The Montenegrin government said it revised the 2013 budget bill on Thursday, June 27, to take over the payment of aluminium firm KAP’s outstanding electricity bills and allow new borrowing to cushion the imminent activation of state guarantees issued on KAP loans.
The revision is made exclusively for the need to finally resolve KAP’s long-accumulated financial problems and put an end to the status quo, finance minister Radoje Zugic told a news conference after the cabinet meeting.
Under the revision, the government is taking over KAP’s EUR 61mn debt to power producer EPCG and is introducing the possibility for additional state borrowing in the amount of EUR 102mn - to compensate for the guarantees that will be unavoidably activated once the company enters bankruptcy next month.
Zugic said the rebalance was supported by most of the members of the DPS-led government. However, the cabinet members from the junior coalition partner SDP abstained during the vote – therefore, Zugic added, he is not sure if the rebalance will gain enough support to pass through parliament.
Zugic gave no further details on the financial parameters of the rebalance but underlined it is made only for the purpose of solving KAP’s troubled state. On the other hand, he added, a second budget revision will follow soon that will contain fiscal measures – savings on the expenditure side and the effects of the recent tax hikes on the revenue side.
Montenegro’s original 2013 budget bill targets halving the budget gap to 2.73% of GDP (EUR 95mn) from 5.86% of GDP (EUR 196mn) in 2012. Fiscal data for January-April, however, show a rapid deterioration in the government finances with the budget gap already reaching EUR 72mn, or 75% of the full-year target due to higher-than-planned spending.
The initial bill also limits this year's state borrowing to EUR 220mn, which limit is now being raised by nearly 50%.
The government has issued state guarantees on KAP’s EUR 40mn loan to Hungarian lender OTP and over EUR 60mn loan to Russia’s VTB. The activation of these guarantees is believed to happen immediately after the court announce bankruptcy at KAP on July 16.
VTB has also extended further EUR 30mn loans to KAP that are not guaranteed by the state. The accumulated debts of the aluminium smelter are estimated at some EUR 360mn, equal to more than 11% of last year’s GDP.
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