Montenegrin govt quits plans on 2013 budget revision ahead of parliament vote

By bne IntelliNews August 1, 2013

Montenegrin finance minister Radoje Zugic on Thursday, August 1, withdrew the proposed 2013 budget rebalance from parliament because the leading DPS party failed to secure enough support to pass the bill, state broadcaster RTCG reported.

Zugic said the government will propose a new rebalance in September.

On July 29 the parliamentary commission in charge of economy, finances and budget already voted against the revision, which is designed to support a state intervention in solving debt issues at insolvent aluminium firm KAP. The revision is drafted specifically to transfer KAP’s EUR 61mn debt towards power producer EPCG to the state – and allows the government to take EUR 102mn of new debt in order to settle its liabilities arising from the activation of the state guarantees extended on KAP loans.

The DPS-made budget revision, however, could not attract the support of junior coalition partners from SDP, which is against the idea of the state taking over the unpaid electricity bills of a private company. The disagreement between the two partners on the issue has been perceived as a sign their governing coalition might soon face a collapse – even though top officials from both sides continue to claim there are no grounds for this.

The rebalance withdrawal put a fast end to the Aug 1 parliament session and gave the opposition a reason enough to urge for early elections. However, parliament speaker and SDP leader Ranko Krivokapic argued there is no basis for such a vote. A motion, which is not under procedure (as it was withdrawn), cannot fall, he said.

As far as the EUR 102mn state guarantees are concerned – they were already activated by Russia’s VTB Banka and Hungary’s OTP in early July at the news that KAP was entering insolvency. As a result the finance ministry borrowed later in July EUR 60mn from Deutsche Bank and Erste to cover its liabilities to VTB, saying it is in talks on restructuring the debt to OTP.

KAP’s EUR 61mn debt to EPCG, however, remains an issue that should urgently be solved as it also endangers the profitability of the energy producer and its minority shareholder – Italy’s A2A.


Economist Sinisa Lekic told that the rebalance withdrawal was not an unexpected move of the government but the problem now is that the Montenegrin economy has to continue functioning in line with the original budget plan, while the government does not behave according to it and implements instead decisions that correspond to the rebalance it has pulled out.

According to him, the government withdrew the rebalance as it was obvious the document failed to attract a majority support in parliament – and the cabinet was afraid it might collapse. But now the possible government collapse has been only delayed until September. Still, Montenegro currently functions under the old rules, which are being violated – as the cabinet already took a new loan from Erste Bank and the state guarantees that were activated because of KAP’s insolvency are being repaid despite the existing budget stipulations.

“How is it possible to wait for September when the government now takes decisions as if the rebalance was already approved? This reminds me of the electricity theft for the needs of KAP, for which nobody is guilty. The question is what could come next in the current situation,” Lekic said.

He believes KAP has already toppled the government and devastated the Montenegrin finances, and the exit of this is in taking new loans to finance all failed state guarantees given to KAP.

“At this moment the government does not enjoy the others’ confidence in its actions – only this lack of confidence is not being displayed since nobody has initialed a no-confidence vote,” Lekic said. “I reckon SDP as a coalition partner must have the courage to exit the government, carry out a cabinet reshuffle, or embark on what suits them best in this situation – go for new elections since their rating has risen.”


Under the rebalance proposal, the government anticipated that the new expenditure for KAP’s debts would not have added to the original end-year budget gap as they were to be compensated by an increase in revenues by the same amount.

Even though current expenditures were projected to rise by EUR 63mn compared to the original fiscal plan, the 2013 budget deficit would have remained unchanged at EUR 95.3mn (around 2.7% of the full-year GDP projection) thanks to an equivalent increase in budget income. The additional revenue, the draft proposal said, would have come mainly from the settlement of EPCG’s and coal mine Rudnik Uglja’s unpaid liabilities to the state.

Thus, the revision draft envisaged that an additional EUR 30mn would flow in the VAT revenue, while social contributions would grow by EUR 15.8mn. Revenue from personal income tax was anticipated to rise by EUR 6.9mn and health insurance proceedings by EUR 9.5mn, among others.

According to government figures, EPCG is the biggest tax debtor in Montenegro. There have been speculations that the management of EPCG – run by Italy’s A2A, has allowed the piling of KAP’s debt because in return the government has silently let it not service its fiscal dues.

Earlier this week the head of EPCG’s board of directors, Srdjan Kovacevic, said that the company’s overall debt towards the state totals EUR 46mn (including unpaid VAT and unpaid taxes and contributions on employees’ wages). Rudnik Uglja, on the other hand, owes the state EUR 17.5mn, according to data from the tax agency.

The government holds 55% of EPCG, while A2A has a stake of some 44%. Rudnik Uglja is also jointly owned by A2A (a 40% stake) and the Montenegrin state (31%).

The government also planned under the fiscal revision draft to seek a six-year electricity supply deal between EPCG and KAP and state-owned firm Montenegro Bonus (which took over KAP’s management while the insolvency lasts) at an affordable price. It said this would allow KAP to operate sustainably.

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