Montenegro company is the centre of EU concern


Russian investors and Montenegro officials are heading to arbitration over an aluminium plant.

By Nedjeljko Rudovic for Southeast European Times in Podgorica -- 03/03/14


Kombinat Aluminijuma Podgorica has been bankrupt since 2013. [Kombinat Aluminijuma Podgorica]

As the sale of the assets of Kombinat Aluminijuma Podgorica opens, the conflict between officials in Podgorica and the Russian investors who initially bought the plant has been taken to Brussels.

On February 20th, bidding opened to sell the company's infrastructure at an initial price of 28 million euros, which will be used to pay off part of the company debts.

Russia's Central European Aluminium Company bought 65.4 percent of Kombinat Aluminijuma Podgorica in 2005, and it fell into bankruptcy last year.

Due to accumulated debts of 350 million euros, the Montenegro Commercial Court opened bankruptcy proceedings in July 2013, and ordered the sale of the assets of Kombinat Aluminijuma Podgorica, which were estimated at 52 million euros.

Kombinat Aluminijuma Podgorica, as the country's largest exporter, represents 15 percent of the country's GDP.

Earlier this month, the European Parliament adopted a resolution calling for Podgorica to quickly resolve the dispute. The EU emphasised the need for a transparent process in resolving commercial disputes without any political interference and based on the rule of law.

The EU Delegation in Podgorica said it will closely monitor what is happening.

"If there are systematic problems in the area of rule of law and public administration, we will address these issues in the context of Montenegro's EU accession negotiations," Dragan Mugoša, spokesperson for EU Delegation in Montenegro, told SETimes.

The investor group claims its interest has been harmed, and that the bankruptcy proceedings took place in violation of regulations. The group is seeking to recover its investments in the Montenegrin company, in the neighbourhood of 120 million euros. The group has launched arbitration proceedings in Vienna.

Matias Menke, the Central European Aluminium Company representative for arbitration proceedings, said the aim of the group was to make Kombinat Aluminijuma Podgorica the leading producer of aluminium in Central Europe.

"To achieve this goal, the company has invested huge funds in Kombinat Aluminijuma Podgorica and Montenegro. However, all the efforts of the Central European Aluminium Company have been thwarted by the activities of the government of Montenegro. Upon purchasing the factory [in 2005], the government submitted unsound financial testimony for Kombinat Aluminijuma Podgorica. Then [the investment group] was unreasonably deprived of the possibility of building energy capacity to provide their own source of electricity for Kombinat Aluminijuma Podgorica," Menke said.

But a government spokeswoman said officials have done nothing wrong.

"Each state is required to provide a legal framework for the effective implementation of foreign investment, but the government cannot be responsible for their work or their losses. Given that the government has fully complied with the legal requirements in relation to the Russian company, arbitration or litigation cannot affect negotiations between Montenegro and the EU," Marina Zivaljevic, a spokeswoman for the ministry of economy, told SETimes.

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Complicating the issue is the fact that Montenegro has given millions of euros in state aid to the company, which could be the subject of additional problems with the EU.

The state has been subsidising electricity for Kombinat Aluminijuma Podgorica since 2009, which costs tens of millions of euros per year, because the company is unprofitable. The company is responsible for 40 percent of the nation's energy consumption.

"The European Commission's current assessment is that a continuation of the electricity subsidies, outside of any restructuring plan, would constitute operating aid, which is in principle prohibited under EU state aid rules," Mugosa told SETimes.

How should the Montenegro aluminium plant dispute resolved? Join the conversation below.

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