Government was covering losses of ten large companies in majority state ownership with subsidies, conversion of losses into stocks and by reduction of its own share capital for years. In addition to the guarantees it provided for their loans, the citizens paid €1.1 billion, or nearly a third of the last year’s estimated gross domestic product in the past decade.
Despite huge investments, nearly eight thousand jobs was lost, while the uncovered loss of the companies that the state generously helped, exceeded €188 million at the end of last year. This is shown in the analysis of MANS Investigation Center and “Vijesti”, which is based on business reports of the companies, documents of the Central Registry of Business Entities (CRPS), the Commission for Securities and publicly available data.
The government engulfed most of the budget to cover the losses of the Aluminum Plant Podgorica (KAP), Railways of Montenegro (later the Railway Transport and Railway Infrastructure), Montenegrin Electric Enterprise (EPCG), Steel Mill and Bauxite Mines in Niksic, followed by Montenegro Airlines, Coal Mine Pljevlja, Crnogorska Plovidba and Port of Bar.
Official data show that since 2010 the state has given KAP subsidies for electricity worth €60 million, paid its guarantees for loans in the amount of €126.2 million, forgiven €102 million of liabilities to the government and eight million of income tax. Moreover, in 2014, the Ministry of Economy paid €5.3 million to Montenegro Bonus as a subsidy for the power supply of KAP.
Most of the dues of 2010 were resolved through state aid, but the actual amount is larger, because the Russian oligarch Oleg Deripaska, whom the Government sold KAP and Bauxite Mines in 2005, was paid a subsidized price of electricity for the operation of the factory since 2005. Also, on the eve of the privatization, the Government wrote off €7.7 million of liabilities of the Bauxite Mine to the state.
In mid-2007, when the government intended to privatize EPCG, under the excuse that the company should get rid of old debts in order to be sold better, the government carried out a capital increase of €86.5 million, which increased the company’s capital from €905 million to nearly €992 million, by relieving the energy company from earlier debts.
In 2014, the Government relieved EPCG from the tax debt of €45 million by increasing its stake in the share capital from 55 to 56.9 percent. Furthermore, in mid-2015, EPCG decided to cover the accumulated losses of the company. Data from the financial statements for 2015 show that the share capital of the company at the end of last year was decreased by around €96.5 million, but it is not known whether and how the changes were recorded with the Commission for Securities.
In 2009, the state took over mutual claims of EPCG and Coal Mine (in the Pljevlja-based company the state is the second largest shareholder, while the largest shareholder is the Italian company A2A) worth around €40 million. It was an old credit debt of Coal Mine, which totaled €28.8 million, liabilities arising from VAT of €9.9 million, debt for the concession of €1.6 million and income taxes of €2.7 million.
In the last ten years, the state has been at loss of at least €242.1 million, due to the former single Railways of Montenegro and later the two main companies that have emerged by its division (Railway Transport and Railway Infrastructure). According to available data, the government recapitalized the railway companies on the basis of debts totaling €153.9 million, while it has invested at least €88.2 million for subsidies for maintenance of railroad infrastructure and transport.
To rescue Niksic Steel Mill, according to publicly announced data that have been disseminated by the media, around €146 million has allocated the state budget in the last ten years. Steel Mill was first privatized in 2002, when the Russian company Rusmontsteel bought a majority stake and after a short stay left the factory in debt. Then in 2004, the government sold a majority share to Midland Resources for €1,000 and took over liabilities and claims of the Steel Mill until the signing of a contract worth around €75 million.
After Midland left the company, the Anglo-Dutch company Montenegro Specialty Steels (MNSS) bought the majority stake of the Steel Mill for €5.2 million in late 2006. However, four years later, the company left the Steel Mill with claims which amounted to €193 million. From this money the state lost €33 million, which was used for paying off the MNSS guarantees, while the Tax Administration lost around eight million in unpaid taxes.
In addition, in order to maintain social peace in Steel Mill, the government paid around €25 million of severances to about 1,500 workers who left the factory and its former plants from 2010 to the beginning of 2012. During the period when the Steel Mill was managed by MNSS, the government repaid the strategic partner the guarantees for a short-term loan of €3.5 million, as well.
In June 2009, the state took over a significant part of the obligations of Niksic Steel Mill with regard to the loans with Blue Bay company from Luxembourg and paid €1.6 million, which were converted into shares. MNSS remained in the Steel Mill until April 2011, when the factory declared bankrupt. The contract on sale of the Steel Mill to a Turkish company Toscelik for €15.1 million was signed in June 2012, which was been the fourth time this factory got a new owner.
The state has helped Montenegro Airlines with €37.9 million since 2005 (since the foundation, the state has invested €76.7 million), by converting the majority of claims into share capital and approving grants, while suffering loss due to the reduction of the share capital of the airlines. Thus, in 2009, the company’s capital was reduced by 14.3 million, in order to cover its losses accumulated for years.
Furthermore, the state has recently heavily invested in the survival of companies in the maritime industry. Obligations of the Port of Bar based on foreign debts of €80.3 million in 2006, were derecognized pursuant to the agreement with the Ministries of Finance and Transport and Maritime Affairs, but the data from the CRPS do not show that the country ever recapitalized on that grounds.
The company Container Terminal and General Cargo (now Port of Adria) emerged from the Port of Bar with an initial capital of around €65.2 million. In early October 2011, the company’s share capital was increased by conversion of liabilities of the company to the Government on the basis of funds obtained for severance payments redundant employees. The total value of the approved emissions amounted to €10.6 million, but the realized amount was six million.
When it comes to Crnogorska Plovidba, in 2012, the government increased its share capital by around 7.1 million, under the excuse of financing purchases of ships. In the same year, it set aside an additional €1.3 million for Crnogorska Plovidba, which transferred the money to the account of Jugooceanija for the welfare program for former employees of the company.
Government’s decision to help these companies did not preserve jobs and provide production at the former level, nor did it contribute to the further development of the Montenegrin economy. On the contrary, it led to significant indebtedness and increase of the state debt. Yet, the prosecution never raised any question of responsibility, neither of the prime minister, nor its ministers, as a result of such decision of the Government.
Nearly eight thousand jobs lost
At the end of 2005, KAP, Steel Mill, EPCG, Bauxite Mines, Coal Mine, railway companies (Railway Transport, Railway Infrastructure, Montecargo, Maintenance of Railway Rolling Stock), Port of Bar and the Container Terminal and General Cargo employed a total of 14,434 workers. At the end of 2015, these companies had 6,462 employees or 7,972 workers less.
The number of employees in KAP decreased from 2,492 at the end of 2005 to 550 at the end of 2015, in the Steel Mill from 2,200 to 324, Bauxite Mines from 1,455 to 75, in EPCG from 3,401 to 2,333, in the Coal Mine from 1,670 to 935, in the Port of Bar from 1,284 to 603, and in railway companies from 1,932 to 1,642 employees.
The number of workers has only increased in Montenegro Airlines, from 295 at the end of 2005 to 400 at the end of 2015, and in Crnogorska Plovidba, which had two employees in late 2008, and 12last year.
Uncovered loss of 188.8 million
According to business reports, at the end of 2015, the total uncovered loss of ten companies in which the state used to be a majority owner or had a significant share, excluding the two companies now owned by Veselin Pejovic (KAP and Bauxite Mines), was €188.8 million.
Uncovered loss of MA at the end of 2015 amounted to €60 million, railway companies €57.1 million, the Coal Mine €17.2 million, Crnogorska Plovidba €10 million, Port of Bar €1.6 million, Container Terminal (majority owner is Global Ports) €22.9 million and Steel Mill (owned by Toscelik) €20 million.
At the end of last year, only EPCG reported profit of ten million.
Tax debt 33.8 million
Despite many years of generous support from the state, most of these companies have a large tax debt of a total of €33.8 million. According to the latest official black list of the Tax Administration of April, the debt of Montenegro Airlines for taxes and contributions on earnings is around €12.37 million, while the Mine Coal owed €11.59 million (the Coal Mine has a debt on the grounds of other taxes of €648,850).
Railway Infrastructure owes €3.4 million for taxes and contributions, the Railway Transport owes €2.7 million, Maintenance of Railway Rolling Stock owes around €1.5 million, the Port of Bar €1.22 million, Container Terminal and General Cargo (Port of Adria) around €290,000.
Ines Mrdovic
Biljana Matijasevic
This text is created with the support of the European Union and the U.S. Embassy Podgorica. Network for Affirmation of Non-Governmental Sector – MANS is solely responsible for the contents of this article, and the views taken herein shall not in any case be considered as those of the donors.
