Court injunction blocks sale of Montenegro’s KAP

By bne IntelliNews July 8, 2014

Clare Nuttall in Bucharest -


A Cyprus court on July 7 issued an injunction on operations involving the assets of Montenegro’s largest employer, Kombinat Aluminijuma Podgorica. The ruling blocks the government's attempt to sell the company for the time being, continuing a bitter fight with Russian oligarch Oleg Deripaska.

The District Court of Nicosia ordered the injunction in connection with a claim filed by Deripaska’s En+ Group - parent of former KAP owner Central European Aluminum Company (CEAC) - for the repayment of €44m. A CEAC statement says that the injunction covers all transactions involving KAP assets, including the planned sale of the smelter to local investor Uniprom. It also bans the alienation of property, the disbursement of monies from KAP accounts, and the sale of any aluminium produced at the plant. 

CEAC first bought into KAP when the company was privatised in 2005, acquiring a 65.4% stake for €48.5m. At the time, the new investor planned to turn it into a major aluminium supplier to the Central and Eastern European region. However, relations between CEAC and the government in Podgorica quickly soured. 

Within a year, CEAC claimed to have uncovered "hidden" debts and obligations to the state worth tens of millions of dollars, as well as other irregularities. Meanwhile, plans to expand the Pljevlya power plant were dropped, resulting in a hike in electricity prices for the smelter. The effect of the 2008 financial crisis on aluminum prices only provoked the situation. 

KAP has since been the subject of bitter dispute. Following restructuring, CEAC lost control of KAP when its stake was reduced to 29.4%. It claims the company was then expropriated through forced bankruptcy proceedings that were launched in 2013. Meanwhile, the government claims KAP is a victim of mismanagement and fraud. 

Podgorica started proceedings to sell off KAP after it was declared bankrupt in October, with debts of around €459m. Major creditors included Montenegro’s finance ministry - owed €148.4m - and Montenegrin power company Elektroprivreda Crne Gore, as well as En+ Group and CEAC. 

Uniprom, which is owned by businessman Veselin Pejovic, was the sole bidder. It signed an agreement with KAP’s court-appointed administrator to buy the company’s assets for €28m in June. KAP’s court-appointed administrator Veselin Perisic told local media that the sale is the only possible solution to the crisis. 

The government urgently needs to keep KAP operational, and save at least some of the jobs at the smelter. Podgorica fears that postponing the sale in favour of a new tender process could result in no bids at all for the company. 

“The market has shown no interest in KAP; we had only one offer and we did not have much of a choice," Perisic said in June, according to the Independent Balkan News Agency. "Everything else would mean the uncertainty of the final outcome, which would result in stopping production and the financial impairment of the factory, which would mean less chance of producing profit and satisfying the creditor." 

However, CEAC continues to insist the deal is illegal, and welcomed the court’s ruling. CEAC general counsel Pavel Priymakov said that it “clearly demonstrates that Montenegrin authorities’ sale of KAP assets violates both Montenegrin and international laws.” 

“The bankruptcy proceedings have been repeatedly breached, but the Montenegrin courts have flagrantly disregarded these numerous violations of the law, which forces one to question whether there is any effective separation of executive and judicial power in Montenegro, or whether the latter is just an instrument of the former,” he said in an emailed statement. 

CEAC has launched two arbitration cases against Podgorica. The company says the government has breached a settlement agreement reached in 2009 that saw a brief truce, as well as the foreign investments protection agreement between Cyprus and Montenegro. The company is claiming over €700m, including damages. 

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