UPDATE 2-Hungary flags possible legal action against Croatia over MOL

Reuters

(Corrects wording in sixth paragraph)

* PM Orban's government says steps against MOL"unacceptable"

* Government says has asked MOL to consider selling INAstake

* Croatia issued arrest warrant for MOL CEO in bribery case

* MOL has denied all allegations

* MOL, Croatia in talks over INA shareholder agreement

By Krisztina Than

BUDAPEST, Oct 2 (Reuters) - Hungary may take legal actionagainst Croatia in a long-running dispute over oil and gas groupMOL's investment in Croatian peer INA, the Hungarian governmentsaid on Wednesday after Croatia issued an arrest warrant forMOL's chief executive.

Prime Minister Viktor Orban's government, the largest singleshareholder in MOL, said it would ask MOL's managementto consider selling its near-50 percent stake in INA to theCroatian government or a third party, after what it said were"unacceptable" steps taken by Zagreb against MOL.

Croatia has issued an Interpol and European arrest warrantfor MOL chief Zsolt Hernadi in a bribery case, Croatian policeconfirmed to Reuters. MOL has denied all the accusations.

Relations between MOL and the Croat government have beenstrained over management influence and other issues since MOLtried and failed to become the majority owner of INA in early2011.

Croatia has already found its former Prime Minister IvoSanader guilty of accepting a bribe in 2008 from MOL to grant ita dominant position in oil and gas firm INA, withouthaving to buy a majority stake. Sanader appealed against hisconviction and both he and MOL deny the charges.

An official Hungarian investigation has also found thatneither MOL nor its officials took part in the alleged bribery.

MOL and the Croatian government began negotiating a new INAshareholder deal last month and some analysts said the fresh rowwas part of tactical positioning for the talks.

Hungary's stake of 24.6 percent in MOL is a key element inits state energy portfolio, which includes the gas units ofGermany's E.ON, as Orban tries to boost government control overthe energy sector in the country.

His government said the political campaign and legal stepsagainst MOL's executive showed that Croatia was trying to exertpressure on MOL to try to regain control of INA.

"It is unacceptable for the Hungarian government that firstthe strategic partner is selected ... which saves Croatia's mostimportant company INA during the crisis, and then there areattempts to intimidate this strategic partner later on withnon-economic means, in order to regain control of INA without abuyout," the Hungarian government said in a statement.

The Croatian government had no immediate comment.

"We have to look into this and see what's going on," asource close to the government said.

The warrants for Hernadi's arrest were issued after hefailed to appear for questioning in Zagreb last month.

TACTICAL MOVE?

Croatia , which owns almost 45 percent of INA, has accusedMOL of enjoying excessive management rights and of failing toinvest in INA.

MOL says it will not give up management control and wants toinvest in INA but authorities have failed to issue necessarypermits.

"I don't think this is about (the sale of INA stake), Ithink the government's suggestion is more like a tactical step,"said Attila Vago, an analyst at Concorde. "As now that itsbiggest shareholder recommends it, MOL could tell the Croatsthat it would consider selling to a third party."

Another analyst said INA's upstream business and refineriescould be attractive to Russian investors. Hungary is heavilydependent on imported energy from Russia, the region's formercommunist overlord.

"We should refresh the Russian story and think about thegeopolitical interests," Ipopema Securities analyst NorbertHarcsa said. "Since Gazprom Neft's acquisition of (amajority stake in) NIS in Serbia the Russians should not bediscounted as prospective buyers."

In an interview with Reuters last month, a senior MOLofficial declined to say whether MOL might sell its stake in INAif talks with Croatia failed.

He said MOL was not in talks with any potential buyers,including Russia's Rosneft which has been tipped by some mediaas a potential interested party.

MOL shares were down 1.7 percent at 15,725 forints at 1424GMT, while the wider market was down 0.8 percent.

MOL has said Croatia's legal steps against its chiefexecutive were against EU law and MOL would defend itself by alllegal means against what it called "outrageous actions". (Additional reporting by Sandor Peto, Marton Dunai and ZoranRadosavljevic in Zagreb; Editing by Patrick Lannin and DavidCowell)

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