Assessment of the Global Value Chain (GVC) in Croatia: Energy Technology, Systems and Equipment Croatia Competitiveness Reinforcement Initiative November 2016 This volume is a product of the staff of the International Bank for Reconstruction and Development/The World Bank. The findings, interpretations, and conclusions expressed in this volume do not necessarily reflect the views of the Executive Directors of the World Bank or the governments they represent. The World Bank does not guarantee the accuracy of the data included in this work. The boundaries, colors, denominations and other information shown on any map in this work do not imply and judgment on the part of The World Bank concerning the legal status of any territory or the endorsement or acceptance of such boundaries. This document was written by a World Bank team consisting of Austin Kilroy (Senior Economist) and Stephanie Trpkov (Private Sector Development Consultant). The document draws from industry and cluster analyses and information (where cited in the text) produced by a team from Hrvatska Gospodarska Komora (HGK) Centar za Industrijski Razvoj (CIRAZ), led by Dijana Varlec, and consisting of Kristijan Bošnjak, Danijela Jemrić, Josip Mičić. The findings, interpretations, and conclusions expressed in this report do not necessarily reflect the views and position of the World Bank Group, or the Government of Croatia. They are provided as an intermediate output of the Croatia RAS. The World Bank does not guarantee the accuracy of the data included in this work. The boundaries, colors, denominations and other information shown on any map in this work do not imply and judgment on the part of The World Bank concerning the legal status of any territory or the endorsement or acceptance of such boundaries. Note that this report uses a variety of data sources. WITS trade data is pulled directly from UN COMTRADE and it relies on accurate trade reporting of countries. FINA data provides aggregate financials reported by companies through mandatory filings. 1 Contents 1 Context ............................................................................................................................................ 3 2 Scope of the STPA ........................................................................................................................... 8 2.1 Background information: Smart Specialisation strategy ........................................................ 8 2.2 Definitions and scope.............................................................................................................. 9 3 National Supply ............................................................................................................................. 10 3.1 History ................................................................................................................................... 10 3.2 Domestic production & evolution......................................................................................... 10 3.3 Exports .................................................................................................................................. 11 4 Industry Functioning ..................................................................................................................... 21 4.1 Regulatory context ................................................................................................................ 21 4.2 Financial health of the cluster............................................................................................... 21 4.3 Innovation ............................................................................................................................. 22 5 Cluster Agents ............................................................................................................................... 24 5.1 Geographic locations ............................................................................................................ 24 5.2 Position in the value chain .................................................................................................... 24 5.3 Key firms ............................................................................................................................... 25 5.4 Regulatory and Monitoring Bodies ....................................................................................... 28 5.5 Research and support bodies................................................................................................ 29 5.6 Professional Associations ...................................................................................................... 29 2 The overall objective of the current technical advisory services is to assist and support the Ministry of Economy Entrepreneurship and Crafts in its efforts to strengthen Croatia’s clusters position in selected Global Value Chains according to 13 Thematic and Sub-thematic Priority Areas (STPA) as defined under the Croatian Smart Specialization Strategy (S3). The current advisory work consists of the following five components which are outlined below:  Component 1: Strengthening the Capacity of Beneficiaries and Partners  Component 2: Strategic Analysis and Competitive Positioning  Component 3: Action Plans and Policy Design  Component 4: Design of Academy for Industrial Development (AID)  Component 5: Monitoring and Evaluation The list of deliverables under the current project is presented below. Component Deliverables Component 1 1. Programs and training modules and comprehensive set of teaching materials to train the Client and HGK competitiveness experts. 2. Six modules of five days of training taught by international professors (at least 18 trained competitiveness experts in Beneficiary’s and Partners’) Component 2 (STPAs 1-7) 3. Report on “Assessment of GVC Positioning of the STPA” (7 documents, one document for each STPA 1 to 7) 4. Report on “Strategic Segmentation”, covering the following sections: Industry Analysis, Strategy Diagnostic and Roadmap, and Short Term and Long Term Strategic Plan (7 documents, one document for each STPA 1 to 7). Component 3 (STPAs 1-7) 5. Report on “Investment Plan Proposal” containing partnerships for joint investments to improve the position in GVC for each STPA (one document for the group of STPAs 1 to 7) 6. Report on “Action Plan to strengthen the position of 3 Component Deliverables Croatia in selected GVCs” containing short term measures that could be implemented within 2 years as well as measures for midterm and long term period (one document for the group of STPAs 1 to 7) 7. Report on “FDI Strategy” covering the following sections: Identification of niches and markets to attract FDI; Action Plan to attract investment in high technology sectors and emerging industries; and Action Plan for FDI promotional activities with marketing plan and branding strategy (one document for the group of STPAs 1 to 7) 8. Report on “Export Strategy” covering the following sections: list of products, services and markets for prioritization; and Action Plan for the promotion of exports (one document for the group of STPAs 1 to 7) 9. Report on “Territorial and Product Branding Strategy” covering the following sections: list of Croatian brands and territorial and product brands in GVCs; and Action Plan for territorial and product branding (one document for the group of STPAs 1 to 7) Component 2 (8-13) 10. Report on “Assessment of GVC Positioning of the STPA” (6 documents, one document for each STPA 8 to 13)1 11. Report on “Strategic Segmentation”, covering the following sections: Industry Analysis, Strategy Diagnostic and Roadmap2, and Short Term and Long Term Strategic Plan (6 documents, one document for each STPA 8 to 13). Component 3 (STPAs 8-13) 12. Report on “Investment Plan Proposal” containing partnerships for joint investments to improve the position in GVC for each STPA (one document for the group of STPAs 8 to 13) 13. Report on “Action Plan to strengthen the position of Croatia in selected GVCs” containing short term measures that could be implemented within 2 years as well as measures for midterm and long term period (one document for the group of STPAs 8 to 13) 1 This document will aggregate the information from the individual clusters into a single report, which will include information on: (i) first results of the Value Chains Enterprise Survey; and (ii) Croatian Value Chains Maps assessment. 2 Identification of the strategic segments to upgrade within the 13 S3 STPAs and forecast of the possibilities for further development in 13 GVCs. 4 Component Deliverables 14. Report on “FDI Strategy” Report on “FDI Strategy” covering the following sections: Identification of niches and markets to attract FDI; Action Plan to attract investment in high technology sectors and emerging industries; and Action Plan for FDI promotional activities with marketing plan and branding strategy (one document for the group of STPAs 8 to 13) 15. Report on “Export Strategy” covering the following sections: List of products, services and markets for prioritization; and Action Plan for the promotion of exports (one document for the group of STPAs 8 to 13) 16. Report on “Territorial and Product Branding Strategy” covering the following sections: list of Croatian brands and territorial and product brands in GVCs; and Action Plan for territorial and product branding (one document for the group of STPAs 8 to 13) Component 4 17. “Guidelines on design and management model for AID” containing the following sections: proposal for operational concept and management model for AID, Action Plan for AID; and proposal of the content for the first Summer School for Competitiveness’ two-week program (one document). 18. One set of (minimum 8) developed educational modules for entrepreneurs at AID 19. Training sessions for trainers (at least 16 certified trainers) Component 5 20. Report on “Monitoring and evaluation (M&E) of cluster initiatives”3 (one document). 21. (two) training sessions on M&E for beneficiary’s institution In the context of Components 2 and 3, the methodology for analyzing the industry specific GVC of each STPA follows the ten-step approach as listed in Box 1 3 This report will present the M&E framework and key performance indicators. 5 Box 1 – Cluster-Level Global Value Chain to Reinforce Competitiveness The methodology for the analysis of Croatia’s industry from an Industry Specific Global Value Chain perspectives is adapted from the “10 Steps” commonly used to analyze the competiveness of clusters and identify strategic options for their growth: 1. Mapping of the Value Chain Activities in the STPA 2. Existing and Emerging Strategic Segments globally for each STPA 3. Strategic Segments Attractiveness Evolution globally 4. Advance Global Buyers Purchase Criteria for each Segment 5. Generic Strategic Options for each Segment 6. Key Success Factors of each Segment 7. Ideal Value Chain and Supporting Environment for each segment 8. Segment suitability in function of Value Chain gaps and policy choices 9. Options for company position in the new segment 10. Definition of Areas to Improve at Company, Cluster and Policy Level The current documents constitute Deliverable 3 (“Assessment of GVC Positioning of the STPA”) of the current project. It presents the results of the data collection on the Croatian Industry at National level and presence of activities in the GVC, needed as the 1st of the 10 Steps as described in Box 1. This information comes from secondary data and from direct company and institutions interviews; unfortunately due to delays in the company interviews, it lacks that information, but it is expected to be complemented during the rest of the project. The bulk of the analysis under Component 2 comes in the next Deliverable 4 (“Strategic Segmentation”) that includes the Industry Analysis, Strategy Diagnostic and Roadmap, and Short Term and Long Term Strategic Plan (steps 2nd through 9th of the 10 Steps described in Box 1).  Background and contextual industry research is conducted to identify industry dynamics and trends related to global supply, industry cost structure and margins, recent evolution in value chain structure  The industry is grouped into strategic segments4 that reflect not only the mix of products and services that are offered, but also the users and markets that are served.  Each strategic segment Porter’s ‘Five Forces’5 analytical tool is used to assess industry attractiveness by determining the profitability of the industry and identifying the actors 4 Porter, Michael E. (1985). Competitive Advantage 5 Porter, M.E. (March–April 1979) How Competitive Forces Shape Strategy, Harvard Business Review 6 within the industry with the most bargaining power (thereby determining which actors appropriate the bulk of the available profits). This analysis is looks at the trends in attractiveness by looking at the forces in the recent past (before entering new FTA for example) and in the future 5-10 years, taking into consideration the structural industry trends.  The advanced buyer purchase criteria, generic strategic options and the key success factors are used to determine the ideal value chain for each segment and identify the necessary value chain systems that need to exist and local, national and regional level within a country’s ecosystem in order for it to compete well.  More attractive, higher-value added segments that could allow Croatian industry to appropriate more value will be highlighted. The ‘ideal value chain’ for those segments will be compared to the Croatian context which will itself be compared to leading countries in the highlighted segment(s) to assess Croatia’s potential capacity to compete. The third set of Deliverables (5, 6, 7, 8 and 9) ) as defined under Component 3, covers the specific policy, investments and/or institutional interventions that would be required in order for Croatia to ‘leap’ to those segments. That is the step 10 in the 10 Steps described in Box 1.  Deliverable 5 Report on “Investment Plan Proposal” containing partnerships for joint investments to improve the position in GVC for each STPA  Deliverable 6 Report on “Action Plan to strengthen the position of Croatia in selected GVCs” containing short term measures that could be implemented within 2 years as well as measures for midterm and long term  Deliverable 7 Report on “FDI Strategy” covering the following sections: Identification of niches and markets to attract FDI; Action Plan to attract investment in high technology sectors and emerging industries; and Action Plan for FDI promotional activities with marketing plan and branding strategy  Deliverable 8 Report on “Export Strategy” covering the following sections: list of products, services and markets for prioritization; and Action Plan for the promotion of exports.  Deliverable 9 Report on “Territorial and Product Branding Strategy” covering the following sections: List of Croatian brands and territorial and product brands in GVCs; and Action plan for territorial and product branding. 7 In Croatia’s Smart Specialisation strategy, this STPA is defined as the “development and implementation of modern energy technologies and production of equipment that are expected to be efficient, remotely controlled and monitored, smart grid compatible, environmentally friendly and recyclable at the end of its lifetime.” Its scope includes the following RDI topics, which are suggested as possible areas for growth and opportunity:  primary and secondary equipment for electrical energy systems (turbines, generators, motors, transformers, switchgears, transmission lines and cables, management, measurement, protection, supervision, guidance);  power plants, substations, components and systems connected to renewable energy sources;  increasing efficiency and production capabilities of industrial, agriculture and forestry plants and machines;  advanced energy storage systems;  diagnostic and better management of energy equipment;  planning, investment, real time management and monitoring of energy efficiency and CO2 reduction;  computer automation and control processes;  energy management and support for the functioning of energy markets at levels of microgrids, smart grids and smart cities;"  energy-efficient interconnected and universal lighting;  conversion of biomass into energy;  biogas technology for production of electricity and heat. According to further information in the Smart Specialisation strategy document:  Companies in STPA4 tend to be export-oriented, and invest intensively in R&D, including being the holders of 11 patents.  Croatia is ranked 9th out of 22 countries in south-eastern Europe on energy publications. Public research institutions include: Faculty of Electrical Engineering and Computing, Faculty of Mechanical Engineering and Naval Architecture (University of Zagreb), Faculty of Electrical Engineering Mechanical Engineering and Naval Architecture (University of Split), and Energy Institute Hrvoje Požar (Zagreb).  ‘Inteligentna Energija’ is a business network of 32 members, focusing on energy efficiency, management, HVAC, smart grids, hydro-energy, solar, and biomass. The network includes Prointegris, Veski, Helb, Energo-Control, Solvis, RITEH.  Croatia meanwhile has a lack of infrastructure for industrial research and testing of products and equipment for EU norms and directives. This prior information is the starting point for this document, which aims to give a fuller assessment of the starting position of the STPA. 8 There is some overlap in products between STPA4 (Energy Tech) and STPA5 (Environmentally Efficient Materials). In particular, renewable energy technology components and machinery are mentioned in both STPAs, and biomass and biogas are duplicated in both. For the purposes of our analysis and these documents, we have allocated renewable energy technology components (solar, wind, etc) to STPA5, and allocated biomass and biogas to STPA4. There is also an overlap at the company level. For example, Koncar and Đuro Đaković are engaged in activities across several STPAs, including STPA4 and STPA5. Other companies are responding to the trend of energy efficiency, and are adapting accordingly. This duplication is not necessarily problematic. As the work continues, specific initiatives and areas of interest will emerge in each STPA, and a narrowing of focus will occur naturally. Some larger companies may well be involved in more than one initiative, in more than one STPA. We accept this overlap, and merely state it upfront. 9 In the second half of the 19th century, as part of the Austro-Hungarian Monarchy, Croatian territory fragmented into units that were to various economic interests. The regions of Dalmatia and Istria were under the direct administration of the Austrian government; the City of Rijeka and the northern Croatian territories were under the exclusive rule of Hungary; and the territory of the Military Frontier was constantly under crossfire between Vienna and Budapest, until 1881. By the end of the 19th century, industry flourished in northwest Croatia because of foreign investments. Foreign entrepreneurs showed the greatest interest for the wood industry, but some, like the Viennese representative of Siemens, Herman Kellermann, were interested in constructing a cable car in Zagreb and installing lighting fixtures, which he reported to the headquarters in 18866. Some examples of companies that have significantly evolved are:  Rade Koncar that was founded in 1921 as a subsidiary of Siemens AG in Zagreb, that is now a standalone leader in the local cluster;  Duro Dakovic that was founded in 1921 as the "first Yugoslav factory of wagons, machines and bridges Inc.", by an aggregation of domestic and Hungarian capital7. After World War II, existing industries, many of whom are continuing in their operations, were generally nationalised, renamed, or merged/acquired. Overall, STPA4 industries account for a substantial proportion of Croatia’s economy. Firms in STPA4 industries employ several thousand persons directly, out of a total of 1,132,246 jobs in Croatia’s economy as a whole8. Manufacturing firms in STPA4 produce approximately EUR 2 billion of output, which is approximately 3.9% of all private sector activity9. STPA4 in Croatia consists of approximately 998 manufacturing companies, and an indeterminate additional number in services (there are 3809 companies in Croatia providing architectural or engineering services, some of which will be in this field)10. The distribution of these firms is shown in Figure 1 below. Realistically this 6 Miroslava DESPOT, Industrija građanske Hrvatske 1860 – 1873 (Industry of Bourgeois Croatia 1860 – 1873), Zagreb 1970 7 Fuller profiles of these firms are given in section 5.3 ‘key firms’, towards the end of this document. 8 The category of ‘manufacture of machinery and equipment’ is the closest in official data, and registered 10,619 employees in 2013. Data from Croatian Bureau of Statistics online database—most recent data is for 2013. http://www.dzs.hr/App/PXWeb/PXWebEng/Table.aspx?layout=tableViewLayout1&px_tableid=T1_Eng.px&px_path=Emplo yment%20and%20wages&px_language=en&px_db=Employment%20and%20wages&rxid=04654694-2080-4769-8ff9- 1140ef84ab42 Later in this document we improve the precision of this number by focusing on data for the 48 active firms in STPA1, which gives a number slightly larger than 4,000 for the year 2015. 9 Most recent data is for 2014 from Eurostat annual enterprise statistics, http://ec.europa.eu/eurostat/web/structural- business-statistics/data/database. 10 Analysis of official data by CIRAZ team. 10 can be considered an upper estimate, since some (perhaps many) of companies involved in the ‘C2511: Manufacture of metal structures and parts’ may be producing for applications other than energy technology and systems. Figure 1: Number of firms and size of firms in STPA4 Source: CIRAZ and World Bank analysis of FINA data While a few large companies have become famous in STPA4 industries (e.g. Koncar Group, Đuro Đaković, Siemens, and others), there is clearly a substantial contribution from small and medium size firms. Small and medium size firms play a particularly substantial role in the following sectors: ‘C2511 Manufacture of metal structures and parts’; ‘C2790 Electrical equipment’, and ‘M7112 Architectural and engineering activities and related technical consultancy’. Large firms are particularly dominant in ‘C2711 Manufacture of electric motors, generators and transformers’, ‘C2530 Manufacture of steam generators et al’, ‘C2732 Manufacture of insulated wire and cables’, and ‘C2811 Manufacture of engines and turbines’. There is a relatively heavy involvement of foreign companies in STPA4. Most local companies have a working relationship with foreign companies—for example as suppliers of intermediate goods and technologies. Some firms are part of much larger groups, such as Siemens. Other apparently Croatian firms (such as Đuro Đaković) are actually foreign-owned: the German construction conglomerate Bilfinger Power Systems acquired Đuro Đaković Montaza and have been actively running the company. Export data provides one of the richest sources of data about the STPA1 industry, partly because of the precision of customs data, and partly because exports products are usually the most competitively produced. Export data for this purpose is obtained from the UN COMTRADE database, which is interrogated via the open-access World Integrated Trade Solution (WITS) platform11. In analyzing export data, the team carefully reviewed the STPA4 definition and RDI topics against available export data. Table 1 shows the parity of RDI topics against export data categories. It is evident that some RDI topics are well-covered (such as equipment for electrical energy systems), 11 http://wits.worldbank.org/ 11 while other RDI topics cannot be analysed with this data (such as ‘diagnostic and better management of energy equipment’) since exports of services are not standardized internationally and available. Table 1: Available data on exports Source: World Bank team comparison of RDI topics with UN COMTRADE data Indicative RDI topics Available export data (HS categories) •primary and secondary equipment for electrical energy systems 8405 Producer gas or water gas generators (turbines, generators, motors, transformers, switchgears, 8406 Steam turbines transmission lines and cables, management, measurement, 8410 Hydraulic turbines, water wheels and regulators protection, supervision, guidance); 8501 Electric motors and generators 8502 Electric generating sets and rotary converters 8503 Parts suitable for use with 8501 or 8502 8504 Electrical transformers, static converters and inductors 8505 Electromagnets and associated articles 8507 Electric accumulators and separators 8511 Electrical ignition or starting equipment •power plants, substations, components and systems connected 8401 Nuclear reactors, fuel elements, and machinery for isotopic separation to renewable energy sources; 8402 Steam generating boilers and superheated boilers 8403 Central heating boilers 8404 Auxiliary plant for use with 8402 or 8403 including condensers 8543 Electrical machines and apparatus not included elsewhere 8544 Insulated wire and cables 8545 Carbon electrodes for electrical purposes 8546 Electrical insulators of any material 8547 Insulating fittings for electrical machines •increasing efficiency and production capabilities of industrial, agriculture and forestry plants and machines; •advanced energy storage systems; 8506 Primary cells and primary batteries 8516 Electric instantaneous or storage water heaters and immersion heaters •diagnostic and better management of energy equipment; •planning, investment, real time management and monitoring of energy efficiency and CO2 reduction; •computer automation and control processes; 8471 Automatic data processing machines •energy management and support for the functioning of energy 8517 Telephone sets, incl. cellular networks markets at levels of microgrids, smart grids and smart cities; 8526 Radar, radio navigational, and radio remote control 8532 Electrical capacitors, fixed, variable or adjustable (pre-set) 8533 Electrical resistors (including rheostats and potentiometers), other than heating resistors 8535 Electrical apparatus for switching or protecting electrical circuits for a voltage exceeding 1000 V 8536 Electrical apparatus for switching or protecting electrical circuit for a voltage not exceeding 1000 V 8537 Boards, panels, consoles, desks, cabinets and other bases for electric control or the distribution of 8538 electricity Parts suitable for use solely or principally with the apparatus of heading 8535, 8536 or 8537 •energy-efficient interconnected and universal lighting; 8512 Electrical lighting or signalling equipment 8513 Portable electric lamps designed to function by their own source of energy 8514 Industrial or laboratory electric furnaces and ovens 8515 Electric (including electrically heated gas), laser or other light or photon beamspraying of metals or 8539 cermets Electric filament or discharge lamps •conversion of biomass into energy; •biogas technology for production of electricity and heat. STPA4 firms currently account for 7.6 percent of Croatia’s total exports. These are valued at approximately US$ 979 million of exports per year (according to 2015 data). STPA4 exports have shrunk at approximately 0.9 percent annually, on the basis of data from 2007 to 2015. The decline can be shown in Figure 2, which plots Exports of STPA4 sectors (red line) and Croatian exports in general (blue line). This is worrying, in the context of growth in other export sectors such as pharmaceuticals. Furthermore, Croatian firms in STPA4 have seen their revenues shrink even while exports of firms in other countries have grown. This observation is shown by comparing the black line, which plots growing exports in STPA4 sectors by other countries, with the red line, which shows declining exports by Croatian firms in STPA4 sectors. This indicates that Croatian firms in this STPA are having trouble maintaining and growing their revenues internationally. 12 Figure 2: Annual Exports from Croatia in US$ billion (logarithmic scale) Source: World Bank team analysis of UN COMTRADE data via http://wits.worldbank.org/ 10000 1000 US$ billion per year Total global exports in STPA4 100 industries Croatian Exports (all products) 10 Croatian Exports of STPA4 products 1 2007 2008 2009 2010 2011 2012 2013 2014 2015 0.1 Croatia remains a net importer of STPA4 products. Imports of energy technology products stood at US$ 1439 million in 2015, compared to exports of US$ 979 million. Nevertheless, imports have been shrinking (at an average rate of 2.6 percent annually). Export orientation varies greatly between subsectors within STPA4. As can be seen in Figure 3, the highest proportion of exports can be seen in smaller sectors, such as steam generators, heaters, and electric motors and transformers. The lowest proportion of exports are witnessed in the largest sectors: metal structures and parts, and architectural and engineering activities. Figure 3: Proportion of revenues from exports, by STPA4 subsector Source: CIRAZ and World Bank team analysis of FINA data Within STPA4, Croatian exports are relatively concentrated in a few product categories. These can be shown in Table 2, which compares Croatia’s basket of STPA4 exports with the proportions of STPA4 exports of all other countries globally. The Table indicates that Croatia exports 16% less 13 STPA4 products than average for all countries around the world (RCA of 0.8412), and exports 24% more goods of category 840113 than average for all countries around the world (RCA of 1.24). The line items of most interest are probably those that are greatly above average in Croatia, indicating a disproportionate specialization in those products. Using that logic, Croatia’s STPA4 exports can be seen to be concentrated a few product categories: 8402; 8403; 8406; 8504; and 853314. All other product categories are exported at approximately average rates, or below-average rates. Table 2: Proportion of exports from Croatia, compared to proportion of exports globally Source: World Bank team analysis of UN COMTRADE data via http://wits.worldbank.org/ Exports in Exports in Code Product 2015 (US$m) RCA Code Product 2015 (US$m) RCA STPA4 Energy Tech whole sector 979 0.84 8401 Nuclear reactors; fuel elements (ca 4 1.24 8513 Portable electric lamps designed to 0 0.09 8402 Steam or other vapour generating bo 73 15.34 8514 Industrial or laboratory electric f 1 0.36 8403 Central heating boilers other than 22 4.01 8515 Electric (including electrically he 14 1.65 8404 Auxiliary plant for use with boiler 2 1.14 8516 Electric instantaneous or storage w 22 0.61 8405 Producer gas or water gas generator 0 0.21 8517 Telephone sets, including telephone 69 0.21 8406 Steam turbines and other vapour tur 28 5.53 8526 Radar apparatus, radio navigational 1 0.09 8410 Hydraulic turbines, water wheels, a 2 1.17 8532 Electrical capacitors, fixed, varia 1 0.03 8471 Automatic data processing machines 39 0.16 8533 Electrical resistors (including rhe 66 8.72 8501 Electric motors and generators (exc 39 1.03 8535 Electrical apparatus for switching 14 2.00 8502 Electric generating sets and rotary 1 0.03 8536 Electrical apparatus for switching 29 0.41 8503 Parts suitable for use solely or pr 35 2.49 8537 Boards, panels, consoles, desks, ca 78 1.76 8504 Electrical transformers, static con 270 4.09 8538 Parts suitable for use solely or pr 8 0.31 8505 Electro-magnets; permanent magnets 0 0.04 8539 Electric filament or discharge lamp 4 0.38 8506 Primary cells and primary batteries 1 0.21 8544 Insulated (including enamelled or a 126 1.46 8507 Electric accumulators, including se 7 0.24 8545 Carbon electrodes, carbon brushes, 0 0.07 8511 Electrical ignition or starting equ 12 0.81 8546 Electrical insulators of any materi 1 0.37 8512 Electrical lighting or signalling e 5 0.24 8547 Insulating fittings for electrical 3 0.69 When compared with high-income countries alone (rather than all global exports), the results are approximately the same. One additional observation may be noted: that Croatia has an unusual concentration in category 8544 (insulated wire). The data Croatian exports compared to high- income countries is shown in Table 3. 12 A Revealed Comparative Advantage (RCA) statistic is calculated as the ratio of Croatia’s export percentage of each product to the global export percentage of that product. Hence a statistic of 1 indicates Croatia exports exactly the same proportion of that product in its total exports as the global average proportion; a statistic of less than 1 indicates Croatia exports proportionately less of that product than the global average for exports; and a statistic of more than 1 indicates Croatia exports proportionately more of that product than the global average for exports. 13 8401 = Nuclear reactors; fuel elements (cartridges), non-irradiated, for nuclear reactors; machinery and apparatus for isotopic separation. 14 These categories are, respectively: 8402 = Steam or other vapour generating boilers (other than central heating hot water boilers capable also of producing low pressure steam); superheated water boilers; 8403 = Central heating boilers other than those of heading 8402; 8406 = Steam turbines and other vapour turbines; 8504 = Electrical transformers, static converters (for example, rectifiers) and inductors; 8533 = Electrical resistors (including rheostats and potentiometers), other than heating resistors. 14 Table 3: Proportion of exports from Croatia, compared to proportion of exports from high-income countries Source: World Bank team analysis of UN COMTRADE data via http://wits.worldbank.org/ Exports in Exports in Code Product 2015 (US$m) RCA Code Product 2015 (US$m) RCA STPA4 Energy Tech whole sector 979 1.22 8401 Nuclear reactors; fuel elements (ca 4 1.31 8513 Portable electric lamps designed to 0 0.39 8402 Steam or other vapour generating bo 73 15.62 8514 Industrial or laboratory electric f 1 0.28 8403 Central heating boilers other than 22 3.28 8515 Electric (including electrically he 14 1.27 8404 Auxiliary plant for use with boiler 2 1.31 8516 Electric instantaneous or storage w 22 1.01 8405 Producer gas or water gas generator 0 0.16 8517 Telephone sets, including telephone 69 0.40 8406 Steam turbines and other vapour tur 28 4.64 8526 Radar apparatus, radio navigational 1 0.09 8410 Hydraulic turbines, water wheels, a 2 1.22 8532 Electrical capacitors, fixed, varia 1 0.04 8471 Automatic data processing machines 39 0.36 8533 Electrical resistors (including rhe 66 10.81 8501 Electric motors and generators (exc 39 1.15 8535 Electrical apparatus for switching 14 1.52 8502 Electric generating sets and rotary 1 0.02 8536 Electrical apparatus for switching 29 0.40 8503 Parts suitable for use solely or pr 35 2.69 8537 Boards, panels, consoles, desks, ca 78 1.83 8504 Electrical transformers, static con 270 5.25 8538 Parts suitable for use solely or pr 8 0.27 8505 Electro-magnets; permanent magnets 0 0.04 8539 Electric filament or discharge lamp 4 0.54 8506 Primary cells and primary batteries 1 0.23 8544 Insulated (including enamelled or a 126 2.33 8507 Electric accumulators, including se 7 0.27 8545 Carbon electrodes, carbon brushes, 0 0.07 8511 Electrical ignition or starting equ 12 0.76 8546 Electrical insulators of any materi 1 0.39 8512 Electrical lighting or signalling e 5 0.29 8547 Insulating fittings for electrical 3 0.63 Croatian energy technology firms have been relatively more successful at breaking into higher income markets than other Croatian exporters. Figure 4 shows a comparison of STPA4 products with other exported products. STPA4 exports are substantially less likely to be destined for low and middle income countries than other exports are, and substantially more likely to be destined for high income countries and the EU-27 than other exports are. This is a cause for optimism if it means Croatian STPA4 firms have been successful in finding buyers in sophisticated higher income markets, though it deserves further investigation during company interviews. There is a potential contrary reason, which is that the data is an artefact of foreign firms doing some lower cost production in Croatia and then repatriating intermediate goods to their headquarter countries or elsewhere for export. Figure 4: Proportion of total exports by destination (2015) Source: World Bank team analysis of UN COMTRADE data via http://wits.worldbank.org/ 80% 70% 60% 50% 40% All exports 30% Energy technology 20% exports 10% 0% High income EU-27 Low and countries countries middle income countries 15 This pattern is shown at a higher resolution by looking at Croatia’s top 20 export destinations for STPA4 goods. These countries are shown in Figure 5. Germany takes absorbs 19% of exports, with Austria, Italy, Slovenia, Netherlands, Sweden, United Kingdom, Finland, France, Poland, and Slovak Republic all in the top 20. There is also a strong regional dimension to the exports, with Bosnia and Serbia also on the list. A few outliers are Saudi Arabia (3%), Oman (2%), (Algeria 2%), and (Qatar 2%). Figure 5: Top twenty STPA4 export destinations Source: World Bank team analysis of UN COMTRADE data via http://wits.worldbank.org/ 1% Germany 1% 1% 1% Austria 2% 2% Italy 2% Bosnia and Herzegovina 2% Slovenia 2% 19% Serbia, FR(Serbia/Montenegro) Saudi Arabia 2% Netherlands 2% Oman Norway 2% United Arab Emirates 3% Sweden 3% United Kingdom 16% Finland 3% Algeria 4% Qatar France 5% 8% Poland United States Slovak Republic In recent years, despite an overall shrinkage of STPA4 exports, Croatian exporters have managed to increase their exports in some product categories. These are shown in Figure 6. Because of the large number of product categories, we have attempted to group these logically into groups of related products (as shown in the Figure). Notable increases have been seen in Electric Boards & Panels and in Telephone Sets and Data Transmitters. Electric boards and panels in particular tend to be highly customized, which may indicate some cause for optimism for the future. (To be confirmed during company interviews). 16 Figure 6: Exports of product categories within STPA4 Source: World Bank team analysis of UN COMTRADE data via http://wits.worldbank.org/. Strategically it is useful to consider which of these products are in growing or shrinking markets globally. Figure 7 shows a comparison of growth in Croatian exports to global export growth, for each product category. It shows several product categories that are fast growing in Croatia and are fast growing globally [top right quadrant of the graph]: ‘8537 Electric Boards & Panels’; ‘8517 Telephone sets and data transmitters’; ‘8512 Electrical lighting and signaling equipment’; and ‘8547 Insulating fittings for electrical machines’. This gives grounds for optimism, since it means that Croatian firms are successfully pursuing opportunities in sectors that are growing globally. There are also some product categories that have grown fast in Croatia, but are flat or shrinking globally: ‘8506 Primary cells and batteries’; and ‘8539 Electric filament and discharge lamps’. Growth in the other product categories is less remarkable, albeit still worthy of investigation for future opportunities. 17 Figure 7: Export growth from Croatia, versus export growth globally Source: World Bank team analysis of UN COMTRADE data via http://wits.worldbank.org/. Size of bubble indicates value of exports from Croatia in 2015 (larger bubble = higher value of exports). A closer look at the exports of growing sectors is shown in Figure 8. The four graphs are arranged in order of size. It is apparent that exports of these products (8517, 8537, 8539, and 8506) are concentrated almost exclusively in European markets, inside and outside the EU. The reasons for particular success in these export markets can be explored further during interviews with companies. Figure 8: Top 10 export destinations for product categories 8517 (top left), 8537 (top right), 8539 (lower left), 8506 (lower right) Source: World Bank team analysis of UN COMTRADE data via http://wits.worldbank.org/. 2% 2% 3% 2% Austria Germany 3% 3% 3% 3% Slovenia United Arab Emirates 4% Germany 5% Italy 23% Bosnia and Herzegovina 28% Saudi Arabia 7% Serbia 6% Bosnia and Herzegovina Netherlands Algeria 13% 11% 14% Belarus Montenegro 15% 14% United Kingdom 12% Turkey Czech Republic Austria Hungary Belarus 18 5% 4% 2% 1% Italy 3% 2% 2% 1% Slovenia Germany 5% Italy 5% Spain Germany Serbia Bosnia and Herzegovina 38% 7% 7% Bosnia and Herzegovina 45% Denmark 7% 8% Austria Austria Slovenia 10% Serbia 8% Hungary Belarus 21% 15% Slovak Republic Montenegro Montenegro France Further, it is apparent that the growth of each product category is accounted for mainly by the growth of a single product (rather than of the product category as a whole). Figure 9 shows a higher resolution picture from the data. In batteries, almost all the growth is accounted for by manganese oxide batteries; in telephones, base stations spiked in a single year, but consistent growth has come from export of cellular telephones; in lamps, growth is generated by fluorescent hot cathode lamps; and in insulating fittings, it is non-ceramic, non-plastic fittings that have accounted for all growth. Only electric lighting and electric boards & panels show a more balanced picture, with growth from several products at once. Figure 9: Annual exports in products, in detail Source: World Bank team analysis of UN COMTRADE data via http://wits.worldbank.org/. 850610 0.8 Manganese oxide 2.5 851210 Lighting or signalling for Annual exports from Croatia Annual exports from Croatia batteries 0.7 850630 Mercuric bicycles oxide batteries 2 0.6 851220 Other 850640 Silver lighting or signalling 0.5 oxide batteries (US$ m) 1.5 equipment (US$ m) 0.4 850650 Lithium 851230 Sound batteries 0.3 1 signalling equipment 850660 Air-zinc 0.2 batteries 0.5 851240 Windscreen 0.1 850680 Other wipers, defrosters primary cells & and demisters 0 batteries 0 2007 2009 2011 2013 2015 850690 Parts for 851290 Parts for batteries the above 851711 Line telephones 80 with cordless handsets 70 Annual exports from Croatia Annual exports from Croatia 70 851712 Cellular 60 telephones 60 853710 851718 Other telephones 50 50 Boards, panels (US$ m) (US$ m) 40 etc for < 1000 40 851761 Base stations for volts 30 transmission of voice or other data 30 851762 Machines for 853720 20 reception, conversion and 20 Boards, panels transmission of voice or 10 other data 10 etc for > 1000 851769 Other related equipment volts 0 0 851770 Parts for the above 19 853910 Sealed beam 2.5 lamp units 3.5 Annual exports from Croatia Annual exports from Croatia 853921 Tungsten halogen lamps 3 2 853922 Other lamps of <200W and >100v 2.5 853929 Other lamps 854710 Ceramic 1.5 (US$ m) (US$ m) 2 insulating fittings 853931 Fluorescent hot cathode lamps 1.5 854720 Plastic 1 853932 Mercury or insulating fittings sodium vapor lamps 1 854790 Other 853939 Other similar 0.5 lamps insulating fittings 0.5 853941 Arc-lamps 0 853949 Ultra- 0 violet/infra-red lamps 853990 Parts for all lamps above 20 The most important regulations of the energy sector in Croatia are the Law on Energy and the Law on the Regulation of Energy Activities. The regulation on energy activities is the standard by which adopted prices and tariffs are transferred from the government to energy providers, under approval of the Croatian Energy Regulatory Agency (HERA). Key legislative frameworks are:  Law on Energy (Official Gazette, No. 120/12, 14/14)  Law on the Regulation of Energy Activities (Official Gazette, No. 120/12)15 Upon accession to the EU in 2013, the Third Packet of EU energy regulation had to be speedily implemented and is now the dominant regulative in the sector. The many ordinances included open access to market, financial reporting standards and consumer rights. On the basis of financial data obtained for thirty energy technology companies in Croatia, revenues have been hovering at a constant level—around EUR 1.1 billion annually. These thirty were selected as three companies from each of the ten product groups identified in Croatian industry data. Profits are relatively slim on such large revenues, at between EUR 18 and 50 million in recent years. This data is shown in Table 4. Table 4: Financial data on thirty energy tech companies —three from each product group Source: FINA data downloaded from Poslovna Hrvatska Perhaps more worrying is the decline in jobs. According to the same data for thirty companies, the number of employees in these companies has declined by almost 10 percent in only two years (2013 to 2015), from 9612 to 8787. 15Unofficial translations of the legal acts governing the energy sector are on the HROTE website: http://www.hrote.hr/default.aspx?id=142. 21 As mentioned in the introductory section of this document, energy technology is regarded as an innovative sector. There are a number of university faculties doing related research, and a number of patents have been obtained. Our investigation of the data suggests that STPA4 industries do show a disproportionately high rate of innovation in Croatia. The Table below shows some statistics on innovation by Croatians and in Croatia. Worldwide, 17% of all patents from Croatian inventors are for Energy Tech industries; and 14% of all patents from Croatian applicants are for Energy Tech industries16. For patents registered in Croatia, 17% of patents with Croatian resident applicants are patents for Energy Tech. This is shown to be a relatively high rate when compared with the proportion of all patents registered in Croatia that are for Energy Tech: only 5%17. In other words, Energy Tech accounts for more than three times the number of patents from Croatian applicants that would be expected from its proportion of registered patents in general. The holders of registered patents in Croatia are listed in the final column of the table. Table 5: Registered patents from 1st Jan 2014 to 1st November 2016 Source: World Bank team analysis of European Patent Office worldwide database (https://worldwide.espacenet.com), and Croatia State Intellectual Property Office (http://www.dziv.hr/en/e-services/on-line-database-search/patents/) Patents Patents Patents worldwide worldwide worldwide with with Patents Patents with non- Croatian Croatian registered registered Croatian inventor applicant in Croatia in Croatia inventors (alone or (alone or with non- with and with other with other Croatian Croatian applicants nationalities) nationalities) applicant applicant18 Croatian patent holders Steam turbines & Steam engine >10 000 15 0 0 10 plants (F01D, F01K) Computing, MicroBlink, CITUS, Calculating & Eurocomputer, University of Counting (G06) Zagreb (Faculty of Electrical >10 000 48 27 13 36 Engineering & Computer Science), VIPNet & Semper Tehnika, COGNITUS, and private individuals Basic electric elements (cables, conductors, BEX, Eloda, iCat, Koncar resistors, >10 000 40 20 13 67 Elektricna Vozila transformers, switches, lamps, etc) [H01, H04Q] Generation, conversion or Diatus (2), Koncar Institut za distribution of >10 000 31 22 10 40 elektronehniku, and private electric power, individuals including stabilisation of 16 145 out of 829, and 77 out of 565 respectively. 17 186 out of 3602, and 37 out of 212 respectively. 18 The difference in quantity between this column and the previous one is accounted for by patents from inventors and applicants outside Croatia, with representatives in Croatia. For example, a patent registered by Allstom in Croatia on the basis of a Swiss or American invention, with no Croatian participation in the innovation. 22 generators [H02, H03L] Coding & >10 000 2 2 0 4 decoding [H03M] Telephonic communication VIPnet & Semper Tehnika, and & wireless >10 000 9 6 3 32 private individuals communication [H04M, H04W] Electric heating & lighting not >10 000 0 0 0 8 already covered [H05B] ALL PATENTS IN ALL INDUSTRIAL >100 000 829 565 212 3 602 SECTORS Of the 37 distinct patents in STPA4 that have been registered by Croatian applicants since January 201419, a focus on herbal medicines and medical equipment and devices can be observed. The full list of patent titles is footnoted here20. 19 37 is less than the sum of the penultimate column in the table, since some patents are registered in more than one category. 20 Pk20120303 Device For Protection Of Mobile Phone Harmful Radiation; Pk20131149 System For Activating And Deactivating Call Forwarding Service With Confirmation; Pk20120546 Device And Method For Efficiency Increase In Slotted Aloha Systems; Pk20120470 Composite Superconductor Ag5pb2o6/Cu2o And The Method For Preparing The Same; P20120220 Armoured Bus Block; Pk20130477 Universal Wireless Charger; P20130700 System For Adaptive Detection And Extraction Of Structures From Machine-Generated Documents; P20130411 Vertical Wind Electric Power Plant; Pk20120432 Pliers For Crimping Cable Lugs With Rotating Matrices; Pk20130503 System Suitable For Payment Of Services; Pk20130471 Universal Assembly For Controlling Computer User Interface By Human Motion/Movement Detection; Pk20120195 Lifter Assembly In Mechanical Switches; Pk20110688 Wireless Transmission Of Electrical Energy By Using Electric Whirl Device And Electromagnetic Absorber; Pk20130637 Motor With Permanent Magnets; Pk20120116 System For Vehicle Accumulator Replenishment; Pk20130197 Method And Device For Making A Payment Using Mobile Device; Pk20140207 System For Processing Data And Method For Early Diagnosis Of Diabetic Retinopathy; Pk20120552 Charging Device With No Energy Consumption In Passive State; Pk20140037 Qr-Code Cards Reader; Pk20131209 Method For Protection Of Transaction Using Sms Communication For M2m Devices; Pk20140221 Solar, Kinetic Hydroelectric Power Station; Pk20130905 Automated System For Reading Unique Tags And Communication With Database Using Sms/Gprs Connection; Pk20110741 Eight-Segment Led Display; Pk20110911 Set Of Bedclothes For Complete Protection From High-Frequency Electromagnetic Fields On Sleeping Place; Pk20130317 Method For Payment Of Services Using Atm; Pk20130491 Method For Determining And Counting B-Lines In Ultrasonic Diagnoses Of Lung Disease; Pk20130504 System Of Srvices For Impulse Buying, Marketing Actions And Payment; Pk20130452 Device For Remote Sensing Of Alphanumeric Data; Pk20130543 Protective Etui For Attenuaton Of Cell Phone High Frequency Electromagnetic Radiation; P20120714 Three-Dimensional Digitizer For Foot And Other Surfaces Based On Commercial Desktop Scanner; Pk20120245 Method For Detecting Rotor Winding Defect Of Rotational Ac Machines By Diferential Measuring Of Magnetic Field Using Two Measuring Solenoids; Pk20120648 Solar Cells Integrated Into Fiberglass Boat Hull; Pk20120654 Mobile Combined Electric Power Source With Telescopic Photovoltaic Cells Panels; P20150499 Fuse Link Status Indicator For A Low-Voltage High -Power Fuse; P20110689 Device And Method For Measuring Silicon Temperature And Overheating Protection Of Insulated Gate Bipolar 23 As noted in the Smart Specialisation strategy, these firms are heavily clustered in Zagreb, but with subsidiary clusters in other main regions of Croatia. Figure 10 is a map of the locations of these companies, together with the total income of subsectors of STPA4. The predominance of Zagreb can be seen in both graphs: Zagreb and its surrounding county has 152 STPA4 companies, while no other single county in Croatia has more than 40, and most have many less than that. The map on the right side shows that almost all of the companies outside Zagreb are engaged in the production of metal structures and parts. Only a few counties have a substantial production in other products, such as steam generators in Brodsko-Posavska (613 million HRK of income in 2015), engines and turbines in Karlovacka (572 million HRK), and engineering consultancy in Primorsko-Goranska (645 million HRK). All other product categories are almost negligible. Figure 10: Geographic location and specialisation of companies in STPA4 Source: CIRAZ team analysis of industry data (World Bank contributed map on the right) Figure 11 shows some of the main activities of Croatia’s top firms in each of the product categories within STPA4. Overall, Croatian firms seem to have achieved a fairly good distribution of activities along the value chain, including engineering and design, basic electrical equipment, manufacture of Power Transistors; Pk20110674 Magnetic Engine; Pk20110602 Magnetic Shear Engine. 24 intermediate and final goods for electricity production, goods for electricity control and distribution, and operations and maintenance. Figure 11: Top companies in Croatia per product category Source: CIRAZ team analysis of companies financial data and background knowledge As noted earlier in this document, STPA1 is dominated by a few large firms. Their evolution and current profiles are as follows21:  SIEMENS HRVATSKA. Siemens has been operating in Croatia since 1886, when Siemens Oesterreich (OSSW) built a power plant with the lighting system for the city of Zagreb. In 1910 the first Siemens office was opened in Zagreb and in 1921 Siemens founded a company in Zagreb, then Kingdom of Yugoslavia, as a joint venture with S&H, Vienna. In the same year, Siemens launched the first production line for the electro motors in Zagreb, a predecessor of the largest Croatian electro technical company. Significant Siemens projects in the 1930s included supplying key electrical components for the hydro power plant in Karlovac (then Karlstadt), resulting in construction of a transmission line between Karlovac and Zagreb. In 1966 long-term cooperation with the Croatian state railway company was started by delivery of Siemens remote control equipment. In 1992 Siemens d.o.o. was founded in Zagreb, capital of the Republic of Croatia, followed by Energetski transformatori in 1994, a joint venture with Končar. In 1995 Siemens became majority shareholder of ATM Inc., an automation and process control equipment factory. The merger of Siemens d.o.o. and ATM Inc. on January 1st 1997 marked 21 Information is sourced from company websites. 25 the beginning of today's Siemens Inc. with the regional headquarters in Zagreb and offices in Split, Osijek and Rijeka, expanding its presence in Croatia into all areas of electrical engineering and electronics - IT, communications, energy, manufacturing, transportation, medical care etc. Today, the local branch of Siemens is compliant with implementing the vision defined at the headquarters. Siemens has nine related entities in Croatia, reflecting different segments like healthcare, ICT, infrastructure. They are the known suppliers of products, solutions and services for the generation, transmission and distribution of electricity, for industrial automation and drive technology. Turnover – Siemens Croatia generated approximately EUR 41.8 million in consolidated revenues in 2015. Employees – About 300 people are employed at Siemens Croatia in Zagreb, and the regional offices in Split and Rijeka. Recent evolution – The recent evolution of Seimens Croatia conforms to the activities described above for Siemens AG.  Đuro Đaković was founded in 1921 by a conglomerate of banks, railroad equipment producers, and manufacturers of timber and coal. Its existence was to fill the need for repairs of wagons and locomotives, railway bridges and bridge constructions, as well as fabrication of machines and equipment. Between 1947 and 1952, the factory got its present name and commenced internationalization of activities. Đuro Đaković exported wagons to Turkish railways and entered a technical cooperation with Babcock Wilcox. In 1964, manufacturing was expanded to include equipment for petroleum and petrochemical industry. Đuro Đakovic became the largest producer Steambloc boilers in the world in 1969. They began collaborations with the Sarajevo based Energoinvest in 1976, to export components of the primary circuit of a nuclear power plant. In 1982, the company in collaboration with Deutz an agricultural technology company, began mass production of combines. Đuro Đakovic commenced with mass production of M-84 tanks in 1983. They became a joint stock company by the decision of the Board in 1993. Current operations of the holding company are divided into three main business segments: a) Defense – for supply of tanks and combat vehicles, including full life cycle maintenance of the products, b) Transport – for production of freight vehicles (standard and fully customized), in addition to maintenance services. c) Industry and energy – for engineering services that include planning, design and project management. They also carry out procurement, construction and commissioning of plants. Turnover – Đuro Đakovic holding earned approximately EUR 52.7 million in 2015, of which approximately EUR 30.5 million is from the Industry and energy business segment. Employees —on 31st December 2015, the company had 872 people in its employ, a reduction from the 997 they had in 2014.  Končar d.d. Končar Electrical Industries is a Croatian joint stock company which unites 20 independent companies and one affiliated firm. They began operations in 1921 with the manufacture of electrical motors in Zagreb. The core business activity of the KONČAR Group 26 is primarily in power generation, distribution and transmission of electrical energy, industry and electric traction. Current operations are divided into four main areas: a) Energy and transportation – design and construction of plants for the production, transfer and distribution of electrical energy, and related equipment, locomotives, trams, and electrical equipment for stable electric traction plants. b) Industry – electromotive drivers, electrical equipment of low and high voltage equipment. c) Trade — electrical household appliances, and electrical low voltage switchgears. d) Special activities – research and development of products and infrastructural services. Končar Group has 15 subsidiaries carrying out the core activities outlined above, and two subsidiaries assigned to its special activities. They also have two associates in Croatia and one Joint Venture partner in China. Turnover – The consolidated revenues of the group at year end 2015 was approximately EUR 424.2 million. Employees – The group has around 3700 employees  3. Maj MID d.d. 3. MAJ Engines and Cranes Plc was established in 1954 when it signed a license agreement with the Swiss firm Wärtsilä LTD – Winterthur. Their main activity is the production and assembly of diesel engines, deck cranes and spare parts, in addition to related services. They built their first marine diesel engine in 1961. Deck crane manufacturing began in 1977 and currently occupies a significant share of the production capacity. Their cranes are manufactured under license by Swedish manufacturer MacGregor- Cargotec. Until recently, 3. Maj MID was a part of the shipbuilding conglomerate, 3. Maj Shipbuilding, Rijeka. The company was in financial trouble in 2013 and 2014, and making an average of Eur 5 million in losses. They were acquired last year by Uljanik Group for a symbolic amount of HRK 1. According to the pre-bankruptcy agreement, whoever acquired the company would inherit the debt of approximately EUR 20.5 million. However, according to the same arrangement, 70% of the debt would be written off, while the remaining 30% would be paid off within 4 years. 3. Maj MID is a separate entity from the more illustrious 3. Maj Shipbuilding, which was commissioned in 1892 and still going strong. Turnover – Total revenues for 2015 was about EUR 15.4 million, a noteworthy increase compared to the year 2014 when total revenues were approximately EUR 1.3 million. Employees – Total number of employees in 2015 was 164, a significant reduction when compared to 2013 when there were 314.  Centrometal. Centrometal is a heating technology company that manufacture furnaces, boilers and other heating solutions. The factory for assembling and maintaining central 27 heating systems was established in 1965. They expanded into construction and infrastructural development activities in 1990 in a separate entity which later got integrated into Centrometal ltd. The company is currently implementing strategies to help them achieve their vision of becoming a leading Croatian thermo-technical equipment producer. Focus is on producing equipment that uses renewable energy sources such as wood, pellets, wood chip, solar etc The company does development, production, and product maintenance in-house, including personnel training. Turnover – Centrometal generated approximately EUR 28 million in 2015. Employees – Total number of employees is approximately 220. These institutions determine the manner and conditions of the activities of entities in the national energy segment, and especially electrical energy.  Croatian Energy Regulatory Agency (HERA) is an autonomous, independent and non-profit public institution, which regulates energy activities in the Republic of Croatia. HERA's obligations, authorities and responsibilities are based on the Act on the Regulation of Energy Activities, the Energy Act and other acts regulating specific energy activities. HERA answers to the Croatian Parliament.  The Croatian Operator of the Energy Market (HROTE) d.o.o. began operations in 2005. HROTE organizes the markets for electrical energy and gas as a public service under the supervision of HERA. Its basic activities include stimulating the production of electrical energy from renewable sources and the co-generation and stimulating the production of biofuels for transport.  The Croatian Operator of the Transmission System (HOPS). HOPS has been operating as an independent transmission operator (ITO) since Croatia’s accession to the EU on 1st July 2013. It is an autonomous legal entity outside the structure of the vertically integrated entity, its parent company Hrvatska Elektroprivreda d.d. (HEP). HOPS manages the electrical energy system of the Republic of Croatia, the transmission of electrical energy, and the maintenance, development and construction of a transmission network to ensure a reliable supply to consumers with minimal detrimental effects to the environment.  Ministry of Economy (MINGO). The Ministry of Economy sets energy policy and energy efficiency targets and monitors progress towards them. The Ministry also deals with the development and advancement of Croatian economic competitiveness; economic policy instruments and measures; industrial policy and infrastructure; innovation and new technologies; intellectual and industrial property rights; and facilitating and encouraging investment and export.  The Center for Monitoring the Activities of the Energy Sector and Investment (CEI) was established at the end of March 2013 to ensure transparent management, monitoring and 28 implementation of the Energy Strategy of the Republic of Croatia. They are also the implementing body for public-private partnerships in Croatia.  Croatian Institute of Technology (HIT). This government institute, founded in 2006, provides financial, technical and advisory support for development and technology research in Croatia, monitors and anticipates global technological trends, provides advice and support in intellectual property and technology transfer issues, supports participation in European R&D projects, and promotes Croatian technological and research potential at international level.  Several university departments are notable in this STPA, as mentioned in the introductory section and under section 4.3 ‘innovation’. These include: Faculty of Electrical Engineering and Computing, and Faculty of Mechanical Engineering and Naval Architecture (University of Zagreb); Faculty of Electrical Engineering Mechanical Engineering and Naval Architecture (University of Split); and Energy Institute Hrvoje Požar (Zagreb). The first of these has registered at least one patent since January 2014, and individuals associated with the others have been innovating in a private capacity. Professional associations include:  Croatian Energy Association (HED): an expert association, which gathers, on voluntary basis, experts and scientists in the field of energy industry. HED is an NGO and non-profit.  Croatian Chamber of Electrical Engineers  Croatian Chamber of Mechanical Engineers One of the key questions during interviews with companies concerns their experiences dealing with these various associations, research institutions, support bodies, and others. Owing to the postponement of interviews, this information was not available at time of writing. The document may need to be updated once the STPA teams have been able to speak with companies. 29