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Bankruptcy, Layoffs, And Lawsuits Plague Montenegrin Aluminum Plant

Before the 2007-08 global financial crisis, it was estimated that 10 percent of Montenegro's population depended directly or indirectly on the Podgorica Aluminium Plant.
PODGORICA -- The no-holds-barred conflict over a key piece of Montenegro's economy has just taken a billion-euro turn for the worse.

That much became clear in a video press conference from Moscow for journalists in the Montenegrin capital, Podgorica.

Yury Moiseyev, the former director of the Podgorica Aluminum Plant (KAP), said the plant's Russian shareholder that he represents was preparing an enormous lawsuit against the Montenegrin government, seeking compensation for alleged unfulfilled promises and lost profits.

"The government of Montenegro did not give us the chance to realize our plans for developing the plant and we, of course, are applying to arbitration courts. We have hired several law firms," Moiseyev said.

"We at present have submitted a lawsuit [in Podgorica] for 93 million euros ($123 million) and we will be filing with [an arbitration court in] Frankfurt a complaint on the falsification during the privatization of KAP, of the lack of fulfillment of the civil agreement. So far, preliminarily, we set the sum of damages at 1 billion euros."

The announcement is the latest installment in a high-stakes dispute between the Montenegrin government and KAP's Russian shareholder, which is owned by Kremlin-friendly oligarch Oleg Deripaska. And 1 billion euros ($1.3 billion) is high stakes indeed, considering the small Balkan country's GDP is about 3.4 billion euros ($4.5 billion).

READ MORE: Aluminum Plant's Woes Cast Geopolitical Shadow

Layoffs among the bankrupt KAP's 1,200-strong workforce began last month, as fallout continues from the collapse of aluminum prices following the 2008 global financial crisis. Several hundred more Montenegrins who work at a Central European Aluminum Company (CEAC)-owned bauxite mine that supplies KAP also risk losing their jobs. Before the 2007-08 global financial crisis, it was estimated that 10 percent of Montenegro's population of 680,000 depended directly or indirectly on KAP.

Moiseyev represents En+, which is the owner of the Cyprus-based CEAC, which in turn is controlled by Deripaska. CEAC owns about 35 percent of KAP. The Montenegrin government owns 30 percent, while the rest of the ownership is murky but believed to be in the hands of Montenegrin oligarchs with ties to Moscow.

However, under the terms of the original 2005 privatization agreement, the Russian shareholder maintains control of the company's management.

On The Hook For Millions

In addition to seeking 1 billion euros, En+ has already filed suit in a Podgorica arbitration court for 93 million euros. On top of that, the government is potentially on the hook for 170 million euros ($225 million) in state-guaranteed loans that KAP's Russian management took out in 2009 and failed to repay.

The huge complex, which was the pride of Montenegro when the first metal was smelted in 1971, entered bankruptcy last month with debts of around 340 million euros ($442 million).

Oleg Deripaska's empire has suffered since aluminum prices collapsed following the 2008-09 economic crisis.
Oleg Deripaska's empire has suffered since aluminum prices collapsed following the 2008-09 economic crisis.
In its lawsuits, En+ alleges that the Montenegrin government reneged on pledges to arrange cut-rate electricity for KAP. In addition, Moiseyev repeated charges En+ first made in 2006 that the government had failed to disclose KAP's true financial condition during the original privatization negotiations.

On July 10 -- just as the bankruptcy proceedings were getting under way and just as layoffs at the plant were gathering steam -- KAP's former finance director, Russian citizen Dmitry Potrubach, was arrested trying to cross the border into Serbia. He is still being held and is suspected of complicity in the theft of some 10 billion euros of electricity from the European power grid. He is also charged with hiding information about the company's financial woes from other shareholders.

En+ says Potrubach's arrest is an attempt to pressure the firm and prevent its legal actions, while the Russian Foreign Ministry has expressed the hope that he will be released on bond because of his alleged poor health.

Djukanovic In The Middle

Montenegrin Prime Minister Milo Djukanovic -- a former communist who has remade himself as a pro-Western reformer -- is in the hot seat over the whole KAP scandal. He has recently asked the government for 102 million euros ($133 million) to keep the plant operating during the bankruptcy proceedings.

Djukanovic is currently heading the cabinet for the fourth time. He was also prime minister from 2003-06 when KAP was privatized and CEAC won 65.4 percent of its shares for 48.5 million euros ($63 million).

He was also prime minister in 2009, when global aluminum prices collapsed and KAP came to the government with hat in hand. The government bought a 30 percent stake from CEAC and gave the loan guarantees that are now hanging over its head.

Now Djukanovic is dealing with the crisis again, leaving some Montenegrin politicians to wonder why the country always seems to come up short in its dealings with Deripaska.

Montenegrin Prime Minister Milo Djukanovic is in the hot seat.
Montenegrin Prime Minister Milo Djukanovic is in the hot seat.
"I am certain that the Russians have something [with which] to blackmail Djukanovic. There is something that has followed this whole transaction," says Nebojsa Medovjevic, a member of the opposition Democratic Front and a member of the parliamentary Economy Board. "From a professional point of view, there have been so many mistakes made by the Montenegrin government and by Djukanovic and by [fellow Socialist Party Prime Minister Igor] Luksic that one can only characterize them as corruption and organized crime. The position of Montenegro has always been worse than the position of the investors in the privatization agreement and, later, in the agreement on debt repayment."

Deripaska Looks For State Aid

The collapse of global aluminum prices has hit Deripaska's empire hard. In recent months he has been leaning on the Russian government as well, threatening to close down four smelters in Russia, three of which are the centers of so-called monocities -- cities that are economically dependent on a single enterprise.

This week, Russian Deputy Prime Minister Arkady Dvorkovich ordered the government to develop a plan for a state aluminum reserve, an idea that Deripaska has been lobbying many months for. Deripaska says the government must drive the price of aluminum up to $2,400 a ton from the current rate of about $1,800 a ton in order for the four smelters to be profitable.

The business daily "Vedomosti" said the creation of an aluminum reserve would be "the same as a direct state subsidy to the private enterprises of Deripaska."

Written in Prague by Robert Coalson, based on reporting by Esad Krcic of RFE/RL's Balkan Service in Podgorica