Croatia Airlines (OU, Zagreb Franjo Tuđman) has managed to delay repayment of a EUR33.2 million euro (USD34.9 million) loan the government agreed to give it in September 2019 and which was provided in the pre-pandemic month of February 2020. The airline now has until January 2025 to make the repayment, the Croatian investigative outlet Telegram reported citing a recent State Audit Office report.

The European Commission-approved loan, originally set at HRK250 million kunas (USD37 million at the time; Croatia switched to the euro on January 1, 2023), had been intended to financially stabilise the carrier ahead of its intended privatisation, but the coronavirus outbreak put the airline under even greater pressure. It was supposed to have been repaid in full in January 2022 with a fixed interest rate of 2%, but the Ministry of Finance has agreed to extend this deadline by three years.

In its report, the audit office urged transport minister Oleg Butković to more effectively monitor the spending of state funds handed to two large state-owned enterprises, the other being Croatian Highways (Hrvatske Autoceste). It came as the government approved on December 22 the minister’s request to recapitalise Croatia Airlines by a further HRK296 million (EUR39.3 million) by subscribing to new share capital.

The government had previously promised to strictly monitor spending at the flag carrier as part of the 2019 loan agreement, but the auditor warned that this obligation had not been met. The airline was to submit a report on where the funds were being spent each 15th of the month, but according to the auditor only two reports have been submitted.

The ministry rejected the auditor’s criticism in the case of Croatia Airlines, saying that in early 2020 the advance payment to the carrier was turned into a shareholder loan and the same provisions no longer apply. Nevertheless, it pledged to carry out an imminent “on-site” inspection of the airline’s activities and finances.

The auditor also criticised the ministry for outsourcing a significant part of the work in the management and control system of EU funds to an external service provider instead of the government’s own employees. This was because the Croatian state paid HRK41 million (EUR5.4 million) for these services between June 2019 and the end of 2021, even though 52 of the ministry’s 783 employees already work in the Directorate for EU Funds and Strategic Planning. The ministry claimed there were not enough staff for the scope of such work, but the auditors disagreed.