The Montenegrin parliament should endorse the restructuring plan for aluminium smelter KAP offered by its owner – Russia’s CEAC, as it will secure the long-term sustainability of the company and raise its attractiveness before new investors, KAP’s board of directors’ chairman, Alexey Arnautov, said in an open letter. Arnautov has addressed the letter to the MPs as they are due to vote on the fate of one of Montenegro’s most strategic companies later this month.

Earlier this year, CEAC - part of En+ Group of Oleg Deripaska, revealed its plan to transfer its 29.3% stake in KAP to the government in Podgorica, which also already holds 29.3%. CEAC is offering to transfer its stake as in return the plant pays back within five years only part of the loan it owes Russian lender VTB - EUR 40mn, Montenegrin media reported earlier. The governing DPS party is ready to accept CEAC's offer. Yet, the opposition parties as well as junior coalition partner SDP say the proposal is against the interest of the state and the citizens and seek instead an immediate cancellation of the privatisation or an introduction of programmed bankruptcy.

KAP has been unable to service its bank loans and electricity bills and last year the government had to step in and pay its debt of EUR 23.4mn to Deutsche Bank. For a small country like Montenegro, an unforeseen expense like this can easily destabilise the state finances, therefore the government should urgently take actions to turn KAP back into a profitable company and make it one of the main economic growth and export pillars again. Or decides it costs too much to the budget and should be closed down.

In its letter Arnautov says that the offered restructuring plan envisages the transformation of KAP’s existing debt into share capital, signing of a six-year power supply contract under which the company will pay EUR 27.5 per MWh and a gradual debt repayment. If the parliament approves the plan, CEAC will as “a sign of good will” transfer the existing KAP shares to the government together with the possibility to manage the company.

Arnautov said that the main obstacle for adopting the plan seems to be the claims that KAP’s debt towards CEAC, En+ Group and Russian lender VTB are unfair or incorrect. In order to eliminate such doubts, the board of directors is ready to call any of the four big auditors – PwC, KPMG, Ernst&Young or Deloitte, to check the business operations of KAP. According to Arnautov, such an audit would prove that En+ Group has invested over EUR 200mn in the Montenegrin economy (including the price it paid for the purchase and the investments made in KAP and mining firm Rudnici Boksita).

A programmed bankruptcy cannot be accepted in KAP’s case, the letter argued, because of the complexity of the technological process as any deterioration in the electricity supply would result in a production halt and in the activation of another EUR 102mn of state guarantees on KAP loans. Once the production is shut down, its restart will require a lot of time and millions of euro in investments – which will dampen the revival process at the company and make unsuccessful any attempt to attract a new investor.