ZAGREB, May 14 (Reuters) - Croatia's oil and gas concern INA INA.ZAHINAq.L aims to be able to produce petrol for the European Union markets in 2009, chief executive Tomislav Dragicevic said on Wednesday.
He also said the state's partial control of local petrol and gas prices was severely hampering INA's business and eating into its profits.
"Our goal is to complete the first phase of modernisation of our two refineries and be able to produce and sell the top quality petrol on western markets in 2009, primarily in Slovenia and Austria," Dragicevic told an annual shareholders meeting. INA has invested some 1 billion euros ($1.55 billion) in modernising its two dated refineries located in the northern Adriatic port of Rijeka and in the central town of Sisak. The plan is to fully overhaul them by 2011.
He said INA, in which Hungary's MOL MOLB.BU has a 25 percent stake, had lost 1.7 billion kuna ($362 million) in 2007 due to semi-controlled local prices of petrol and gas.
"We lost around 1 billion kuna on gas imports and some 700 million kuna on oil imports. It is not possible to run business that way in the longer run," Dragicevic said.
In an effort to counter inflationary pressures, the government capped the prices of gas and electricity for companies and households until July 1, and until this year intervened to slow the increase of petrol product prices.
Despite earlier pledges to liberalise energy prices, Prime Minister Ivo Sanader said on Wednesday the government would continue to seek ways to keep energy prices under control and urged INA and other suppliers to review their price policy.
Analysts said INA's 2007 net profit of some 870 million kuna did not reflect its higher sales primarily because of administrative manoeuvring over energy prices.
INA is a dominant petrol retailer in Croatia with market share of some 50 percent. The state owns 44 percent and Hungary's MOL 25 percent. The government listed 17 percent of INA in Zagreb and London and distributed 14 percent to war veterans and INA's employees.
Dragicevic said he was confident that Lukoil (LKOH.MM), Russia's second largest oil producer which entered the Croatian market last month, would not severely threaten INA's business.
"Lukoil is a strong competitor, but we have no reason to be afraid as we have a huge advantage in locations (of our retail business)," Dragicevic said.
Lukoil bought a small local retailer which owns nine petrol stations and a storage facility. It said it planned to build around 100 new petrol stations across Croatia in coming years.
INA has upstream and downstream segments and is involved in gas and oil exploration and drilling in Africa and the Middle East.
Dragicevic said INA wanted to acquire up to five new concessions for gas and oil in the coming period.
INA shares traded at 2,650 kuna on Wednesday afternoon, 5.37 percent up from Tuesday's close.
The shareholders' meeting approved the payment of a dividend worth 15 kuna per share for 2007.
editing by Elizabeth Fullerton