In 2009, the state-owned Regional Water Supply Company faced difficulties obtaining funds from an account with Prva Banka, which was significant during the construction of water supply systems along the Montenegrin coast. Consequently, in 2010, the Government intervened to complete the investment by guaranteeing a seven million euro loan for the company and requiring the Investment and Development Fund (IRF) to inject an additional two million euros through recapitalization.

Research by Action for Social Justice (ASP) reveals that the burden of repaying the seven million euro loan, along with all recapitalizations made by the IRF (now Razvojna Banka), ultimately fell on taxpayers. This raises concerns about the role of certain state-owned companies and funds in assisting Prva Banka to sidestep financial turmoil, as indicated by the NGO’s findings.

ASP has previously released part of their research, asserting that, during the critical year for Prva Banka’s rescue, the Regional Waterworks’ account with the bank was misused for unauthorized purposes. Delays in payments for constructing the waterworks occurred due to the bank’s insolvency, leading to the state-owned company falling behind on contractual obligations with various contractors.

“This account was associated with domestic participation, receiving funds from the State Treasury for the coastal water supply system’s construction. Money deposited into the Regional Water Supply System in March 2009 was utilized by Prva Banka to cover the first installment of the state loan, a repayment method still considered controversial in public discourse,” the ASP statement to the media reads.

They note that the Primorski Vodovod was originally intended to be completed in 2009, coinciding with a significant financial crisis in the country. However, it was officially operational only in the summer of 2010, and payments to contractors continued even post-completion.

“In July 2010, the Regional Water Supply Company secured a seven million euro loan from Erste Bank for financing the regional water supply system. This loan had a variable interest rate of 6.5 percent plus six-month Euribor, a repayment period of 120 months, and a 24-month grace period, yet the company was incapable of servicing it.

“The company lacked the necessary funds to fulfill its obligations, leading the Government to assume the seven million euro loan approved by Erste Bank,” the company’s financial documents from the subsequent year detail. “The Government has transformed the loan into its equity stake in the company,” the statement adds.

ASP clarifies that through recapitalization of this Budva-based company by the Development Fund (formerly IRF), an additional eight million euros were allocated for the coastal water supply system’s construction, which taxpayers will reimburse in ten annual installments starting this year.

“According to ASP data, a protocol was established in March 2008 between the Regional Water Supply and the then Development Fund, as per the Government’s decree, for a permanent role of the Fund in this public company amounting to 5.4 million euros, intended to be disbursed that year to partially fund the coastal water supply system’s development.

However, at the end of 2010, the Government issued a new conclusion requiring the Development Fund, which was rebranded as IDF, to provide an additional two million euros for the recapitalization of the Regional Water Supply System. This sum was transferred from the domestic participation account designated for the coastal water supply system at Prva banka,” ASP stated.

They highlight that a conclusion made in April 2018 led to the Government taking over the IDF’s contribution of 7.4 million along with approximately 533 thousand, dictated by profit distributions for 2008 and 2009. This resulted in an agreement signed in October 2021 between the IDF and the then Ministry of Finance, stipulating that the government would start repaying the IDF’s contribution from this year.

“To date, no one responsible has raised the issue of the causal relationship between delays in payments from the domestic contribution account for the regional water supply system’s construction—particularly throughout 2009—and the actual inflow of funds into that account, alongside the extent of the delays concerning ongoing work and contractors’ reported situations. Furthermore, it raises questions concerning the impact on the subsequent loan from Erste Bank and the additional recapitalization from the IRF.”

“Starting with state aid to Prva Banka in 2009 and the later withdrawal of guarantees for the Podgorica Aluminum Plant, a cycle of indebtedness began for the country, which it has been unable to escape, resulting only in increased borrowing,” concludes the statement.

News