Zagreb Mayor Tomislav Tomasevic said on Friday that the city-owned gas supplier Gradska Plinara Zagreb - Opskrba (GPZO), which has a valid contract with Prvo Plinarsko Drustvo (PPD) from which it currently buys gas at a price above the market price, cannot terminate the contract as it would have to pay a penalty.

“If we were to terminate the contract with PPD, we would have to pay penalties in the amount of €200 million, and that is not an option,” Tomasevic told a news conference.

He thus commented on media reports regarding the purchase of surplus gas from the state-owned HEP power company.

Under a decree abolished by the government on Thursday, HEP was obliged to buy from the INA oil and gas company all gas produced in Croatia at a price of around €47 per megawatt hour, and then sold surplus gas at an average price of €10 per megawatt hour. According to media reports, PPD was among the suppliers which in June bought that gas at a price below the price at which HEP had bought it from INA.

GPZO has a valid contract with PPD on the purchase of gas for households, and it buys it from that company at €106 per megawatt hour.

Tomasevic said that the problems for GPZO, which provides gas for 70% of households in Croatia, started back in April, when the government, fearing gas price hikes, adopted a new formula for the calculation of the gas price.

“With that decree the government changed the formula for the calculation of the gas price but it became a problem for GPZO which bought gas from PPD at a price calculated on the basis of an earlier formula,” Tomasevic said, noting that his We Can! party at the time did politically support the government’s decree but that it also warned the government of the need to compensate the suppliers which under the contracts they had signed procured gas at a price determined by the HERA energy regulatory agency on the basis of a previous formula.

“That is why one had to adopt a decree like one adopted by Slovenia, to enable suppliers that can prove with their contracts to have bought gas according to the old methodology for price calculation and at a higher price, to be compensated for the difference,” Tomasevic said, welcoming the government’s decision to that effect.