Montenegro to seek EC's consent when deciding on KAP's fate.

By bne IntelliNews March 12, 2013
The Montenegrin government will certainly seek the opinion and consent of the European Commission before it takes a final decision on the fate of troubled aluminium smelter KAP, the economy ministry said in a statement on March 11. The statement comes after local media informed last week, quoting a report of the Montenegrin commission for state aid control, that if Montenegro accepts the offer of Russian company CEAC to sell back its stake in KAP to the government for EUR 51mn, the EC could consider this act of state aid as a violation of the country's Stabilisation and Association Agreement with the EU and thus endanger its accession process. The economy ministry said that EC representatives were introduced to the troubles around the fate of KAP on March 5 during their visit to Montenegro. As announced last week, the problem is that KAP has already received state aid for restructuring, therefore any new investment by the government would be in breach with the EC's "one time, last time" principle aimed at preventing repeated aid granting that keeps firms artificially in business. The principle, part of EC's guidelines on rescuing and restructuring troubled firms, stipulates a ten-year period during which the beneficiary of the aid may not receive any additional rescue or restructuring aid. The economy ministry, however, said that the EC representatives have pointed to the possibility of finding a so-called "transition period" as an option to overcome this state aid problem. Under this option, the government should submit to the EC a detailed plan for restoring KAP's long-term sustainability based on realistic assumptions, as well as a precise time-frame within which this process will be completed. Together with the plan Montenegro could also submit a study on the company's significance for the national economy. The EC officials underlined that using this option will not create a precedent since countries like Poland, Bulgaria and Romania, which already are EU members, have used this option in the past, the ministry's statement said. CEAC, part of Russia's En+ Group of Oleg Deripaska, has offered to transfer its 29.4% stake in KAP to the government, which also already holds 29.4%, and receive EUR 51mn in return. Daily Vijesti reported last week that the state help for KAP would also include taking over the company's debts and obligations of EUR 180mn as well as electricity subsidies. The government has so far issued some EUR 132mn of guarantees on credits KAP has taken, excluding interest, and has already paid out EUR 23.4mn of it (including interest) when the guarantees on a Deutsche Bank loan were activated last year. Apart from taking over the company, the government has two other options for resolving KAP's problems - finding a new investor or introducing bankruptcy. The three alternatives are expected to be discussed in parliament soon. Deputy PM Vujica Lazovic said on March 11 a final decision on the CEAC offer and KAP's electricity supply will be taken by April 15 . KAP has been without an official power supplier since the beginning of 2013 but electricity transmission operator Crnogorski Elektroprenosni Sistem (CGES) has not disconnected it from the grid because of the complexity of the industrial production process at the plant, the huge environmental risk and the need to sustain the company's production. However, in order to meet KAP's needs that create imbalances in the transmission system, CGES is forced to ask power producer EPCG for additional deliveries of 84 MWh of electricity every day. Market regulator RAE has threatened to take the licences of both CGES and EPCG if they do not agree how to settle KAP's 'illegal' power supply by the end of March. KAP's unpaid electricity bills to EPCG total some EUR 44mn and to energy firm Montenegro Bonus some EUR 9mn. The aluminium firm has continued to mount unpaid electricity bills of some EUR 3mn monthly as of this year's start.

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