According to latest MANS’ investigation, Eni Montenegro and Novatek Montenegro, Dutch companies founded solely for the purpose of oil and gas exploration in Montenegro, have taken out loans from related companies worth 70m euros.
Until these loans with the corresponding interest are paid, the state will not collect the income tax from the oil companies, according to the Law on Hydrocarbons adopted by the previous government.
According to the data from the financial report of Eni Montenegro, which is registered in Montenegro as a part of a foreign company, at the end of 2020, that company owed 21.8 million euros to the parent company and related companies.
The balance sheet shows that debts to parent company and other related legal entities were around 19.7 million euros, and additional 2.1 million euros to other related legal entities.
Page 5 of Eni Montenegro’s Balance Sheet for 2020
Page 5 of Eni Montenegro Balance Sheet for 2020 – excerpt from the website of the Tax Administration
Excerpt from the financial report of Eni Montenegro, the Netherlands
Financial reports submitted by that company in the Netherlands show that Eni Montenegro borrowed 20 million euros from the related company Eni Finance International for business in Montenegro.
Eni Montenegro spent significant part of the loan on business with five related companies: Eni SpA, Eni UK, Serfactoring SpA, Eni Servizi SpA and Banque Eni SA. The largest amount was invoiced to Eni SpA, over 10 million euros, for operating costs and other liabilities during 2019 and 2020.
Excerpt from the notes to the financial statements of Eni Montenegro for 2020
Novatek Montenegro also took a 50million euro loan from related company PAO Novatek.
By the end of last year, around 22.3 million euros of the loan was withdrawn. The principal and interest for the loan must be repaid no later than December 21, 2022, according to the notes to Novatek Montenegro’s financial statements for last year.
The documents state that at the end of last year, the calculated interest on the loan from the related company was 1.3 million euros.
Excerpt from the notes to the financial statements of Novatek Montenegro for 2020
From the very vague data on the finances of Novatek Montenegro, it cannot be clearly concluded whether that company also did business with related companies. The audit reports of these companies are not available to the public, although the Law on Taxation of Hydrocarbons stipulates that these companies have the status of a large taxpayer, and are therefore obliged to prepare audit reports.
The explanation that the former Government sent to the Parliament when it decided on the Concession Agreement states that this document does not define the financial conditions because they are prescribed by the Law on Taxation of Hydrocarbons and the Government Decree.
Excerpt from the explanation submitted by the Government to the Parliament of Montenegro during the adoption of the Concession Agreement, page 6
However, according to that Law, the tax is paid for the income, thus, on that basis there will be no benefit for the state until the related companies withdraw all the money they have invested, with interest.
According to Article 7 of the Law on Taxation of Hydrocarbons, the tax base is the difference between income and expenditures recognized in accordance with that law.
Article 10, paragraph 4 of that Law prescribes that interest and pertaining costs towards a creditor with the status of an affiliate shall be recognised against expenditures in the amount that does not exceed the costs of interest in the free market.
The same law stipulates that expenditures shall be capital costs, operating costs, i.e. purchase and installation of platforms, installations, terminals, facilities, subsea installations… In addition, expenditures include operating costs, costs of wages of employees, costs of consumables, costs of services… (Article 9 of the Law on Hydrocarbons)
This practice is irresistibly reminiscent of withdrawing money from the Aluminium Power Plant Podgorica through related companies and loans from related companies.
They call on the Ministry of Capital Investments to use the mechanisms provided for in the concession agreement, and hire international experts for an urgent audit of the reported costs of oil and gas exploration and compliance with contractual obligations.
The agreement on oil and gas exploration was signed by the former government, while the MPs of the then opposition claimed that it was a corrupt agreement that would be terminated when they won power.
MANS previously announced that the Concession Agreement was signed by Eni Montenegro and Novatek Montenegro from the Netherlands, although their parent companies, Eni International from the Netherlands and Novatek G&P from Switzerland, applied for the tender.
The previous Government, contrary to the law, approved the extension of the deadline for the completion of the exploration to that consortium, although it had all conditions to collect a guarantee of up to 85 million euros on that basis.
