Secret Agreement for Public Debt

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MONITOR Weekly, 5 November 2010
Secret Agreement for Public Debt

The Council for Hydropower Plant Development on the Moraca River has adopted the Draft Concession Act1 The Government will too.

However, even after the public hearing on the Draft Concession Act, citizen do not know more than before what will be the arrangement with the Concessionaire that will develop hydropower plants (HPP). KEY RESPONSES LACKING: "The public debate on the Draft Concession Act has not responded to two key questions – how much will the construction of hydroelectric dams cost Montenegrin citizen and to what extent will it solve the energy deficit problem," said Dejan Jelovac, Director of MANS2

urban planning program. Milovac claims that government's announcement that it will adopt the Draft Concession Act for Moraca HPP Development only 20 days after the public hearing on the document, confirms that the executive branch is in a hurry to finalise legal preparations, and that the whole public debate was an exercise of feigned democracy intended to satisfy legal formalities. Although more than half a year has passed - reports of the Ministry of Spatial Planning and Environment on the Public Hearing on the Draft Detailed Spatial Plan and the Strategic Environmental Impact Assessment of the Moraca HPP project have not been published. ACCOMODATING THE CONCESSIONAIRE: Milovac believes that such sequence of events turns meaningless further discussion on spatial plans for the Moraca hydropower system and proves that these will merely reflect the wishes of the future Concessionaire embodied in the Concession Act and Concession Agreement. He argues that it is not acceptable to continue with the concession procedure until the public is presented the real reasons for engaging the country in this endeavor. The public still does not know how much the state will earn from the dams, which technical solution is being offered to the future Concessionaire and what will be implications for the area where the construction is planned. However, of least concern for the Moraca HPP advocates seems to be – whether the taxpayers know how much this project would cost them, i.e. what would be its costs and benefits.

ADMISSION: What the Government is no longer hiding and what comes accross clearly from the Draft Concession Act is that its authors admit that the development of hydroelectric plants on Moraca will not resolve the issue of domestic energy deficit, and that the power will belong to the operator who will sell it and export freely to whomever he wants, irrespective of the national interest. The Draft Concession Agreement with the future concessionaire explains the method and schedule of payments of concession fees. However, the key data on the concession contract length and the amount of concession fees (i.e. concession fee formula) are missing. These figures must be provided in the Draft Concession Agreement according to the Article 43 of the Law on Concessions. During the public debate, government officials confirmed that, without the help of the state, the project would not be financially profitable for the Concessionaire. The analysis of foreign experts shows that the project is not commercially attractive to the Concessionaire unless the Government supports it with at least 120 million euros, and that, immediately upon project inception. According to Forum 20103, this figure should be no less than 200 million euros. However, the Government is not bringing to light specific financial data. Neither the Draft Concession Act nor the Draft Concession Agreement contain the figure required by the Concessions Law on the budgetary support to the project - namely - the Concessionaire. If the information on how much Montenegrin citisen would have to subsidise the foreign investor were published, it would become cristally clear to everybody that the project is not viable, and that the citizen would have to indebt themselves by hundreds of millions of euros just to ensure that the Concessionare can achieve profits over the next thirty to fifty years.

ACE IN THE SLEEVE: Nonetheless, if the state cannot afford to cover the high cost of the project – Elektroprivreda Crne Gore (EPCG), the Montenegrin electricity utility still under majority state ownership and a tender participant, could do the job. Actually, the top people of EPCG are showing the greatest enthusiasm for the Moraca HPP. On the EPCG accounts already are the 96 million euros paid in for the capital increase of the company and those could be used for the purpose. It is true that the national energy strategy and EPCG have already determined that the highest investment priorities are rehabilitation and reconstruction of the existing network. However, this would not be our first time to forget our previous decision and then 'switch to the right track ''. In this case - it is only necessary for the Government, as majority shareholder, to reach an agreement with A2A4.

Monitor's sources explain that since the project is not commercially and financially viable, A2A could request that they be allowed to privatise the rest of EPCG ahead of schedule, or that their other investment obligations under the privatization contract be eliminated or softened. And then – if the junior coalition partner - SDP5 – boldly dares to prevent the first scenario, the public will never know whether the investment commitments have been relaxed, because the government does not give access to basic, let alone to such important information from privatization contracts. EXCESS WATER, LACK OF INFORMATION: EPCG has announced that the viability of the project could subsequently be repaired by developing new hydropower plants upstream the Moraca River, ones that will also be able to use ''surplus" water from the Tara River6 NGO Green Home is now requesting from the Montenegrin Parliament to review the proposed Moraca HPP. "Eventual use of Moraca hydropower potential and of new energy sources should be in the interest of Montenegrin citizen. Therefore, the whole decision-making process should be transparent and the information available in a timely manner, which is not happening in this case" says Darko Pajovic, Green Home Director. This NGO believes that the Parliament hearings could contribute to the transparency of the process, help obtain many crucial explanations that have not been provided even after two public debates, and, finally, improve prospects for reaching a decision that would be in the best interest of Montenegrin citizen.

Behind the scenes, final preparations are underway for conclusion of the HPP Moraca deal. The more the process is progressing - all the more mysteries about the whole project. And a wider field for all kinds of "agreements".

Marijana Bojanic

1 Document containing detailed project information that government adopts before launching a concession tender
2 Well known Montenegrin NGO
3 Forum 2010 – Think tank established in February 2010 by well known independent individuals
4 A2A - Italian energy company acquired 43% of EPCG in 2009 through a combined capital increase and share purchase method, a 5 year management contract and an option to privatise the remaining state shares in 2014
5 Social Democratic Party, the junior coalition partner, does not favour full privatisation of EPCG
6 Diversion of water from the UN protected Tara River into Moraca was included in the original project design, since the analyses indicated that it was the only financially viable project development option. After strong public resistance to the Buk Bijela HPP prompted the Parliament to adopt a Declaration on Protection of the Tara River, the diversion of water from Tara into Moraca is not encouraged under the proposed concession tender, although a number of top country officials have recently made and keep making public statements in support of this approach


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