The European Commission (EC) is concerned over continued support to the national Montenegro Airlines and emphasizes the need for a comprehensive restructuring of the company.
“The national air carrier Montenegro Airlines is facing large sustainability issues, accumulating significant financial debt. The restructuring plan from 2012 was only partially implemented, but further state support was approved in order for the airline to be operational,” cited the EC in its newest report for Montenegro.
They also warned that awareness of state aid rules among those issuing it is weak and needs to be bolstered. State aid laws cite that a company which receives state aid cannot receive more in the next 10 years. Also, a legal condition for state aid is the approval of the State Aid Commission.
An earlier analysis of the MANS research center and Vijesti has shown the government has, since Montenegro Airlines was founded, allocated significant funds for it to survive. By the end of 2014, based on recapitalization and subventions, it has invested 58,5 million euro, while the reduced share capital of the company means at least a 14,3 million euro loss.
At the proposal of the Transportation Ministry from last year, the government paid the debt of Montenegro Airlines (MA) to the Hipotekarna Bank in the amount of 2,2 million euro, to avoid the activation of state guarantees. Special state attorney’s office has created an item on the state aid to MA after SDP MP Raško Konjević stated aid was administered illegally and without the approval of the State Aid Commission.
The EC has previously stated the independence of the State Aid Commission is an instrument for the opening of negotiations on Chapter 8 – Competitiveness Policy. The EC demanded on January 22, 2016, information from Montenegro authorities on the decision to restructure MA which was made On June 20, 2012. The budget amendment of this year appropriated 6,5 million for due bonds of MA and the Crnogorska Plovidba shipping company.
MA ended last year with a deficit of 4,606,487 euro, which raised the total loss of the company to 76,497,309 euro. The annual loss of this state company, headed since the beginning of last year by Nikola Vukičević (board president) and Živko Banjević (executive director), was reduced by 2,5 times compared to 2016 when it was 11,473,590 euro.
The company capital is still negative (-40,279,522 euro). The management report, attached to the financial report, states that since capital is negative, long-term financial balance has not been established. The EC report cites that Montenegro remains moderately prepared for public procurement, an area especially sensitive to corruption. Institutional and legal framework for public procurement is for the most part in line with European legislature, except for concessions, where changes to the law are significantly delayed.
The EC has rated that changes to the Public Procurement Law from June of 2017 represent a step backward in the legal sense. “Several changes to the Public Procurement Law, adopted in June of 2017, have reduced the level of compatibility with EU regulations. Prepared by an ad-hoc task force, and without public consultation, the adapted law now no longer applies to procurements of low value and in the defence and security sectors. Changes have also introduced several exceptions which are not in the EU acquis,” the EC reported.
They stated there is a need to additionally improve the capacity of the public procurement inspection. It is expected that the current introduction of complete e-procurement will help in achieving higher transparency and reduce the possibility of misuse.
“Still, controls of the complete public procurement cycle continue to represent a cause for concern.” The EC feels the continuation of fiscal consolidation remains paramount for the sustainability of public finances and the achievement of gradual alignment with Montenegro fiscal rules, through an adoption of additional measures if necessary. “There were no significant improvements in the business climate. Approval of state aid from the budget is being reduced, but tax exemptions and other types of support require a detailed examination of their influence on the economy,” the EC has rated.
EC expects certain mergers and acquisitions in the mid-term period on the banking market of Montenegro, considering the relatively large number of entities and small size of the economy. The financial non-banking sector is insufficiently developed, and insufficient and inadequate infrastructure remains a challenge. “The quality of the transportation network is below European standards,” the report cites. They add the railway system is cheap, but services are quite limited, slow and out of date. “Airports also require additional capacity for the fast-rising number of passengers,” says the EC report.
Translated from Vijesti Online, click here for the original.
