Montenegrin c-bank calls on parliament to urgently amend KAP-EPCG relations

By bne IntelliNews July 9, 2013

The financial stability council of the Montenegrin central bank, CBCG, has decided to recommend the state parliament to resolve as soon as possible the long-lasting outstanding issues between aluminium maker KAP and power producer EPCG in order to reduce the country’s reputation risks in the coming period.

The council held a regular session this week, discussing among other issues the current fiscal stability and the proposed by the government rebalance of this year’s budget bill, which aims to allocate funds for KAP’s unpaid electricity bills and for the recently activated state guarantees on KAP bank loans, CBCG said on its website.

A Montenegrin court launched bankruptcy proceedings at KAP on July 8 after the government requested them in June over an unpaid debt of some EUR 25mn. The debt occurred last year when the state guarantee on KAP’s loan at Deutsche Bank was activated, and the payment lead to a revision of last year’s budget.

With KAP’s financial state continuing to deteriorate, the company mounted unpaid electricity bills of over EUR 70mn and the power firm cancelled its supply contract with KAP last year. Although it remained without an official supplier, KAP continued to receive electricity this year as most of it was illegally taken from European interconnectors via domestic power grid operator CGES. When the European transmission system operators found out the theft, they threatened to disconnect the whole Montenegro if the stolen electricity is not returned and the country does not put its power grid balance in order.

KAP’s Russian owner CEAC, controlled by the En+ Group of Oleg Deripaska, has refused any responsibility over the illegally taken power from Europe and declined to pay for it. Subsequently, CGES agreed to buy the power from EPCG in order to prevent a country blackout.

After accepting to introduce bankruptcy at the aluminium firm, the court said KAP’s debt is estimated at above EUR 380mn, while its nominal value is just EUR 183mn.

The government, however, is trying to take over some of KAP debts via rebalancing this year’s budget. The rebalance is design specifically to transfer KAP’s EUR 61mn outstanding electricity bills towards EPCG to the budget and to make room for the repayment of EUR 102mn worth of state guarantees – already activated by Russia’s VTB Banka and Hungary’s OTP in June.

The rebalance is still pending parliament approval and since the opposition is against transferring KAP’s debts to the taxpayer, its refusal to support the document might throw the country into a political crisis, resulting in a government collapse.

Moreover, the rebalance was adopted by the votes of the leading DPS party only, while its junior coalition partner in the cabinet – SDP, abstained during the vote. If DPS wants to win SDP’s support and thus secure enough parliament votes, it must meet SDP’s condition – abandon plan to transfer KAP’s unpaid electricity bills to the Montenegrin citizens.

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