According to Jutarnji List daily, MOL has recently sent a letter to the Croatian government and the Ministry of the Economy warning that it was prepared to seek 2 billion kuna in damages because the government had not taken over INA's gas business, which it pledged to do under a 2009 agreement.

Asked by reporters whether MOL's move was a serious threat or an attempt to prepare the ground for new negotiations with Zagreb, set for 18 September, Linic told reporters after today's government meeting that this was "a serious threat" stemming from the contracts which "unfortunately, the HDZ government signed".

Linic said this was yet another risk to the state budget.

Grcic said that this was a serious matter in light of the fact that the signed contract was binding on Croatia.

Asked by reporters whether MOL's starting position for negotiations was now better than Croatia's, Grcic said he would not regard it in such a way.

MOL holds 49.08 per cent of shares in INA and the Croatian government 44.84 per cent.

MOL confirmed to the press on Thursday that it had sent a letter to the Croatian government in late July stating that it remained committed to working with the Croatian government to find a practicable solution with regard to investments in INA.

"We are hopeful that the Croatian Government is as committed as we are to meeting and discussing the future direction of INA. Whilst it is clear that finding a workable solution together is in the best interests of all stakeholders in INA, MOL recognizes that it must also protect its own stakeholders and being a publicly listed company, is finding itself under certain legal obligations vis-a-vis its shareholders and stakeholders to further pursue good faith negotiations, and failing that, to commence the most appropriate legal action. We can confirm also that MOL has instructed counsel in connection with its investments in INA," the Hungarian company said.

The government and MOL are to begin negotiations on amending the INA shareholders' agreement on September 18.

At its meeting in early August, the government said it was not pleased that oil and gas production in Croatia was on the constant decline, calling for a new model of governance in INA that would take into account the proportion of shares held by individual shareholders.

The Croatian government set up a negotiating team for that purpose, consisting of Economy Minister Ivan Vrdoljak and the head of the State Property Management Office, Mladen Pejnovic. Pejnovic said today that divestiture of INA's gas business would be one of the issues to be discussed at forthcoming negotiations between the Croatian government and the Hungarian oil and gas company. He said that the 2009 agreement on the gas business, which provides for divestiture of INA's natural gas subsidiary, was a serious commitment.