PODGORICA (Montenegro), June 18 (SeeNews) – The first move of the Montenegrin government after it becomes a 29.4 % shareholder in local company KAP at the end of July would be to urge the owners to find an independent energy source for the ailing aluminium smelter, Montenegrin media reported on Friday.
Under a deal for the operational and financial reshuffle of the company signed at the end of 2009, the cabinet in Podgorica will provide KAP's majority shareholder, Russia's CEAC, with sovereign guarantees totalling 63 million euro ($78 million) for the restructuring of the smelter’s existing debt and for its planned modernisation. In return, the government is entitled to take control of half of CEAC’s current stake in KAP. The remaining KAP shares are in the hands of private entities, according to its website (www.kap.me).
You can subscribe to our M&A newsletter here
The government will propose that the owners either build or acquire an independent source of energy for the plant, news portal Analitika (www.analitika.me) reported, quoting Economy Minister Branko Vujovic.
“We reckon there is no better decision than a long-term contract for KAP’s energy supply and certainly the best solution is for it to have its own source of energy,” Vujovic was quoted as saying.
Montenegro’s government has been subsidising KAP with some 15 million euro a year in the form of lower electricity prices in a bid to secure the long-term survival of the Balkan country’s largest exporter, Analitika said. The smelter has been operating at a loss, often pointing out that its production costs exceed aluminium prices on the international market.
Vujovic said the contract under which KAP gets electricity from the network of local power utility EPCG expires in 2012. "After that they are left to the market [forces]."
According to unofficial information, KAP owes EPCG around 20 million euro, Analitika said.
Analitika added that KAP consumes around 1.9 million megawatthours (MWh) of electricity annually when it operates at full capacity. It will not need more than 1.4 million MWh this year due to a cut in production.
CEAC parent En+ Group bought 65.4% of KAP in 2005, planning to take control of Montenegro's sole coal-fired power plant, TE Pljevlja, shortly after and secure cheap and stable electricity supplies to the aluminium smelter. However, the plan failed a year later, when Montenegro cancelled the sale of TE Pljevlja to the Russian company.
Vujovic said the KAP owner still needs to prepare the contracts on the debt restructuring with the relevant banks. Once these contracts are signed, the government will provide a 63 million euro guarantee for the restructuring and will take over the 29.4% stake, he said.
KAP's outstanding obligations total some 300 million euro, Analitika said, quoting unofficial information. It added that, on top of the guarantees for the restructuring of old debt, Montenegro will also extend to KAP this year 22 million euro in additional loan guarantees.
($=0.8083 euro)