INA to Invest $400M Annually in Croatia Refinery and Renewables

Key Takeaway

• INA plans to invest $400 million annually in refinery upgrades and renewables, including a $683 million Rijeka refinery project.
• Petrobras shifts strategy to retain refineries, aligning with Lula administration's push for economic growth but raising investor profitability concerns.
• Investor sentiment on Brazilian equities declines due to political intervention fears and US interest rate outlook, with Ibovespa target cut from 160,000 to 145,000.

INA's Investment Plans

INA Industrija Nafte d.d., Croatia’s largest energy company, has announced plans to invest approximately $400 million annually in the coming years. This investment will be directed towards upgrading its refinery, boosting renewable energy projects, and financing upstream businesses. The company, which is controlled by Hungary’s Mol Nyrt. and partly owned by the Croatian state, is currently undergoing a significant modernization of its Rijeka refinery on the Adriatic coast. This project, valued at over €630 million ($683 million), is expected to be completed by mid-2025.

Zsuzsanna Ortutay, the head of INA’s management board, highlighted the importance of the new delayed coker unit being installed at the Rijeka refinery. "The new delayed coker unit that will be installed in Rijeka refinery will increase the security of diesel supply not only for Croatia, but also for Slovenia, Bosnia-Herzegovina, and other surrounding countries," Ortutay stated. Currently, INA’s refining capacity is insufficient to meet domestic diesel consumption, but the upgrade aims to address this shortfall.

INA has already diversified its crude oil sources, having completely weaned itself off Russian crude in 2019. The company now imports fuel primarily from Azerbaijan, Greece, and Italy. Additionally, INA is considering upstream acquisitions in Egypt, where it already holds stakes in four production and one exploration concession.

Ortutay also mentioned that 20% of INA’s annual capital expenditures will be allocated to renewable energy projects. These investments include increasing solar power output and initiating biomethane and green hydrogen production by 2026. The company plans to start geothermal exploratory drillings next year in northern and central Croatia. "Our goal is to fulfill the European Union requirement and have 42% of our total produced energy content from renewables," Ortutay said, acknowledging the challenges but expressing commitment to the goal.

Petrobras' Strategic Shift

Petroleo Brasileiro SA (Petrobras) has renegotiated a 2019 agreement with Brazil’s antitrust watchdog, Cade, to retain several oil refineries it had initially planned to sell. The company has already divested three refineries but will now keep the remaining five. This move aligns with the Lula administration's push for Petrobras to increase investments to spur economic growth and job creation. The administration's influence was evident when President Luiz Inacio Lula da Silva recently dismissed Petrobras' CEO for not executing the business plan swiftly enough.

The shift marks a significant departure from the previous management's strategy, which focused on cost-cutting and selling assets to concentrate on ultra-deep water oil projects. Now, Petrobras is expanding its investments into refining, fertilizers, and renewable energy. This broader investment strategy has raised concerns among investors about profitability, as these new ventures are not as lucrative as the core oil projects.

Investor Sentiment on Brazilian Equities

Investor sentiment towards Brazilian equities has turned increasingly pessimistic due to fears of political intervention and heightened government spending. Banco Santander Brasil, which previously had one of the most optimistic forecasts for Brazilian stocks, has reduced its year-end target for the Ibovespa index from 160,000 to 145,000. A Bank of America survey revealed that only 19% of Latin American equity fund managers now expect the index to finish the year above 140,000, a significant drop from 63% in January.

External factors, particularly the outlook for higher-for-longer interest rates in the US, are the primary drivers of this pessimism, with nearly 80% of survey respondents citing it as the biggest risk for Latin American markets. Domestically, a less ambitious fiscal target for 2025, the impact of recent deadly floods in the south on public spending, and the unexpected firing of Petrobras' CEO have further rattled investor confidence. Christine Phillpotts, portfolio manager for emerging markets value strategy at Ariel Investments, noted, "The removal of Petrobras’ CEO and some other signs of increasing levels of intervention from the Lula administration does not help with investor confidence."

Management Quotes

• Zsuzsanna Ortutay, Head of INA’s Management Board:

  "The new delayed coker unit that will be installed in Rijeka refinery will increase the security of diesel supply not only for Croatia, but also for Slovenia, Bosnia-Herzegovina, and other surrounding countries."
  "Right now INA’s refining capacity is not sufficient to cover even domestic consumption of diesel, but the upgrade will change that."
  "Our goal is to fulfill the European Union requirement and have 42% of our total produced energy content from renewables. It’s not an easy task, but we are working on it."