Yesterday in the state Parliament, Montenegro’s Prime Minister tried inaptly to convince citizens that the construction of the first section of the highway from Smokovec to Mateševo would not cost “a Euro more” than the agreed amount, while deliberately avoiding to mention additional costs, which will significantly increase the price of this controversial investment.
The agreement with the Chinese company China Road and Bridge Corporation is concluded at €809 million, with the possibility that the value of unforeseen and subsequent works will be increased by 10%, or by additional 80 million, and Montenegro’s Prime Minister claims that the Government will fit into this amount.
However, he deliberately avoids to mention that the contract defines unforeseen works as well, that is, works that are not in the Main Project, but must be carried out in order to finish this section of the highway. It is precisely for this type of work that no limitation has been defined, which in practice means that the amount of 10% of the agreed price can be increased.
The Government has already allocated part of the costs for the highway from the budget, with Monteput borrowing nearly €32 million in order to build a permanent power supply system for the Smokovac Mateševo section, and then the state energy companies will buy and take over the built-in electricity infrastructure.
This is without a doubt a cost of building of the first section of the highway, but Montenegro’s Prime Minister does not talk about this, as well as the fact that Smokovac Loop is to be built, and that almost two years of delays will increase the costs for project management, i.e. payments for two state commissions, supervising authority, Monteput, translation services or the engagement of ad hoc experts and commissions.
The risk is particularly the Chinese loan taken in U.S. dollars, and the government has announced that it will protect it against currency risk by concluding a hedging agreement. The price of such arrangement is unknown, but it is certain now that it will cost tens of millions of Euros, which also increases the total price of the first section.
Instead of announcing that next year the “highway from Podgorica to Mateševo” will be open for traffic, Montenegro’s Prime Minister should explain to citizens where and when would they drive past Mateševo.
This especially bearing in mind that the Government recently admitted that the new section will go only to Andrijevica, and that negotiations with Serbia on the definition of a contact point where the highway between the two countries would pass are yet to be conducted.
In this regard, instead of announcing that the first and second section will cost less than €1.3 billion, it would be fair to announce to citizens that the estimate of the construction of only a part of the second section to Andrijevica is around 300 million, and that the rest the construction of this section, i.e. all the way to the border with Serbia, will cost at least a few hundred million Euros more.
In the end, it should be pointed out that the Government has long been “up to its ears” in debt and its ability to return them in the long run is more than questionable, and the project of construction of Montenegrin highway is undoubtedly one of the greatest risks to the sustainability of public finances of the country. In that sense, it is clear that a series of future generations will pay a very high price of work that is at the very least, from the aspect of state interest, contracted in an irresponsible and unacceptable manner.
MANS Public Finance Programme
Coordinator Ines Mrdović
