Report on the State Debt of Montenegro as of 30 June 2011

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Report on the State Debt of Montenegro as of 30 June 2011

    1. Report on the State Debt of Montenegro as of 30 June 2011

    As of 30 June 2011, the State debt of Montenegro amounts to EUR 1.433,7 million or 44,9% of the Gross Domestic Product (GDP). The internal debt amounts to EUR 364,1 million or 11, 4% of GDP, while the external debt amounts to EUR 1.069, 6 million or 33,7% of GDP. As of 30 June 2011, the deposits of the Ministry of Finance amount to EUR 181,2 million and 38.477 ounces of gold, thus the net state debt amounts of around 39,2% of GDP.

External Debt Trends during the first six months of 2011

    During the first six months of 2011, the external debt increased by EUR 157,2 million in comparison to the end of 2010. The amount of the external debt increased due to Eurobonds issue in the amount of EUR 180,0 million and due to disbursed loan funds for the IBRD loan for the Project “Health” in the amount of about EUR 0,3 million, “LAMP” Project in

    the amount of EUR 0,3 million, “Energy Efficiency” project in the amount of EUR 0,3 million,

    “MIDAS” Project in the amount of EUR 0,3 million, IDA loan in the amount of about 1,2 million, EIB loan for the Project “Roads and Bridges” in the amount of EEUR 4,0million,

    commodity loan of the Government of Spain for the Recycling Center construction in Podgorica in the amount of EUR 0,5 million, KfW loan for the Water Supply Project (phase III and IV) in the total amount of about EUR 1,1 million, as well as the Hungarian Exim Bank loan for financing the school construction Project in Bar in the amount of EUR 0,7 million. In addition to the aforementioned, loan funds of the European Council Bank were disbursed for the Project “1000+ Apartments” in the amount of EUR 10,0 million. The stock of foreign

    declined based on the timely repayment of the principal in the amount of about EUR 23,1 million, as well as based on the differences in the currency exchange rates.

    The stock of external does not include the obligations in respect of unresolved debt - related issues to Libya, Kuwait, Czech and Slovakia and UBS Bank in respect of bonds issued within the London Club. Montenegro inherited this debt towards the governments of these four countries based on the division of non-allocated debt (5.88% out of 38% for Serbia and Montenegro) and in accordance with the Agreement on Succession Issues from thVienna 29 June 2001, it has been resolved through positions agreed within the Committee for Division of Financial Assets and Liabilities of the former FRY. As to API bonds, the negotiations with the UBS Bank representatives took place, for the purpose of finding the options for bilateral resolution of this issue. The total amount of the obligation in respect of unresolved debt issues will most likely equal to about 1% GDP and it is included in the projections of debt trend for the period 2011-2013.

    The aforementioned data on the stock of foreign debt implies the amounts of disbursed loan funds in respect of individual loans.

Table 1. Data on the stock of foreign debt and non - disbursed loan funds amount

    Foreign Debt


    Stock of disbursed

    Creditor Debt funds

    International Bank for Reconstruction and

    Development (IBRD) 173,8 32,3

    International Financial Organization (IFC) 4,9

    Member states of Paris Club of Creditors 108,6

    International Development Association 58,2 5,7


    European Investment Bank (EIB) 74,7 47,5

    European Bank for Reconstruction and

    Development (EBRD) 19,3 14,4

    European Council Development bank 10,2 15,0

    European Community 5,5

    Credit Bank for Reconstruction Germany

    (KFW) 11,4 48,8

    Austrian loan 10,1

    Hungarian loan 13,6 0,5

    Polish loan 10,8 0,1

    Societe Generale - Education IT 0,7

    French loan 8,5

    EUROFIMA debt of Railway 28,7

    Czech EXIM debt of Railway 32,5

    Steiermarkische Bank und Sparkassen AG 22,0

    Erste Bank 22,5

    Credit Suisse Bank 67,7

    Spanish loan for landfill construction 5,0

    Exim Bank Hungary 0,9 3,2

    EUROBOND 380,0

    TOTAL: 1.069,6 167,5

    Pursuant to the aforementioned, the total amount of available and non disbursed funds is of around EUR 167,5 million. The aforementioned amount comprises IBRD loan

    funds signed in the first half of 2011, for financing the “Hot Spot” Project in the amount of

    EUR 0,75.

    Foreign guarantees of Montenegro amount to EUR 316,7 million or 10.0% of GDP, or

    21,7 % of the state debt.

Table 2. Issued Foreign Guarantees

    Stock of

    Disbursed State Debt

    Yeaas of 30 as of 30 Creditor Loan Borrower r Amount June 2011 June 2011


    Roads 20024.000.000,024.000.000,0EIB Project Monteput 4 24.000.000 0 0

    Electro -




    EIB on EPCG 2 11.000.000 8.023.090,00 7.311.505,79


    ModernizatioPC Airports 20011.000.000,010.600.000,0EIB n MNE 4 12.000.000 0 0

    Small and



    Enterprises Commercia20071.107.000,070.961.354,2EIB through l Banks 9 91.000.000 0 7





    e Railway


    EIB n re of MNE 0 7.000.000 0,00 0,00


    ModernizatioPC Airports 20010.235.127,0EBRD n MNE 3 11.000.000 0 6.393.215,82


    of the


    Water supply PC

    System Regional

    south Water

    extension, Supply 200

    EBRD phase I Company 7 8.000.000 8.000.000,00 7.666.666,67


    of the


    Water supply PC

    System Regional

    south Water

    extension, Supply 200

    EBRD phase II Company 8 7.000.000 7.000.000,00 6.708.333,33


    infrastructure PC

    Project Railways of 200

    EBRD phase III MNE 9 4.000.000 2.091.177,04 2.091.177,04




    on Infrastructu

    Infrastructurre AD 200

    EBRD e Project II Podgorica 9 15.000.000 650.000,00 650.000,00

    Project of


    electromotor Railway

    units and Transport 201

    EBRD equipment AD 0 13.550.000 0,00 0,00

    Credit line Deposit

    for deposits Protection

    EBRD protection Fund 30.000.000 0,00 0,00


    KfW Perucica EPCG 3 3.580.000 3.564.135,21 1.506.069,87


    KfW Piva EPCG 7 16.000.000 2.572.039,37 2.572.039,37

    Substation 200

    KfW Ribarevina EPCG 7 5.400.000 536.000,00 536.000,00



    in the TPP

    Pljevlja and

    extension to




    KfW Ribarevina EPCG 8 15.000.000 8.863.740,00 8.863.740,00

    Opportunity Opportunity 20015.000.000,015.000.000,0KfW bank bank 9 15.000.000 0 0

    20016.000.000,016.000.000,0KfW NLB NLB 9 16.000.000 0 0

    20049.680.000,048.994.444,4OTP KAP KAP 9 49.680.000 0 5


    Purchase n Master

    and repair of Harbor’s 20147.396.000,

    Exim China ships Office 0 00 4.831.604,00 4.831.604,00 WTE Waste Water

    WassertechManagement Municipalit20129.250.000,

    nik Project y of Budva 0 00 0.00 Abu Dhabi Regional

    DevelopmeWater supply Water 20118.977.884,

    nt Fund Project Supply 0 37 0.00

    Support to


    Aluminum Aluminum

    Deutsche Plant Plant 20122.000.000,22.000.000,022.000.000,0Bank Podgorica Podgorica 0 00 0 0

    Support to


    Aluminum Aluminum

    Plant Plant 20160.000.000,60.000.000,060.000.000,0VTB Podgorica Podgorica 0 00 0 0


    AS OF 31 SEPTEMBER 2010 62 61








Internal Debt Trend During the First and the Second Quarter of 2011

    During the first and the second quarter of 2011, the internal debt increased by about EUR 5,8 million compared to the end of 2010.

    The internal debt increase during the first quarter of 2011, was generated by the increase in debt in respect of T bills issuance in the amount of EUR 8,0 million, as well as assuming of debts in the total amount of around EUR 20,00 million. On the other hand, the internal debt declined by about EUR 9,3 million in respect of the repayment of loans with the commercial banks and loans with the non financial institutions due to the continuation of

    the of Projects implementation of the Directorate of Transport, as well as based on the repayment of sixth debt installment in respect of pensioners compensation in the amount of around EUR 14,9 million.

    The total liability in respect of restitution at the end of the first quarter amounts to of around EUR 2,0 million, compared to the end of 2010.

    Consolidated debt of municipalities amounts to of about EUR 64,2 million, according to the latest data provided by municipalities, being indicated in the Table in two ways:

    - stock of foreign debt comprises the debt of municipalities based on Agreements signed by the Government of Montenegro with foreign creditors, and Sub - loan agreements with municipalities, in the amount of around EUR 18,0 million (the amount of disbursed funds);

- stock of internal debt, as well as the debt of local self government units to credit

    institutions, in the amount of about EUR 46,2 million.

    In November 2008, the Ministry of Finance adopted the Instruction on the content of the request for borrowings of municipalities and fulfillment of financial requirements for their borrowings, which in details determines the procedure of borrowing for local self-governments.

    Table 3: Issued Government Guarantees in 2009, 2010 and 2011

    Creditor Borrower Amount

    NLB Montenegrobanka Bauxite Mines AD 5.000.000,00


    Podgorička banka Pobjeda A.D. 2.970.000,00


    Hipotekarna banka A.D. Montenegro Airlines 2.700.000,00

    NLB Montenegrobanka Montenegro Airlines 1.800.000,00

    Erste banka A.D. Pobjeda A.D. 3.500.000,00

    Podgorica Podgorica

    Hipotekarna banka A.D. MI-RAI GROUP DOO 800.000,00


    NLB Montenegrobanka Gradir Montenegro 900.000,00

    doo Nikšić

    NLB Montenegrobanka Gradir Montenegro 700.000,00

    doo Nikšić

    NLB Montenegrobanka Gradir Montenegro 2.000.000,00

    doo Nikšić

    NLB Montenegrobanka Melgonia - Primorka 4.000.000,00

    Hipotekarna banka A.D. Montenegro Airlines 2.000.000,00

    TOTAL AS OF 30 JUNE 2011: 26.370.000,00

    We are emphasizing that issued government guarantees decreased by of around EUR 17,8 million at the end of the first quarter, compared to the end of 2010, because the Government of Montenegro assumed the loans for which it issued guarantees, from the following companies: Railway Transport of Montenegro A.D. Podgorica in the amount of EUR 7,0 million, Regional Water Supply System in the amount of around EUR 7,0 million and the Solidarity Housing Construction Fund of Montenegro in the amount of EUR 3,8 million. Furthermore, in the second quarter of 2011, guarantees increased additionally by EUR 2,0 million on the basis of guarantees issued to Montenegro Airlines.

    Debt Trend Outlook

    Table 4: Debt Trend Outlook in the Period from 2011 - 2014.

    2011 2012 2013 2014 mil ? % of GDP mil ? % of GDP mil ? % of GDP mil ? % of GDP

    Public Debt Stock 1443.67 45.22 1485.00 43.86 1454.31 40.60 1427.66 37.68

    Internal Debt 340.40 10.66 274.90 8.12 208.10 5.81 168.80 4.46

    External Debt 1103.27 34.56 1210.10 35.74 1246.21 34.79 1258.86 33.22

    A mild increase in public debt up to 2012 is forecasted in the following period, pursuant both to the GDP and macroeconomic trends, and subsequently the stock of debt will decline. The increase in external debt will be primarily generated by the additional budgetary borrowing in the amount of EUR 180,00. Additional borrowing in the amount of EUR 110,00 or EUR 72,00 million is envisaged in 2011, 2012 and 2013, while in 2014, under the assumption of economic recovery additional borrowing will not be required. In the aforementioned period 2011 2014, the internal debt stock will decrease against new liabilities.

    Aforementioned projections were developed pursuant to the borrowing plan for the needs of the budget, planned disbursing of funds, or entering new credit arrangements (internal and external debt), as well as with the envisaged repayment of internal and external debt.

Mr. Dragan Darmanović, Head of the Debt and Cash Management Department

Ms. Ana Banović, Independent Advisor II,

Ms. Mersija Purisic, Independent Advisor I,

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