Brussels monitors aid to Montenegro Airlines

The European Union has called on Montenegro to report every six months on the progress of the recovery of illegal state aid granted to Montenegro Airlines, as well as on the assessment of possible economic continuity with the new national airline ToMontenegro.

This is stated in the common position on Chapter 8 (Competition), which was provisionally closed on Tuesday at the Intergovernmental Conference in Brussels. Chapter 29 (Customs Union) was also closed on the same day, bringing the total number of closed chapters to 18, out of a total of 33. The Government's goal is to close all chapters by the end of this year, so that Montenegro can become an EU member in 2028...

The EU notes that Montenegro has demonstrated gradually improved and, overall, satisfactory implementation practice in this area and calls on the country to continue its efforts and further improve and achieve results.

As regards specific State aid investigations into potentially incompatible aid granted in the aviation sector, in particular to Montenegro Airlines, the EU notes that Montenegro, between 2019 and 2024, conducted four formal ex officio investigations into potential State aid granted since 2012 (including the 2019 Law on Investment in the Consolidation and Development of Montenegro Airlines) and issued three recovery decisions for incompatible State aid, including recovery issues in the context of bankruptcy.

“The EU also welcomes the fact that the Agency for the Protection of Competition (AZZK) has taken the initiative for additional activities beyond the initial request in the final benchmark, for example to investigate the issue of economic (dis)continuity between Montenegro Airlines (MA) and the new national carrier ToMontenegro, as well as possible state aid granted to the latter,” it states.

The EU considers that the AZZK, through the aforementioned ex officio investigations, has initiated the necessary investigations and procedural steps required for this benchmark.

While understanding that bankruptcy proceedings before the Commercial Court can be lengthy, the EU calls on Montenegro to report every six months on any developments that may lead to the actual recovery of the incompatible State aid in this case, as well as a comprehensive assessment of the economic (dis)continuity between Montenegro Airlines and the new national carrier ToMontenegro, including possible State aid granted to the latter.

The former state-owned airline in bankruptcy must return 65,2 million euros to the state in the form of illegal state aid that it received on various grounds from 2013 to 2020, as well as interest of 5,4 million euros, the Commercial Court ruled on June 9. The Commercial Court did not accept part of the state's claim relating to the claim for illegally granted state aid of 28,1 million euros and interest on that amount of 8,3 million euros. The part of the claim for illegal state aid, which was rejected, relates to payments from the Government and several ministries for which the purpose of the payment to the company was not stated and for which the Competition Protection Agency did not request that they be returned to the state.

MA went bankrupt in April 2021, and the previous bankruptcy claims were worth more than the assets the company had, so the question is whether and how much the state will be able to collect.

On 3 September 2020, the Council of the Competition Agency issued a decision ordering the immediate suspension of any further state aid to the national airline until a final decision on its compliance with the rules was made. This came four days after the then DPS government, which had been providing illegal aid to the company, lost the elections.

On December 24, 20 days after being elected, the new government announced that there was no longer a legal basis or possibility of making legal decisions to help MA. The day after that, the company's management, elected by the former government, decided to suspend all flights because they could not function without state aid. In February 2021, the government founded a new airline, ToMontenegro, with 30 million euros, which began regular flights on June 10 of that year.

In January 2023, AZK initiated proceedings to determine whether the 30 million euros that the government gave to the national airline ToMontenegro as founding capital constituted illegal state aid.

KAP FINISHED STORY

When it comes to the case from the aluminum sector, specifically the company Kombinat aluminijuma Podgorica (KAP), the EU notes that its assets were taken over in 2014 by the company Politropus Alternative Tivat and Uniprom Nikšić.

In its decision of 11 March 2016, the State Aid Control Commission concluded that there was no economic continuity between KAP and the new owners of its assets.

“Uniprom continued to operate the aluminum smelter on a reduced scale, but effectively ceased operations in December 2021. The EU notes the outcome of the Commission's special assessment of State Aid Control, according to which Uniprom was not a beneficiary of incompatible state aid,” the Common Position states.

The state directly assisted the factory for decades through electricity subsidies, loan repayments, and activated state guarantees totaling more than 100 million euros, while the factory was managed by Russian businessman Oleg Deripaska.

KAP was declared bankrupt in 2013 due to a debt of 386 million euros. After that, the factory's assets were purchased by Uniprom, which claims that since taking over the assets in July 2014, it has never been a beneficiary of state aid.

The red mud basins were separated from KAP's assets during the bankruptcy proceedings and were sold in March 2015 to the company Politropus Alternative. In 2016, the basins were transferred to the company Weg Kolektor, which assumed the obligation to maintain them.

MONTENEGRO TO CONTINUE TO PROPERLY RECORD STATE AID

When it comes to the case in the field of transport infrastructure, in particular the Bar - Boljare motorway, the EU recalls the conclusions of the Agency for Road Transport and Highways that there was no incompatible state aid in financing the construction of the Smokovac - Mateševo ​​and Mateševo ​​- Andrijevica sections, as well as the commercial use of the first section, in particular in relation to the state-owned company Monteput.

The EU welcomed the practice of the Agency for the Protection of Human Rights and Fundamental Freedoms in identifying and investigating cases of potentially non-compliant aid and monitoring its recovery.

"The EU calls on Montenegro to continue to properly record both harmonised and non-harmonised state aid in special state aid registers and annual state aid reports," the Common Position states.

For all other aid, Montenegro should, before accession, draw up a list of all existing state aid measures (subsidies, incentives, etc.) that it wishes to maintain after EU accession. This list is assessed by the Competition Agency and then submitted to the European Commission for review.

Anything that does not pass through this mechanism will be treated, after accession, as "new aid" that must be re-reported to the Commission and approved in order to be legal - which means that, in practice, Montenegro will have to "clean up" its subsidy system in advance before the day of entry into the EU.

The EU informs Montenegro that aid measures which entered into force more than ten years before the date of accession will always be considered as existing aid.

THE CHAPTER DOES NOT REQUIRE FURTHER NEGOTIATIONS

The EU notes that, at this stage, this chapter does not require further negotiations, but indicates that it will return to this chapter at the appropriate time, if necessary.

Monitoring of Montenegro's commitments and progress in aligning with the acquis and its implementation will continue until Montenegro's accession, the EU states, and emphasizes that it will pay particular attention to monitoring all of the above issues, in order to ensure Montenegro's full alignment with the acquis in this chapter, as well as the administrative capacity for its effective implementation.

"Particular attention should be paid to the links between this chapter and other negotiation chapters. A final assessment of the alignment of Montenegrin legislation with the acquis, its implementation, as well as the fulfilment of other final benchmarks, can only be given at a later stage of the negotiations," the Common Position states.

As it is added, in addition to all information that the EU may request for the purpose of negotiations in this chapter, the EU calls on Montenegro to regularly provide detailed written information to the Stabilization and Association Council on progress in implementing the acquis and strengthening administrative capacity.

It is necessary to increase the number of customs officers and digitalize the system

The European Union has assessed that Chapter 29 - Customs Union does not currently require further negotiations with Montenegro, but has set clear conditions for Podgorica until the date of accession: an annual increase in the number of customs officers by at least 40, complete digitalization of customs systems connected to the EU environment, and reporting to the European Commission every six months on progress in the introduction of these digital systems.

As stated in the Common Position for this chapter, the EU considers it necessary to include in the Accession Treaty with Montenegro, inter alia, a provision ensuring the continued validity, after accession, of proofs of origin issued before accession under preferential agreements concluded by Montenegro with third countries.

"This measure is necessary to preserve legal certainty and the trust of economic operators," the EU believes.

It is necessary, he adds, to include provisions relating to customs warehousing, inward processing and temporary importation, which are necessary to specify the conditions under which these procedures are terminated, as well as provisions relating to the release, collection and refund of customs duties.

“The EU expects Montenegro to align its rules on the exemption of beer in passengers' personal luggage with EU rules by the date of accession,” the Common Position states. (The EU has unique rules - prescribed quantitative limits for goods that passengers can bring across the border without paying customs duties - this includes alcoholic beverages, including beer).

The EU emphasizes that national exemptions that are not allowed in the EU must cease to apply no later than the date of Montenegro's accession to the European Union.

"When it comes to cash control by customs, the Montenegrin legal framework regulating the control of cross-border cash movements still needs to be aligned with the EU acquis," it is emphasized.