.

“Krka? It is fairy hair of Dinara Mountain stretching to the sea.”

Folk proverb



Documents

Croatia in Focus, br. 11/12, January/February 2006