Loan agreement on financing construction of priority part of Montenegro's first highway signed

Podgorica, Montenegro (30 October 2014) – Montenegro’s Finance Minister Radoje Žugić and Chinese Ambassador Cui Zhiwei signed earlier today in Podgorica the loan agreement between Montenegro and the Exim Bank on financing the construction of the Bar-Boljare highway, that is its priority section Smokovac-Uvač-Mateševo.

“By signing the loan agreement we made a final step towards the parliamentary procedure where we are going to discuss the implementation of the greatest infrastructure project in the Montenegrin history in a fully transparent and argumentative manner”, Transport Minister Ivan Brajović told the press conference following the signing ceremony.

Completion of the parliamentary debate and the adoption of the Law on the Highway will create necessary conditions for starting the construction of the highway’s priority section, he explained.

The construction of the highway’s priority part will cost around EUR 809.6 million or $ 1.1 billion. The Exim Bank’s loan is to provide 85% or EUR 687 million of the total amount, whereas the remaining 15% (EUR 120 million) has to be provided by Montenegro, Minister Brajović explained.

He particularly emphasised the fact that the one-billion dollar loan represents practically 10% of the $ 10 billion credit line for 16 countries of Central and South-Eastern Europe announced by China’s ex Prime Minister Wen Jiabao at the Warsaw’s conference on April 2011.

The construction of the priority part will take 48 months and the constructor is obliged to engage at least 30% of domestic subcontractors with regard to the total value of the project. According to projections, it is expected that up to 4,000 workers will be engaged during peak construction, Minister Brajović noted.

Finance Minister Radoje Žugić stated that the loan terms are favourable, but he didn’t refer to any specific term of the signed credit arrangement. Instead, he reiterated that Montenegro’s application for the loan requested a 20-year repayment period, five-year grace period, and 2% of fixed interest rate.

Montenegro will provide 120 million for the construction of the priority section from its budget through collecting public revenue within a 4-year period, Minister Žugić told the press.

The project’s economic benefits for its users will exceed the project’s cost, he pointed out, particularly referring to time of travel, vehicles exploitation cost and security factor.

Financial validity of the project, in the finance minister’s words, is based on a conservative approach, according to which the missing funds during the loan’s repayment period would total to EUR 25 million on an annual basis. There are two options for providing the funds: by locating the amounts in the capital budget or by selling commercial function, Minister Žugić stated. 

He underlined that the construction of Montenegro’s first highway will yield multiple benefits such as:

-appreciable decrease in accident rate, as it will make safe one of the most dangerous parts of the road through Morača river gorge;
- better access to remote areas;
- increasing mobility;
- more balanced development of all parts of Montenegro and reducing discrepancies between the less developed northern part of the country and the richer coast;
- boosting market conditions and increasing competitiveness;
- easier access to regional markets and decreasing variable costs of procurement;
- tourism development;
- improving employment opportunities;
- enhancing development of the port of Bar;
- engagement of domestic engineering and construction operative.

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The project of constructing the 169.2 km long highway between the port of Bar in the south and Boljare on the Montenegrin-Serbian border in the north represents a capital and strategic transaction for Montenegro and the greatest engineering construction challenge in its history. Given its cost of EUR 1.941.2 billion (EUR 11.47 million per km), it can also be placed among the top 5 projects that are being implemented in Europe.

On its session of 4 July 2013, the Montenegro Cabinet selected Chinese companies - the CCCC International (China Communications Construction Company) and the CRBC (China Road and Bridge Corporation) - as best bidders for the construction of the priority section.

The highway section from Podgorica to Mateševo is 41 km long and will pose an enormous challenge for the project designers and be the most demanding part of the road for its constructors. 

It will require the construction of 11 tunnels (around 14 km) and 14 bridges and viaducts (around 4 km). That is why its construction cost will be the highest.

Impressive construction achievements, such as Moračica bridge and Vjeternik tunnel, will be fine examples of modern infrastructure in the region and beyond.