The big trouble with little Montenegro

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It is of fundamental importance that the EU officials negotiating Montenegro’s accession recognise the very grave problems that still need to be addressed regarding Montenegro’s lack of respect of the rule of law, writes Dr Matthias Menke.

Dr Matthias Menke is CEAC legal counsel Partner, Graf von Westphalen, Frankfurt am Main, Germany

It was with great interest and disbelief that I read Andrija Pejović’s assertions in this website that ‘Montenegro is a problem-free EU candidate’. As the legal counsel for the Central European Aluminum Company (CEAC), a Cyprus-based company that has made substantial investments in Montenegro which have been consistently undermined, I can assure you that the view from the inside is quite different to the implausibly rosy picture Mr Pejović paints.

Mr Pejović mentions that Montenegro has opened the two most important chapters regarding the rule of law. It is of fundamental importance that the EU officials negotiating Montenegro’s accession recognise the very grave problems that still need to be addressed regarding Montenegro’s lack of respect of the rule of law in view of the vested legal interests of foreign investors in the country.

The government’s recurring interference and obstruction of CEAC’s investment in Kombinat Aluminijuma Podgorica (KAP), the largest Montenegrin industrial enterprise, dates from CEAC’s initial acquisition of 65.43% of the company in 2005. At the time of its acquisition by CEAC, KAP – an aluminium plant in Podgorica – represented 15% of Montenegro’s GDP and 50% of its exports. From the misrepresentation of the financial health of the company at the outset, to the inappropriate use of bankruptcy proceedings to the removal of CEAC from the management role and now the recent decision to sell off KAP assets, Montenegro has waged a sustained campaign aimed at undermining CEAC’s interests. The latest decision is just another in a litany of examples of the Montenegrin government’s peculiar understanding of the rule of law: the decision was taken without discussions with KAP’s largest private creditors, including CEAC, En+ and VTB Bank Austria AG, nor was a board of creditors, a supervisory body for insolvency procedures required by Montenegro’s own bankruptcy law, properly established.

CEAC has launched international arbitration proceedings against Montenegro to seek redress, and was informed that it is regrettably not the only foreign investor to have been subject to such arbitrary treatment at the hands of the Montenegrin government. CEAC was told that a number of other EU companies have faced similar problems: for example, Netherlands-based company MNSS, which owned and heavily invested in the largest metallurgical plant in Montenegro, Zhelezara, was removed from the management of this company via similar insolvency procedures initiated by the government. The plant was then sold to another investor. MNSS is also in legal proceedings with the Montenegrin government (International Centre for Settlement of Investment Disputes in Washington DC).

The former CFO of KAP has been detained in Podgorica and forbidden to leave the city on ridiculous trumped-up charges of stealing electricity from the EU grid, despite the fact that KAP has no direct connection to the regional interconnector and that, therefore, KAP could not consume electricity without the authorisation of the state-owned electricity supply operator in Montenegro. In December 2012, when it became evident that KAP would have no electricity contract as of 01 January 2013, CEAC recommended to the Board of Directors the shutdown of KAP in order to avoid consuming electricity without a contract, but the government’s Board representative, Nebojsha Dozhic, vetoed this decision. This is the same Nebojsha Dozhic who is now the chief operating officer of KAP. We believe that the former CFO is, thus, being used as a scapegoat in the attempt to claim to the European Energy Commission that Montenegro itself is innocent of stealing electricity. His detention is extremely worrying, a clear example of the lack of separation of executive and judicial power in the country.

It is interesting to note that since bankruptcy proceedings have started, KAP, now under direct government control, has stopped disclosing financial information.

We believe the actions of the Government of Montenegro represent a pattern of illegal behaviour that demonstrates a disregard for the rule of law and which is far from complying with the requirements set forth in the Stabilisation and Association Agreement between the European Communities, their Member States and the Republic of Montenegro. We call on the European Union – which on 17 December in the General Affairs Council will adopt conclusions on the Enlargement and Stabilisation and Associated Process – to underscore towards the government of Montenegro the relevance of full and effective protection of all existing and future foreign investments, and provide full redress to those companies such as CEAC that have been the victim of its lack of respect of the rule of law.

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