The conclusion of bilateral agreements on economic cooperation, such as cooperation in the areas of infrastructure development, real estate, tourism, telecommunications, e-government, and even investments in the health sector, must be in accordance with EU regulations and national legislation that respects the principles of transparency, free competition, non-discrimination and equal treatment of bidders, he tells Center for Investigative Journalism of Montenegro (CIN-CG) Gordana Đurović, professor at the Faculty of Economics.
CIN-CG interlocutors warn that new planned agreements could cause serious damage with provisions that do not protect Montenegro's interests, but exclusively the interests of investors, as was the case with the Agreement with the United Arab Emirates (UAE) on cooperation in the field of tourism and real estate development.
The Government of Montenegro prepared four more agreements during the summer of this year, after signing the controversial agreement with the UAE. In July and June, it prepared two agreements with the Government of Hungary: a Proposal for conducting negotiations and concluding an agreement on cooperation in the field of infrastructure development and a Proposal for an agreement on cooperation in the field of telecommunications. In June, a Proposal for an agreement with the Government of Ukraine on the provision of e-government services was also prepared, as well as a Proposal for a basis for conducting negotiations and concluding an agreement between the Government of Montenegro and the Government of the Republic of France on the implementation of priority projects in Montenegro. So far, none of these drafts have been signed.
The planned agreements contain problematic provisions, such as those in the Agreement with the UAE, which repeal domestic and European laws on competition and transparent processes. Last week, the Parliament of Montenegro concluded a debate on approving two interstate agreements with Hungary and France. The problem is that these agreements will allow companies from France and Hungary to carry out some of our capital projects without tenders.
The agreement with Hungary relating to the development of railway infrastructure and highway development contains a provision, as in the agreement with the UAE, which stipulates that Hungarian companies as main contractors and operators can be engaged directly without "the need for public procurement, in accordance with the national legislation of Montenegro".
The agreement with Ukraine also mentions that there is no need to conduct public procurement, or tenders for e-government. As stated in the draft agreement, the work on e-government "will not be subject to public procurement, public tender, public competition procedure or any other procedure defined in the national legislation of Ukraine and Montenegro after the ratification of the Agreement".
The Government of Montenegro has envisaged an agreement with France regarding the implementation of priority projects. The areas in which cooperation will be defined are the design and construction of a new university clinical center in Podgorica, as well as other healthcare projects, the development and modernization of the electricity network, digital transformation, construction of transport infrastructure... It is envisaged that the future agreement will regulate in detail the sources of financing that France and its institutions, such as the French Development Agency (AFD), can provide for the implementation of projects.
Every concluded international agreement that provides for direct contracting with foreign companies, without applying public procurement procedures prescribed by domestic legislation and the acquis communautaire, is not in line with Montenegro's obligations as a candidate country for EU membership, says Đurović.
Montenegro should conclude all international agreements in the areas of tourism, real estate and infrastructure within the framework of existing legal procedures, with full respect for the principles of public accountability, transparency and market competition, explains Đurović.
EU COULD PUNISH MONTENEGRO FOR UNLAWFUL STATE AID
Montenegro has signed 27 bilateral agreements so far. However, the practice of missing tender procedures and disregarding competition laws were not common practices when signing previous agreements, he explained to CIN-CG. Maja Kostić Mandić, Professor of International Law at the University of Montenegro.
"This is definitely not a common practice in these agreements that Montenegro has signed so far. I have not come across anything similar in the agreements that the UAE signs with other countries either. On the contrary, as far as I remember, I looked at their latest ones, like the one with India, where there is no mention of eliminating competition," he explains.
Providing special benefits to investors can be considered a form of illegal state aid, based on the EU Stabilization and Association Agreement, Kostić-Mandić states.
“In this context, the case of the Micula brothers is particularly significant, where the General Court of the European Union found that Romania was liable for violating a bilateral agreement with the Swedish investor, the Micula brothers of Romanian origin, because upon accession to the Union it abolished the state aid it had promised to that investor, and then, when it paid him compensation according to the arbitration award, the European Commission initiated proceedings against Romania for violating the rules on illegal state aid,” says Kostić. “A similar scenario could befall Montenegro after it becomes an EU member state,” explains Kostić-Mandić, meaning that it would have to pay both the investor and the EU for violating its rules.
"The agreement on cooperation in the field of tourism and real estate development with the UAE is an atypical international agreement, because at the heart of this agreement is an imbalance in the obligations of the contracting parties, which is its main drawback from the aspect of Montenegro's interests," says Kostić-Mandić.
The content of the aforementioned provisions of the Agreement unequivocally indicates that part of national sovereignty is actually being transferred to a foreign government, as it is envisaged that it will significantly influence the identification and qualification of projects as strategic and of public interest for Montenegro, she explains.
"Here, we should also bear in mind the pronounced economic inequality of the contracting parties. The Agreement does not establish 'firm' obligations for the UAE Government, the non-fulfillment of which could lead to its legal liability, and the only 'obligation' of the UAE is to encourage investors, while Montenegro assumes large, international obligations in relation to an unknown investor, and these are obligations for the non-fulfillment of which investors usually sue the state based on bilateral agreements on investment protection."
According to Kostić-Mandić, several of her colleagues from the region, based on an informal exchange of opinions, pointed out the lack of protection of Montenegro's interests in the Agreement.
"The question arises whether, at all, any of the lawyers who are experts and do not exclusively represent the interests of the UAE had the opportunity to read the text of this agreement before it was signed," says Kostić-Mandić.
The disputed agreement with the UAE, as well as the four planned agreements, do not contain the most-favored-nation clause provided for in bilateral agreements (BiT) that Montenegro previously signed with other countries.
"Montenegro is bound by 15 bilateral agreements, and all of them contain a most-favoured-nation clause, which stipulates that investors can invoke it if the state has given someone else better treatment, e.g. permits, obtaining work without a tender or similar," Kostić-Mandić points out.
So now, after the agreements with the UAE and others that are in preparation, which provide for great benefits for investors from these countries, disputes may also arise with investors from countries with which we have previously signed BITs that contain a "most-favoured-nation" clause, because investors from these countries can invoke this clause and sue Montenegro, for example, because they had to go to a tender, or because they could not apply for investments that were exclusively given to someone from the UAE, or tomorrow Hungary. Montenegro could therefore have millions in expenses, due to possible investment arbitrations, so just defending the state in court could cost millions, and these are non-refundable funds regardless of the outcome, says Kostić-Mandić.
THERE IS NO CLAUSE ON “DENIAL OF BENEFITS” TO INVESTORS WHO VIOLATE THE LAW
"None of the agreements she has signed so far have a Denial of Benefits Clause," she said in an interview with CIN-CG. Časlav Pejović, professor at the Faculty of Law, Kyushu University (Japan) and expert in foreign investment law.
A denial of benefits clause is a provision in agreements, particularly those concerning investment, that allows a state to deny investors from third countries the protection or benefits otherwise provided for by that agreement if the investor does not meet requirements related to nationality or a genuine connection with the country party to the agreement.
Pejović cites the example of the Netherlands, one of the countries with the most signed bilateral agreements.
"Many companies establish branches in the Netherlands just to take advantage of the benefits of the agreement. So that they can sue someone. There was an example of an American company that dealt with water infrastructure. Since the US and Bolivia do not have this agreement, and the Netherlands and Bolivia do, the Americans opened a company in the Netherlands and sued Bolivia. There are many such examples."
Bilateral agreements are actually a type of violent policy, explains Pejović.
“Today, power relations are established with this kind of 'force in gloves', instead of guns and weapons,” he says.
There are cases of enormous compensation claims by companies, and usually poor countries suffer, explains Pejović. For example, Ecuador, one of the poorest countries, had to pay over a billion dollars to an American company because of an agreement that did not take into account state interests.
Pejović claims that he cannot understand why several agreements signed or proposed by the Government of Montenegro during 2025 violate the constitutional principle of competitiveness.
"This is completely contrary to the Constitution," says Pejović.
The Government claims that the Agreement is fully aligned with the Constitution of Montenegro and the obligations arising from the Stabilization and Association Agreement (SAA) with the European Union.
On the other hand, the EU Delegation warned that "in accordance with EU and Montenegrin legislation on public procurement, as well as in accordance with the Reform Agenda, Montenegro remains obliged to fully apply the principles of equal treatment, non-discrimination and transparency when implementing all contracts and agreements concluded within the framework of the cooperation agreement with the UAE".
Pejović explains that "there is no guarantee that our country will benefit from signing the agreement."
"Countries that do not have agreements can be very successful in attracting foreign investors. An example is Brazil, which is the fifth country in the world in terms of foreign investment, and they only have a few valid agreements. We have 27 agreements, but we have no investments," says Pejović.
MORE PROCEDURES IN THE PAST
Montenegro has so far signed 27 BiTs, according to the United Nations UNCTAD website, where precise statistics on BiTs for each country can be found.
Of the signed treaties, 24 are in force. The treaty signed in 2010 with the BLEU, the Belgo-Luxembourg Economic Union, never entered into force, the agreement Yugoslavia signed with Poland in 1979 was terminated, and the agreement the former state signed with France in 1974 is no longer active.
The state of Montenegro has so far faced several lawsuits from foreign investors.
In 2012, the Dutch company MNSS and RCA sued Montenegro based on Yugoslavia's BIT with the Netherlands. Due to a violation of rights related to the management of the Nikšić Ironworks, the company sought damages of over 100 million euros. The International Center for the Settlement of International Disputes in Paris established the state's liability, but did not award damages to the company.
A lawsuit filed by “CEAC Holdings Limited” from Cyprus in 2014 was also dismissed due to lack of jurisdiction. The Russian billionaire’s company CEAC Oleg Deripaska, the former Government partner in KAP and Bauxite, initiated arbitration proceedings regarding the alleged breach of the Settlement Agreement for the Aluminum Plant signed in 2009. The claim for damages was worth 100 million euros.
“Medusa” from Great Britain sued Montenegro in 2015, the lawsuit was rejected. Dispute over exploration rights in the oil and gas field in the Prevlaka area; the investor claimed that state measures violated their rights.
The arbitration rejection of the claim followed the following year, in 2016, in the famous case of Oleg Deripaska vs. Montenegro. The investor claimed that his investment (bauxite, aluminum) had been expropriated and devalued through various state interventions, and therefore sought hundreds of millions in damages.
Adiko Bank sued Montenegro in 2017 based on a BIT signed with Austria. The lawsuit was filed over a ban on the conversion of Swiss franc-denominated mortgages, following a law change in 2015. The lawsuit was dismissed by the arbitration panel, which noted that the state can in some cases make regulatory changes that affect investors, if the changes are legitimate and lawful.
Two lawsuits against the state of Montenegro are still pending. The first lawsuit is Duško Knežević and his company Atlas from 2020. They claim that the state has endangered their business, the compensation claim is 500 million.
This year, the Swiss company Tara Resources launched international arbitration against Montenegro after the government last year terminated the concession contract for the exploitation of ore at the Brskovo mine near Mojkovac. The announced claim for damages is 300 million euros.
Independent Montenegro signed its first bilateral agreement with Finland in 2008, followed by Denmark, Qatar and Serbia (2009), Malta and Macedonia in 2010, Azerbaijan (2011), Turkey and the UAE (2012), and Moldova (2014). Several agreements signed by Montenegro while it was part of the former states are also in force.
RED FLAGS
In public procurement practice, there are numerous indicators that can indicate possible irregularities, known as "red flags", explains Professor Đurović. Among the most common are situations where only one bidder appears in a competitive procedure, which may indicate limited competition or bid rigging. Unusually short deadlines for submitting bids often suggest that the procurement has been “tailored” to a particular bidder in advance, while exceptionally high prices compared to market standards may be a sign of collusion or a lack of competition.
Also, frequent changes to contracts after their award, especially those that increase the value of the contract or change the scope of the work, are a serious signal for scrutiny. Disproportionately strict or inappropriate qualification requirements also raise suspicion, favoring certain companies, as well as the frequent repetition of the same contract winners in procedures conducted by the same institution. Recognizing these “red flags” is crucial for strengthening transparency, preventing corruption, and protecting the public interest in spending budget funds.
The European Union also uses the so-called “red flag system”, at multiple levels, from the European Commission and bodies such as OLAF (the European Anti-Fraud Office), through the European Court of Auditors, to national agencies and public procurement bodies in the Member States. This system, which can be fully automated, is based on data analysis, algorithms for identifying irregularities and modern e-procurement that allow for real-time monitoring and analysis of procedures. The aim is clear: to prevent misuse of public funds, increase transparency and competition, and strengthen accountability and trust in the public procurement system.
North Macedonia is one of the first countries in the Western Balkans to develop and implement such an automated red flag system in public procurement. The system was developed with the support of the civil society and international actors, such as the SIGMA initiative, the Open Contracting Partnership and the European Bank for Reconstruction and Development (EBRD). It is based on the analysis of open data from the national e-procurement platform, which allows for earlier detection of irregularities and greater control over the spending of public funds.
The EU has officially, in a written negotiating position, called on Montenegro to ensure the timely adoption of the planned activities, as well as their efficient and consistent implementation, and will closely monitor the implementation of the commitments undertaken.
"Montenegro's agreement with the UAE excludes the application of the legal framework in the field of public procurement, thus avoiding the legally prescribed obligation to call for tenders for multi-billion euro worth of contracts. This derogates from the principle of equal access to the market, which opens serious scope for abuse and non-transparent management of public funds," an economic analyst told CIN-CG. Miloš Vuković.
He provides a comparison - for procurement of goods and services worth 8.000 to 25.000 euros, or works worth 40.000 euros, the law prescribes public announcement of the call through the electronic procurement system and a deadline for submitting bids of at least three days.
"In the case of a project worth several billion euros, complete exclusion from this system is envisaged, which is unacceptable from the perspective of good governance and European standards," Vuković emphasizes.
COLONIAL DOCTRINE
Professor Pejović states that the first interstate agreement relating to investments was signed between Pakistan and West Germany in 1959. It was followed by the adoption of the 1964 Convention on International Investment Arbitration.
By the 90s, the number of agreements at the global level was below 500. Everything changed with the fall of the Berlin Wall.
"Until then, socialist countries were restrictive, they viewed foreign investment as a necessary evil. This was the case both here and in the Eastern Bloc, where foreigners could not have more than 49 percent, the portfolio had to be state-owned. After the fall of the Berlin Wall, it became clear that capitalism was dominant and those brakes were released and neoliberal capitalism erupted," explains Pejović.
The World Bank and the IMF promoted the idea that bilateral agreements were the ticket to a prosperous country.
"Just sign bilateral agreements and that will attract foreign investors. There are two theories about foreign investment. The first is the positive one, which is supported by the World Bank, the IMF and the White House, which was the so-called Washington Consensus. The World Bank still promotes that foreign investment is positive, that countries will succeed and flourish. On the other hand, we have the theory that foreign investment brings political uncertainty, that developed countries invest outdated technologies in poorer countries, that they do not take into account ecology and human rights. There is also a middle theory, promoted by the United Nations, which seeks some balance between these two extremes," says Pejović.
He explains that under the influence of these intoxicating stories of prosperity, many countries signed bilateral agreements with developed countries. These agreements were very often in favor of investors. What many countries did not immediately understand was the risk that the agreements entailed.
"Sometimes, by signing an agreement, a state gives up its sovereignty. That means it can be sued, not only by the state, but also by investors. That's the umbrella clause, even though it's an agreement between two states, if a state agrees to voluntarily give up its sovereignty, that means investors can sue you," Pejović says.
Around 2008, there were almost three thousand bilateral agreements in the world, up from 400 in the early 90s. Then that trend began to decline, and many countries abandoned such regulations.
"What happened starting in 2005 is that countries like the US changed the content of these agreements because they felt that with the entry of investors from China and India, they themselves could be sued," says Pejović.
Thus, the Americans, according to Pejović, began to introduce the "regulatory power" clause, which gives the state the right to pass regulations in certain areas and to be able to protect itself and ensure that agreements do not carry consequences.
"This clause usually refers to the protection of the environment, health, and safety and is listed exhaustively in agreements with foreign countries. The bottom line is that if a regulation is passed that is detrimental to foreign investors, the state is not responsible. The Americans started introducing this 20 years ago," explains Pejović, adding that the EU also has protection mechanisms and a plan to introduce a special court for foreign investments.
The experiences of others do not apply to us.
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