The Montenegrin Government has not given up its intentions literally to the company Orascom “gifts” island Lastavica with fortress Mamula which confirms the fact that to the Parliament is offered unchanged contract on long-term lease which favors the tenant but on the expense of the state budget and the public interest.
When the proposal for this contract first came before members, MANS warned of humiliating low cost annual rent and a number of other provisions which the Swiss Orascom allow to enjoy the benefits that no any other company has or investor in Montenegro.
After that time the contract proposal did not receive the required majority for the adoption of the Montenegrin Parliament, it was returned for revision in order to try to provide broader support of the members of the Parliament. Since that time until the current version of the document has not changed nor even one letter, it will be interesting to see who of delegates changed attitude and on which basis.
MANS has thoroughly analyzed the essential items, the contract itself, and the investment plan which is an integral part of that document. There are a number of conflicting articles that would immediately, by the adoption of this version of the contract, cause a conflict regarding the exercise of rights over movable and immovable property of fortress Mamula.
For instance, in Article 3.4. of the contract is stated that “the Lessee acquires and maintains the right of ownership of their movable assets built in or in some other way brought on to the Site”, while Article 21.1. the same contract states that “the Landlord is and will be the full owner of all rights and assets, movable and immovable, or functionally linked with the resort, regardless of whether they exist on the Closing Date (the surrender of the island to Orascom after verification of the contract) or they are subsequently installed in the resort”. From it is clear that both sides claim the right to everything that Orascom installed on the island, but it is not clear how disputes would be resolved and to whose detriment.
Furthermore, although the company Orascom is to the local public presented as an investor who has sufficient funds to complete the project, in Article 24.4 of the contract to the Lessee is left the possibility that own rights under this contract can pledge to finance the construction of resort or current operations.
Particularly is problematic so-called “stabilization clause” which is defined in Article 37 of the contract which allows to Orascom benefits that no other company in Montenegro enjoys. Specifically, in the event of a modification of some of the Montenegrin laws relating to the implementation of this project, which would affect the “economic balance of the contract at the expense of the Lessee”, the Government is obliged to enter into negotiations on amending the provisions of the contract in order to again “establishe the economic balance”.
In practice this would mean that if the Government increases tax rates for the taxation of profits or value added tax or a tax concession or compensation, Orascom would have the right to request from the Government the reduction of the lease price, any other compensations that are defined with this contract, reduction of investments, or a change of their nature to maximize the profitability, such as increasing the accommodation capacity on the island. In any case, such an arrangement is seen for the last time during the privatization of the Aluminium Plant where the Government guaranteed compensation to the new owner in case of changes to the law that may threaten the operations of the company.
MANS also analyzed and the so-called investment program which is at barely two sides as an attachment to this contract. Orascom predicts that at the resort will be open up to 200 new jobs, and that a further 200 jobs will be opened during the construction period. In addition, Orascom announced that during the first ten years of the resort, the state of Montenegro will earn 2.8 million euros just on the basis of payments of contributions for employees.
When these projections are analyzed in details, the reality looks quite different. If we take into account the most pessimistic scenario that all employees will receive only the Montenegrin average salary, which currently stands at 478 Euros, the current amount of contributions that is paid for this salary to the country by the employer and the employee amount to about 320 euros. If we take into account even the impossible scenario that the average salary over the next ten years will not be changed, mentioned 2.8 million euros is sufficient to fund contributions to only about 70 employees, not two hundred as stated in the investment program. Of course, the number of 70 employees is not realistic because it implies that for ten years and control structure would received an average salary, which is unlikely.
In addition to this “benefit” for Montenegro, Orascom plans to pay in the next ten years only 4.4 million euros on the basis of VAT and 100,000 euros on the basis of income tax and other tax revenues, which are humiliating amounts in relation to the potential of the island Lastavica. The investment program envisages the construction of 23 hotel rooms, four restaurants, reception, spa center, mini market, four swimming pools, a water sports club and a dock.
From the foregoing, it is clear that the sole and exclusive benefit from this project will have company Orascom, for a little money for investments, with concessions and benefits that are not guaranteed by any citizen or legal entity in Montenegro.
A special curiosity when it comes to this contract is the fact that the members of Parliament for consideration was submitted the version in which is tinted every signature and seal that it contains, along with addresses and ownership structure of the Swiss company Orascom, and the real question is how members of the Praliament can decide on something that is in such brutal manner hidden from them.
MANS hereby once again invites on all members of the Parliament to remain in the position that they previously had in this contract, and to vote against it, because it is the same document in which the Government continues to insist on a number of concessions for the company Orascom to the detriment of the public interest and the state budget.
Dejan Milovac
Director of the Research Center of MANS
