Government demands transfer of shares in KAP and RBN as Russian investor fails to honour contractual commitments

Podgorica, Montenegro (17 March 2012) – Following the statement by Alexey Kuznetsov, Chairman of the Board of Directors of KAP Aluminium Plant, the Government of Montenegro underlines the following facts: 

The Government of Montenegro has honoured all its obligations defined in the Settlement Agreement, and in particular the provision of electricity subsidies worth EUR 60 million, as well as assuming KAP’s loan on the basis of the government guarantee to the Deutsche Bank. 

Russian CEAC and En Plus group did not honour the provision regarding electricity payments, amounting to at least three outstanding bills, and in spite of state subsides that debt now amounts to EUR 32 million. 

Legal counsellor to the Privatisation Council sent a letter to CEAC on 1 March in which he informed them that due to their failure to fulfil the commitments from the Settlement Agreement, the State of Montenegro requests from CEAC and En Plus group to transfer the shares they hold in KAP and Bauxite Mines Nikšić (RBN) to the state. The deadline to meet this request is 14 days from the receiving date. 

If the Russian management does not respond affirmatively to the request in the said 14-day period, we will take all legal steps necessary to protect the interests of the state. These may entail initiating a dispute at the arbitration tribunal in Vienna, so the state would prove that CEAC and En Plus group have not honoured the Agreement, and thus acquire possession of the shares. 

In addition to failing to honour this part of the Agreement, CEAC has declined to grant consent to the Government’s planned assuming of a loan on the basis of guarantees to the Deutsche Bank. If such consent were truly of no relevance, as Mr Kuznetsov claims, why did they refuse to sign it when other members of the KAP Board of Directors did so? The fact alone that CEAC has withheld signature shows the extent of their concern whether the problems at KAP will be resolved quickly and in a way that would jeopardise neither the company nor the state. 

As regards the supposed activity plan that the En Plus group has proposed to the Government in May 2011, it now stands clear that those proposals were neither particularly good nor new, and most importantly they do not address the issue of failing to honour the obligations from the Settlement Agreement. 

It does not seem reasonable to demand further subsidies for KAP without proposing a long-term solution for the biggest problem in the company, which, as Mr Kuznetsov has himself pointed out repeatedly, is the issue of electricity. The Government believes, unlike Mr Kuznetsov, that KAP should operate in a way that will not in the long term pose an additional burden on the electricity company Elektroprivreda Crne Gore (EPCG) and the taxpayers. 

To conclude, the Settlement Agreement clearly stipulates that after the existing subsidies have expired no new ones shall be given to CEAC and the Chairman of the Board of Directors knows this. Instead of a proposal for the long-term resolution of the electricity issue, CEAC and En Plus group have suggested a solution least burdensome for them, which involves further state subventions. The other solution CEAC has offered suggests turning the outstanding debt into shares, which is a possible way to relieve KAP of the piled-up obligations and this model will be discussed by the new management, following the taking over of shares and termination of cooperation with CEAC.