ZAGREB - Croatia's oil group INA, in which Hungary's MOL is the largest shareholder, plans to complete the modernisation of its two refineries at the end of 2012, the company said on Friday.

The modernisation process is following the planned dynamics. We expect it to be completed at the end of 2012, INA said in a statement made to Reuters.

The refineries will then be able to produce gasoline of European Union standards. Croatia is an EU candidate and hopes to wrap up membership talks next year and join in 2012.

This project will enhance our competitiveness as it will enable the output of higher quality products while respecting all requirements related to environmental protection, INA said.

Overall costs of modernisation, which was kicked off two years ago, were estimated at some 1 billion euros ($1.49 billion). Initial reports said that the overhaul could be completed by mid-2011.

MOL has a 47-percent stake in INA, Croatia's biggest utility, while the Zagreb government owns some 44 percent. INA shares were quoted at 1570 kuna ($320.3) in the morning trade, or 0.42 percent up from Thursday's close.

INA has both upstream and downstream segments and owns refineries in the central town of Sisak and in the northern Adriatic port of Rijeka. The company is active in gas and oil exploration in Africa and the Middle East.

INA said its primary goal, together with producing better quality petrol, was to improve the quality of air in the areas surrounding the refineries.

Local residents, particularly in the town of Sisak, have been complaining for years about heavy air pollution which they said was highly damaging for health.

The air quality has been noticeably improved ... a new technology we are introducing will improve it even further and decrease the impact of emitting substances that could be damaging for the environment, INA said. ($1=.6722 Euro) ($1=4.901 Croatian Kuna) (Reporting by Igor Ilic; editing by Jon Loades-Carter)