A leading light

World Finance spoke to Branko Vujovic, Director, at the Agency of Montenegro for Economic Restructuring and Foreign Investments. Among the topics discussed were privatization, foreign direct investment, future projects and progression in Montenegro


What phase has the privatisation in Montenegro reached?
Over 85 percent of capital in Montenegrin companies has been privatised so far. The accelerated privatisation proces is the result of a continuing upward trend in foreign investors’ interest in investing and conducting business activities in Montenegro especially through the privatisation process. The main indicator of the mentioned trend is a relatively greater number of successfully completed privatisations with a higher quality of bids and a stronger competition especially among reputable foreign investors. New owners come from a number of countries, some of which are: Germany, Hungary, Norway, Belgium, Austria, Greece, Italy, Russia, Japan, France, Slovena, Switzerland, Great Britain, US, Canada etc.

What were the stages that the privatisation process was going through?
The privatisation proces was initiated by the transformation of companies’ capital, which involved the phase of the capital evaluation (mainly applying the method of net assets), and the development of the transformation programmes for each company individually. The process involved the assignment of shares to employees by combining free-of-charge distribution and purchase of shares at discounted price.

During the mass voucher privatisation process 436.880 of Montenegrins became the owners of shares in companies through the free award of vouchers, thus participating with 27.1 percent in the total capital of the Montenegrin companies. Mass voucher privatisation as a privatisation model has resulted in both the acceleration of the privatisation process the accelerated development of capital market and financial institutions in Montenegro.

The continuation of the privatisation process, regulated by the Economy Privatisation Law, has been intensified since 1998 when the Privatisation Council was established by the Decision of the Government of Montenegro. The Privatisation Council has the competences in managing, controlling and ensuring the implementation of privatisation. The Privatisatin Council is accountable to the Government for its work.

What methods have been applied in the privatisation in Montenegro?
According to the Economy Privatisation Law, the privatisation in Montenegro is conducted by the combination of the
following methods:

1) sale of shares

2) sale of business assets of a company,

3) issuance of shares to the employees of a company,

4) exchange of shares for privatisation vouchers,

5) registration of new shares by means of the increase in capital,

6) debt-for-shares exchange,

7) joint venture in which a company being privatised invests fixed assets and

8) combination of the listed methods.

The privatisation in Montenegro has been mainly realised by applying the model of the sale of shares and assets by public auction, public tender or by putting up shares for sale on stock exchange, pursuant to the annual Privatisation Plan adopted by the Government of Montenegro upon the proposal of the Privatisation Council. The annual Privatisation Plan defines the main privatisation objectives and other aspects of the proces, methods and principles of privatisation of specific companies in the respective period.

The privatisation process in Montenegro has been substantially accelerated by the adoption of annual privatisation plans, particularly in respect to the stock-exchange sale of minority ownership stakes of the State and the State Funds. Thus the privatisation has been completed in a large number of small enterprises due to the efficient realisation and simplified procedure pursuant to the annual privatisation plan and owners’ decisions. Activities in the field of privatisation have especially been intensified since 2004, with a successfully completed privatisations in a large number of small and medium-sized enterprises.

Is the privatisation process in Montenegro public and transparent?
The privatisation process in Montenegro is characterised by a considerable publicity and transparency. Each privatisation, independently of the model applied (tender, auction, stock exchange), is accompanied by the public announcement in the local newspapers, internet and other forms of promotion. In order to increase the quality and intensity of the competition between potential investors, public invitations for the participation in the privatisation are addressed to economic departments of foreign consulates in Montenegro and Montenegrin legations in foreign countries. Information on the privatisation of large companies are made available in distinguished international magazines and on related Internet pages (Internet page of the World Bank), disclosing details about companies, criteria for the participation and the privatisation process itself.

Within the tender process it is usual to engage international financial and legal advisors, thus raising the quality of the process as well as transparency, professionalism, competence and objectivity of decision-making to a substantially higher level.

What are the key advantages of Montenegro in attracting foreign investors?
The applicable regulation and established procedures in the privatisation process in Montenegro are dominantly focused on providing equal conditions for all potential local and foreign investors.

Montenegro is the regional leader in terms of the implementation of legal and institutional mechanisms for creating favourable investment environment for distinguished foreign investors within the privatisation process.

In addition to the attractive location and economic and political stability of Montenegro, the numerous incentives for foreign investors include:

  • Protection of ownership-property rights,
  • European integrations as a strategic goal;
  • Progress in the implementation of economic reforms;
  • Favourable business and investment environment with a continuing lift of business barriers and simplification of procedures;
  • National treatment – a foreign investor has the same rights and obligations as a local one, with the possibility to, without restrictions, be a shareholder in a company as well as a purchaser of real estate (with the reciprocity condition);
  • Equal taxation system as for domestic legal entities allowing tax allowances and benefits;
  • Non-taxation of capital gain that has been reinvested – invested into the purchase of securities;
  • Protection of patents, trademarks, models, samples, copyrights etc.
  • Maximally liberalised foreign trade regime, payment of profit tax by legal entities at a rate of 9 percent of the tax base;
  • Single proportional income tax rate paid by physical entities of 15 percent in 2007 and 2008 with further decrease to  12 percent in 2009 and 9 percent from 2010;
  • Exemption from profit tax payment (within a three year period) for establishing a legal entity in underdeveloped municipalities (production business activity companies);
  • Avoidance of double taxation;
  • In free zones, users and operators are fully and with no time limitations exempt from profit tax for legal entities;
  • The agreements can envisage the jurisdiction of an interational
    arbitration in case of possible disputes in order to ensure a full
    legal security of investors.

Who are the most important investors in the privatisation process?
By means of privatisation Montenegrin companies have acquired renowned strategic partners such as Inter-Brew, Belgium (Brewery, Nikšić), Daido metal Japan (the industry of bearings, Kotor), Hellenic Petroleum, Greece (Jugopetrol, Kotor), Hit-Nova Gorica (hotel Maestral), Nova Ljubljanska banka from Slovenia (Montenegrobanka, Podgorica), Deutsch Telelecom-Magyar Telecom (Telekom Crne Gore), Societe Generale, Pariz (Podgorička banka, a.d. Podgorica (joint stock company)), Rusal, Russia (Aluminium Plant, Podgorica; Bauxite Mines, Nikšić), Strabag Austrija (Crnagoraput AD Podgorica (joint stock company)) etc. Important investors involved in the projects in Montenegro also include Aman Resorts  from Singapore, Kempinski hotels form Germany, and PM Securities owned by a Canadian businessman Piter Munk.

What are the effects of the privatisation on FDI?
Due to considerable efforts made to establish stable political and economic conditions and positive investment environment, there is a continuous upward trend in the growth of interest of foreign investors in investing and conducting business activities in Montenegro especially through the privatisation process.

The effects of foreign direct investments are particularly noticeable in the Montenegrin tourism industry, which is one of the priority sectors in the development of the Montenegrin economy. Owing to the announced privatisation of a large number of Montenegrin hotels in the past period, serious capital investments in tourism industry are in progress or are expected to be made, resulting in the further expansion and renovation of tourism infrastructure and especially hotel offer. As a result of the privatisation in tourism industry, total investments in hotel industry bound by the contracts in the following two to four years have been estimated at 140 million EUR with a continuing upward trend. Montenegro is the leader in the region in terms of upward trend in inflow of foreign direct investments, with the dominant share of investments through the privatisation process.

What are the ongoing privatisation projects?
The adopted Privatisation Plan for 2008 envisages the continuation of the initiated activities aimed at the realisation of international tenders for the sale of shares in Adriatic Shipyard AD Bijela (joint stock company) and the company “Montepranzo-Bokaprodukt” AD Tivat (joint stock company) with the planned construction of «Golf resort» compex on the Montenegrin coast, and the continuation of activities aimed at the preparation of international tenders for the sale of shares in the companies “Duvanski kombinat” AD Podgorica,  Electric industry “Obod” AD Cetinje, Institute for physiotherapy, rehabilitation and rheumatology »Dr Simo Milošević« AD Igalo, as well as for the sale of five small mini hydro power plants owned by »Elektroprivreda Crne Gore« AD Nikšić (national electric power supply company). Based on the previously adopted restructuring programme, the privatisation in the following companies is envisaged to start: „Luka Bar“, Bar; „Željeznica Crne Gore“ AD Podgorica; „Montenegro airlines“ DOO Podgorica (limited liability company). In order to raise necessary investment funds for „Elektroprivreda Crne Gore“ AD Nikšić, a combined engagement of preferential and commercial borrowings with the increase in capital shall be entered into or the sale of minority package of shares to a strategic partner shall be conducted conditioned by the retention of a majority state ownership in the company.

Has the process been awarded for its quality?
The quality of the realisation of the mass voucher privatisation process has been confirmed by winning a prestigious international award for public relations- IPRA (International Public Relations Award)  for the quality of the media campaign organised during this process in Montenegro.

What future projects could be singled out?
A large number of very attractive projects is in the preparation phase. The projects of tourism valuation of several exceptional locations on the Montenegrin coast that can be singled out are: Buljarica, Jaz and Ada Bojana, Great Beach, Valdanos and the Island of Flowers, Kumbor, Trašte and Bigova. The privatisation process for the mentioned projects will be realised by applying the model of public private partnership (PPP). The amount of investments for these projects is worth several billion EUR. The preparation of the mentioned projects has been initiated and internation public invitations for the expression of interest have been announced for the locations Ada Bojana, Bigovo, Kubor and  Mediteran, wheres the announcement of the same is to ensue for the locations Great Beach,  Valdanos, the Island of Flowers and others.

In the forthcoming period the main activities will be focused on the realisation of infrastructure projects, including the construction of road infrastructure, thermal energy and hydro energy capacities, regional water supply systems and the systems for solid and liquid waste disposal. The realisation of these projects has been identified as a priority in creating the basis for the further accelerated development of the Montenegrin economy.

What are your expectations related to the position of Montenegro in the forthcoming period?
Based on the past results and planned activities, I expect that Montenegro will in future retain its leading position in the region in terms of attracting foreign direct investments, primarily due to its exceptional potentials as well as due to its comittment to create regulatory and economic conditions for further unimpeded development, with notably positive effects of the accelerated process of Euro-Atlantic integrations.