Mbo 46 novembar 2013

November 2013 / â„– 46

WELCOME to the forty-sixth edition of Montenegro Business Outlook.

MBO is quarterly publication of pertinent economic indicators presenting a comprehensive view of Montenegro’s business environment.

This publication is intended to serve international business people seeking investment opportunity in Montenegro.

We welcome your comments.

Business environment in Montenegro: The budget income continues to rise in the second quarter of 2013. The debates on budget rebalance continued. The Labor Law is discussed among social partners.

Macroeconomic outlook: During the third quarter of 2013, economic activities increased: industrial production increased 7.8% and 8.7% in June and July 2013 in comparison with last years average; the number of tourists in July increased by 1.2 in comparison with July 2012. Inflation measured in July, remained low (-0,6- monthly; 2.2-annualy) and was the lowest in the region. On the labor market, some changes were recorded. Salaries without taxes and contributions recorded a rise in August (€475) compared to July (€ 469), but it was below the average value recorded in the previous quarter. The unemployment rate recorded at the end of September was at a level of 13.3%.

Banking sector: Total assets and liabilities of banks at the end of September 2013 were increased by 0,6 % while total banks’ deposits increased by 1.3 % and households’ deposits were increased by 0.4% in comparison to the previous month. Every financial transaction in the banking sector for the end of September recorded an increase which is a result of well planed actions, debt recovery and earning profit.

Privatization and Investment: The construction of a luxury resort on Luštica Peninsula has officially started and this large-scale project is estimated at €1 billion. However, in terms of privatization, the Government has cancelled a few previously concluded contracts, such as: the Contract for the Marina Bar and recently concluded Contract for the New Tobacco Plant. The cancelled contracts are to be re-invited soon. In addition, few international companies have shown interest in the Aluminum Plant Podgorica (KAP), a struggling giant that is about to announce bankruptcy.

In order to properly present its mission, CEED has recently changed the name into Institute for Entrepreneurship and Economic Development (IEED) which means setting more structural focus on development issues in order to support policy making process in Montenegro.

Kralja Nikole 27a/4, BC “Čelebić“, Podgorica, Montenegro Tel/Fax: +382 (0) 20 633-855 +382 (0) 20 620-611 E-mail: iper@t-com.me web site: www.iper.org.me

Capital Markets: From January to September 2013, the Montenegrin capital market was characterized by a decline in the volume of trade and decline in the number of transactions as well, when compared with the same period of 2012. In the first 9 months of 2013, the greatest turnover was recorded in the area of company shares (80.4%), followed by investment funds and bonds.

In the spotlight: Golf in Montenegro We introduce: Doing business in a changing climate- building a case for adaptation (3) EU Corner: Main activities in the area of Montenegrin accession to EU is the adoption of action plans for negotiation Chapters 23 (Judiciary and Fundamental Rights) and Chapter 24 (Justice, Freedom and Security) and Progress Report on Montenegro 2013 by the European Commission. According to the Progress Report 2013, Montenegro had made some further progress towards a functioning market economy, improved the ability to take on the obligations of EU membership, and continued to sufficiently meet the political criteria.

Interview: Mr. Michael Poch, General Manager of Regent Porto Montenegro Green economy: ETS revisited: Lessons from the ICAP Training on Emissions Trading Systems for Emerging Economies and Developing Countries Montenegro in Circular Economy: Looking at the Glimpses of the New National Sustainable Development Strategy

Business Environment

Business Environment in Montenegro

by Darko Konjević

The third quarter of 2013 in the Montenegrin economy was characterized by an increase of income and the positive trends in fiscal areas continued. The debate on the Labor law continued and the new public call for practice for those that finished University was announced.

Also the law on preventing illegal business was adopted by Parliament.

According to the data from Monstat in the first quarter of 2013 economic activity in Montenegro recorded a growth of 1.1%, while the real growth for the second quarter was at a level of 3.4%. According to the data from the Ministry of finance the fiscal policy in 2013 was characterized by an increase of income collection and revenues.

The revenues are higher than planned and are recording growth compared to the two previous years. The budget expenditures are a bit higher then planned due to the costs of guarantees paid for the Aluminum plant and increase costs of court enforcements. In order to achieve this the Government of Montenegro in the previous period undertook certain measures for fiscal consolidation and adjustment. Those measures include: introduction of the Tax for SIM cards, smoking zones, electric counters and cable TV, introduction of the crisis tax for salaries above the national average, introduction of the higher VAT rate (17% to 19%), introduction of the higher excise rates for tobacco products and the fight against the grey economy etc. In the first eight months of 2013 budget income increased by 3.2% of planned or compared to the same period of last year budget income is higher by 6.9%. The debate about the possible rebalance of the budget continues while the pressure decreased due to the fact that the budget income is higher than expected. If the budget income continues to grow with further decrease of budget expenditures there are odds that the budget rebalance wont be necessary.

The level of the public debt at the end of July 2013 was at a level of €1.8 billion or 51.5% of GDP. Debt structure is as follows: internal debt at a level of €442 million while external debt at a level of around €1.4 billion. The forecast is that the budget deficit for 2013 will be around 5.3% of GDP. In order to further strengthen fiscal responsibility the Government proposed and Parliament adopted the Law on prevention of illegal business. As it was discussed in one of the previous editions the laws defines the following: • Defines the obligation to legal subjects to open an account with a bank and to make all of the transfers via the bank as well as to pay salaries through bank accounts.

• Defines the level of cash maximum within the company, • Defines the prohibition of opening the new company and doing new work for the owner of the company or entrepreneur which is under bankruptcy or in the liquidation process, or it has tax debts and blocked accounts, • Defines the obligation for providing certain documents of proof when publishing ads in the newspapers, • Defines the obligation for organizers of cultural, sports and other events to report income of non residents and pay appropriate tax; • Defines the obligation for the companies that are collecting products, semi products and other from non registered persons to report each payment to such a person larger then 100€; • Defines the obligation for those employers that are hiring foreign workers to sign a work contract and to register them to the obligatory insurance service.

The debate on the Labor law continued in this quarter. With the changes of

the Labor law from 2011, the Law prescribes that work contracts are signed for a non fixed period changing the practice that the contracts are signed for fixed term and can be prolonged.

The law from 2011 provided the possibility to sign fixed term contracts but the period is to be no more than 2 years. Like always the attitudes of the employers and employees are different. Employers are seeing this law as a constraint and a business barrier.

In the situation of economic crisis, the flexibility of hiring and firing should be a possibility given in any law. The employers are insisting on the fact that in order to have successful business the labor market should be flexible with the opportunity to choose the best candidate for the work. Also the possibility should be provided that in the case that business is not doing well they have the opportunity to fire the worker. The debate will continue until the end of the year with expectations by employers to provide a more flexible solution in the amendments of the Law. In order to provide practice for those that finished Faculty the Government continued the practice of engaging the new Program of practice for graduate students. The employers will have a chance to add vacancies and hire graduate students for the nine-month practice starting from January 2014, while the Government is taking the costs of engaging those practitioners by providing the monthly fee. ■ Number of registered companies in Montenegro as of 1st October 2013 Source: Commercial Court

Joint stock company

338

Limited liability company

28,703

Part of a foreign company

453

General partnership

59

NGO

295

Limited partnership

415

Entrepreneur

17,214

Institution

1,164

Other

114

Total

48,755

Tax rates Value added tax

19, 7% and 0%

Corporate profit tax

9%

Personal income tax

9% (15% over 479€)

1

Banking Sector

BANKING SECTOR

Total Bank Assets and Liabilities

of 1,3 % in comparison to the previous months while in comparison to December 2012, it is an increase of 9.7%.

Total assets and liabilities of banks at the end of September 2013 were € 3,068.6 million recording an increase of 0.6 % than in the previous month or 9.3% higher in relation to December 2012.

In total deposits’ maturity structure, time deposits accounted for 57.4%, while demand deposits accounted for 42.7% of total deposits. The remaining 0.1% referred to funds at escrow account. In the structure of time deposits, the highest share was recorded by deposits with maturity from three months to one year (46.9%) and deposits with maturity from one to three years (31.9%).

When it comes to the structure of banks assets for the end of September 2013, gross loans and other receivables accounted for the main share (82.7%), followed by cash and deposits with central banks (11.5%) while the rest 5.8 % was related to other asset items. As for the structure of banks liabilities, deposits were accounted for the main share (70.8%) followed by capital (13.9%), while borrowings made up 11.2% and other banks’ liabilities items 4.1%.

Graph 1: The structure of total banks’ assets and banks’ liabilities, in %

Source: Bulletin of Central Bank of Montenegro, July 2013, August 2013, September 2013 and October 2013.

The total bank capital amounted to € 426.5 million at end-September 2013 recording monthly growth of 0.3%, and growth of 47.7% % in relation to December 2012.1 Deposits Total banks’ deposits amounted to € 2, 172.9 million at for the month of September 2013 which is an increase 1 The reason for significant increase lies in the introduction of account provision for estimated losses under regulatory requirement which records provisions for written off loans from the off-balance and cancelled provisions for on-balance sheet items

2

Household deposits Households’ deposits amounted to € 1,222.9 million at end- September 2012, being 0.4% higher in comparison to the previous month, while in relation to December 2012, households’ deposits increased by 6.6 %.

In the maturity structure of households’ deposits, time deposits made up 68.7%, demand deposits 31.2%, while insignificant portion referred to escrow account funds.

Loans

Total banks’ loans and other receivables amounted to € 2,536.2 million at end-September 2013 which represent a monthly decrease of 0.1% and increase of 8.3% in relation to December 2012.

Interest Rates From June to September 2013, the weighted average lending nominal interest rate decreased from 9.43 to 9.31. The weighted average deposit effective interest rate (deposit interest rates) decreased from 2.99 to 2.73 in the same period.

Graph 2: Interest rates, period-end, in % 10

9,43

9,38

9,33

2,99

2,93

2,83

June

July

0 August

Source: Bulletin of the Central Bank of Montenegro, July 2013, August 2013, September 2013 and October 2013.

Macroeconomic Outlook

Macroeconomic Outlook REAL SECTOR

According to latest available data issued

by Monstat, the GDP in the second quarter totalled € 784.1 million, thus showing a real growth rate of 3.4%.

Comparing to the region, the Montenegrin GDP growth rate was among the highest (below the Macedonian one: 3.9%; above the Croatian one: -0,7).

Basic sectors

Industrial production: recorded a rise of 9.5% during the period January-August 2013 in comparison to the same period last year. Major decreases of industrial output were recorded in the electricity, gas, stream and air conditioning supply (63.8%), while in the manufacturing sector a decrease in output levels (17.4%) was recorded, mostly due the decreasing of the output of basic materials and wearing apparel.

Tourism: during July 2013, 348 190 tourists visited Montenegro, of which 90% were foreigners. During this period, 2 289 333 nights were recorded (of which 91.2% were foreigners).

Budva was dominantly the most visited city (47.5% recorded nights). In the structure of visitors, Russian and Serbian were the most numerous.

Construction: last available data referring to this sector shows that during the second quarter of 2013, the total value of finished construction works was €60.0 million, while anticipated new building work projects are expected to total €28.7 million, 242.9% above last years average.

Inflation

CPI index recorded a monthly decline of 0.6% in June 2013 and it was (along with Albanian) the lowest in the region.. The highest price declines were recorded in the clothes and footwear (-1.8%) and housing, water, electricity, gas and other fuels (-1.3%). The annual value of CPI index in the observed period was at a level of 2.2, or slightly above the EU 27 level (1.7).

The total value of minimal consumer basket for August 2013 amounted to

€800.4 (compared with the previous months decrease of 0.2%), of which €253.8 related to food and non-alcoholic beverages, €351.6 to non-food products and services and €195.0 to the value of imputed rent.

In June 2013, consolidated budget expenditures (total revenues less debt repayments) amounted to €100.5 million (2.9% of GDP), and being 3.3% lower than planned, which resulted in a Budget deficit of €1 million.

Current budget revenues structure (June 2013) 32,3

2

2,1

1

0,3

62,3

Employment and Wages

According to the data from the Employment Agency of Montenegro, at the end of September 2013, there were 30 853 unemployed, indicating an unemployment rate of 13.3%.

In August 2013, the gross average salary was €721; the average salary without taxes and contributions was €475. Higher salaries, without taxes and contributions, were recorded in finance and insurance (€825) and the information and communication sector (825€), while lowest salaries were recorded in the area of administrative and supporting activities (319€).

Average salary without taxes and contributions 500 495 490 485 480 480 475 470 465 460 455

490 483

485 480 478

476 477

480

481 475 469

The highest number of people were employed in retail and wholesale trade, repairs of motor vehicles and motorcycles (21.9%) and public administration and defense (11.5%).

PUBLIC FINANCE Budget

According to the estimation made by the Ministry of Finance, in June 2013, source revenues of the Budget of Montenegro and state funds amounted to €99.5 million (2.8% of the estimated GDP), thus being 1.5% lower than planned. In the structure of source revenues, tax revenues accounted for the main share of 32.3%, and their collection were 5.3% lower than planned.

Taxes

ContributionD

Other revenues

utiesF

ees

Loans repayment revenues

INTERNATIONAL ECONOMIC RELATIONS Foreign Direct Investments (FDI)

During January-June 2013, net FDI inflow amounted to €151 million, just 1.5% below the same period last year.

• FDI inflow: €195.7 million, mostly in the form of intercompany debt (€98.4 million) and sale of real estate (€87.5 million).

• FDI outflow: €44.7 million, mostly in the form of withdrawal of nonresidents’ investments in Montenegro (€37.2 million)

External trade

Total exports during the period January-February 2013 totalled €256 million, thus, while imports totalled €1184.5 million, thus showing an export-import ratio of 21.6%.

Montenegro is the most import dependent country with Serbia (28.6%), China and Greece (8.5% ), and most export dependent country with Serbia (37.9%), Croatia (14.5%) and Slovenia (10.6%). ■ BDP in current prices (in 000€); Q2 - 2013

1,200,000 1,000,000 800,000

1,046,336 765,836 618,448

1,024,038

803,440

748,388

596,337

780,093

784,084

635,145

600,000 400,000 200,000 0

BDP in current prices (in 0 00€); Q2 - 201 3

(Source: The Central Bank of Montenegro, Monstat, Ministry of finance of Montenegro, Employment Agency of Montenegro)

3

Privatization and Investments

Privatization and Investments Luštica Peninsula Luxury Resort Starts Construction Luštica Bay, a large-scale development project on the Montenegrin coast, will be built on a 6.8 million square metre area on Luštica Peninsula. The total value of the project, being implemented by the Montenegrin company Luštica Development AD, is estimated at EUR 1 billion. The company has already invested more than EUR 30 million in the project. Luštica Bay envisages construction of 7 hotels, over 500 residential villas and townhouses, over 1,000 apartments, 2 marinas with mooring and docking support facilities, a Gary Player-designed signature 18-hole golf course, spas and wellness centres, conference centre and year-round amenities including shops, an international school and medical facilities. The Luštica Bay Project is a joint initiative between Orascom Development Holding (90%) and the Government of Montenegro (10%).

Montenegro’s Prime Minister Milo Đukanović attended the ceremony marking the start of construction of the first marina within Luštica Bay, a sustainably oriented holiday resort in the municipality of Tivat, Montenegro. “Projects such as Luštica Bay are essentially important for us. They contribute to the improvement of our tourism facilities, while also paving the way for a new model of development of our country. Therefore, they are the best revocation of our commitment to developing principles of sustainable development, with full respect for the environment. And finally, these are God-given projects for mobilising domestic entrepreneurship, local small and medium businesses.

4

Germany’s WPD Group Wants to Invest €200 million in Wind Parks in Montenegro

Germany’s wpd group is set to hold talks with Montenegrin Prime Minister Milo Djukanović about its plans to invest over €200 million in wind parks in the country. The company plans to build wind parks at two locations in Montenegro, in Budva and Ulcinj, WPD project manager Andreas Chollet stated.

WPD (www.wpd.de) also operates three wind farms in Croatia. The third one, located in Ponikve, was opened in October 2012. WPD is a developer and operator of wind farms with operations in 20 countries, including also Bulgaria and Romania.

Montenegro’s KAP to be declared bankrupt shortly Montenegrin aluminum smelter KAP [MNG: KAPG] is expected to be soon declared bankrupt and its assets put up for sale. Within 20 days

after the evaluation of KAP’s assets is completed, which is expected to happen in the next few days, a tender for their sale is to be called, stated the President of the commercial court Dragan Rakocevic.

KAP creditors claim a total of € 460 million). Bankruptcy proceedings against KAP were launched in July 2013. KAP’s net loss widened to €16.2 million in the first quarter of 2013 from €6.9 million a year earlier. Russia’s En+ Group and the Montenegrin government each own 29.3% of KAP. The aluminum smelter employs more than 1,000 people.

Croatia’s TLM-TVP and India’s Vedanta Resources Eye Montenegro’s KAP

Croatian rolled products maker TLM-TVP and Indian diversified metals and mining company Vedanta Resources are both interested in Montenegro’s embattled aluminum smelter KAP [MNG:KAPG].

Officials from the two companies visited KAP and will continue their inspection so that they can come up with final offers the head of KAP’s management Nebojsa Dozic stated.

Privatization and Investments Vedanta Resources already owns through its off-shore units around 15% of KAP and expressed interest back in 2011 in taking control of the Montenegrin firm from Russia’s En+ Group, but later backed off due to the high asking price, KAP’s debts and unresolved issues with the plant’s electricity supply. Vedanta Resources is the largest mining and nonferrous metals company in India and also has mining operations in Australia and Zambia.

In June, En+ Group said that the Montenegrin finance ministry initiated bankruptcy proceedings against KAP due to unpaid debts that the smelter owes to the ministry. KAP, in which En+ Group and the Montenegrin government each own 29.3% shares, has an annual capacity of 120,000 tones and employs more than 1,000.

Germany’s HGL plans to bid for Montenegrin aluminum smelter KAP Germany’s HGL Group plans to file a bid for the acquisition of bankrupt Montenegrin aluminum smelter KAP [MNG:KAPG]. The official offer will be handed in as soon as KAP’s courtappointed administrator announces a public call for the sale of the smelter, the media reported, quoting unnamed sources familiar with the matter.

HGL, which has been in talks with the Montenegrin government for a year now, has initially offered to take over KAP with 580 workers and to invest €700 million euro over a period of five years.

Tenders Closed/cancelled tenders Montenegro’s Durmitor Hotel Put Up for a Sale

The Montenegrin Government invited another tender for the sale of the Durmitor hotel, setting the starting price at 3.2 million euro.

This is the seventh attempt to sell the hotel. The 2.370-square meter hotel in Zabljak, with an adjacent land plot of 36.750 square meters and 13 bungalows, has so far failed to attract buyers. The deadline for submission of bids was October 25, 2013. The starting price in the first tender had been set at 6.55 million euro.

Montenegro seeks to cancel Marina Bar privatization contract

The Council for Privatization and Capital Projects has decided to terminate the privatization contract with Latvijas Krajbanka and SIA Multikapitals, the consortium which acquired 54.4% of shares for €2.2 million and was awarded the

concession to operate Marina Bar for a period of 30 years in 2009. The proposition made by the Ministry of Transport and Maritime Affairs, which was sent to the came following the failure to meet the provisions set out in the privatization contracts and failure of the Latvian companies to invest €11.5 million in the marina operator.

Cancellation of the Privatization of New Tobacco Plant The Government’s Council for Privatization and Capital Projects annu lle d t he tender for t he privatization of the New Tobacco Company Podgorica (NDKP) and order the Tender Commission to invite a new one. The Secretary of the Council Mr. Aleksandar Tičić stated that this was decided because the consortium comprised of Primat, Partner Company and Jazz Express failed to pay €7.1 million for the shares.

Open tenders Montenegro’s EPCG Extends Deadline for Final Bids in TPP Pljevlja Unit Tender Montenegrin state-owned power utility Elektroprivreda Crne Gore (EPCG) has extended the deadline for filing final bids for the construction of a second unit at Pljevlja thermal power plant (TPP) by October 31, 2013. The deadline, which was initially set to close on September 30, was extended at the request of several potential investors. The capacity of the new unit is planned at 220-300 megawatts (MW). Preliminary bids have been filed by Czech Republic’s Skoda Praha; a consortium comprising Poland’s POL-MOT, Alstom and Foster Wheeler; a consortium of Slovak companies Istroenergo Group IEG Slovakia and SES Tlmace; China Machinery Engineering Corporation (CMEC); China Gezouba Group International Engineering Company (CGGC) and Powerchina Hubei El. ■

5

Capital Marktets

CAPITAL MARKETS Trade on the Stock Exchange

Stock Exchange Indices

During 9 months of 2013, the turnover on the Montenegrin stock exchange amounted to € 21.13 million, thus showing a decline of 12.9% in comparison with the same period in 2012. The average monthly turnover during 2013 was € 2.35 million, which represents a lower share in comparison with the average monthly turnover in 2012 (€ 2.7 million). The decline in the turnover of the stock exchange during 9 months of 2013 was followed by a decline in executed transactions.

During the first 9 months of 2013, a total number of 4.840 transactions were completed. This was 8.05% less than during the same period in 2012 (5.264 transactions).

The Montenegrin stock exchange uses the two indices, MONEX20 and MONEXPIF.

During the 9 months of 2013, three types of securities were traded: company shares, privatizationinvestment fund shares and bonds which included Government bonds and Ministry of Finance bonds. The greatest turnover was recorded in the area of company shares (80.4%), followed by privatization-investment fund shares (13,3%) and bonds (7,4%). The shares of companies (17.14%) and investment funds (1.55%) recorded an increase, while bonds recorded a decrease in comparison with the same period in 2012 (80.8% respectively).

Looking at shares on an individual company basis, the highest monthly trade volume was recorded in September, during the 9 month of 2013; Montenegrin Electric Tr ans m i ss i on Sy ste m sh are s reached a volume of 1.73 million on the A list.

6

The Montenegrin stock exchange uses the two indices, MONEX20 and MONEXPIF. The value of the Montenegrin Stock Exchange, MONEX20, upon which MSE’s 20 most liquid companies are traded, had started 2012 with a constant growth with permanent oscillations.

Afterwards, the index kept rising until the end of the year, reaching its highest annual value of 9.184 points on December 31st. Index growth continued in 2013, when it reached its peak of 10.247 points on 16th of January 2013, after which it begins to fall . The lowest value of 8.138 points was on October, 1st. Variations in index value have influenced all of the changes shown by shares represented in this index.

In particular, the following were most affected: Telekom Montenegro, Prva Banka, Montenegrin Electric Transmission System and 13 July Plantaze.

The value of MONEXPIF index has declined steadily with just a few oscillations since September of 2012.

From January 2013,the index also continued to decline and the lowest point in this year was recorded on 30 May with 2.145 points. After May, 30, when this index reached its lowest value, it started to grow and reached its highest value in 2013. On October, 1, it amounted to 3.952 points. The index value was influenced in such a way that a similar trend was evident in all of the privatization investment funds.

Privatization – Investment Funds on the Stock Exchanges The total volume of trade involving PIF shares during 9 months of 2013 amounted to € 2.810.935, which is 1.5% more in comparison with the same period in 2012. In total, 1.195 transactions were made during 9 months of 2013. The most actively traded shares during this period were Trend (32.059 million shares), while the least traded were those of HLT (just 1 share). ■ MONEX 20 10.500

10.000

9.500

9.000

8.500

8.000 oct.12

nov.12

dec.12

jan.13

feb.13

mar.13

apr.13

may 13

jan.13

feb.13

mar.13

apr.13

may 13

jun.13

jul.13

aug.13

sep.13

MONEXPIF 4.500 4.000 3.500 3.000 2.500 2.000 1.500 1.000 500 0 oct.12

nov.12

dec.12

jun.13

jul.13

aug.13

sep.13

TURNOVER STRUCTURE

13,3

Shares

6,3

PIFs units

80,4

Bonds

We introduce

Doing business in a changing climate building a case for adaptation (3) So far, this series of articles introduced you with a concept of climate change adaptation and demonstrated an example of a successful adaptation to the physical impacts of climate influences. Now, we explore pathways to adapt to changes in legislative framework and implications arising from it. When looking into new regulatory obligations, one of them comes in a form of the EU Emissions Trading System.

This is one of the main mechanisms that EU uses in combating climate change. Under this scheme, trading with carbon credits is made available, in order to meet carbon dioxide reduction targets. It is important to emphasis its sector approach, encompassing power and heat generation, energy intensive sectors of industry and from 2013 onwards, commercial aviation.

As an EU candidate country, Montenegro adopted this system, which is now gradually being enforced. However, the upcoming implementation is costly, and largely complicated. We hereby present the case of Montenegro Airlines, Montenegrin national aviation operator, subjected to EU ETS and a pioneer in its implementation.

Source: http://www.universalweather.com/blog/wpcontent/uploads/2012/01/EU-ETS-for-Aviation.jpg

As one of the companies responsible for complying with the EU ETS, Montenegro Airlines first needed to calculate its annual emissions (14300 t of CO2 equivalent in 2012). In accordance with the ETS norms, the company was assigned certain amount of emissions unit allowances (EUA) free of charge (13700 t of CO2 equivalent).

The difference must be met by purchasing carbon credits at the price determined at the market. To find out more about the implications this will have on the overall business plan, we talked with Mr Darko Abramovic from Montenegro Airlines (MA), who also told us about the efforts MA did in meeting its commitments. Due to the fact that the aviation scheme was partially put on hold until October 2013, the obligations of MA decreased from cc. 120, 000 EUR to only 1,500 for 2013. However, it is expected that these expenses amount up to the original 120,000 EUR in 2014, once the emissions for flights all throughout Europe get embedded into the scheme. This levy can have significant consequences for MA’s operations, resulting in transfer of these expenses to the end users, namely their passengers. As this is a doubtful solution, it is far more likely that MA will be supported by the Montenegrin government for a while. However, given the economic circumstances in the country, it is quite clear that this cannot be a long term solution, and above all, that it is not sustainable.

Therefore, we learned that one of the possible answers lies in technological advancement of MA’s fleet. Namely, by investing in new airplanes that emit less CO2, Montenegro airlines expenses towards ETS scheme will be less. This will surely involve a high amount of capital expenditures but is expected to pay off in a long run, not to mention additional merits in terms of safety, public image of the company etc. that should jointly contribute to generating higher incomes.

The key lies in acting early, in order to maximise your possible profits. In the times when we are witnessing success of the first solar powered plane, strategic planning, innovation and early adoption of new technologies are something that needs to be seriously accounted for.

To conclude this series of articles on climate change adaptation, we hope we managed to spur your interest into this topic. As demonstrated, there are multiple ways to tackle the issue of climate change and we hope this helped you identify some of the loopholes in your business that need to be treated in a different way. â–

7

In The Spotlight

ETS revisited:

by Dragana Mileusnić

Lessons from the ICAP Training on Emissions Trading Systems for Emerging Economies and Developing Countries

To follow up on the Doing business in a changing climate – building a case for adaptation (3), where implications of the EU ETS to the national airlines were presented, in this edition we have the pleasure to elaborate on the concept of the system itself by sharing the insights from the International Carbon Action Partnership (ICAP) training course on ETS. ICAP is comprised of public authorities and governments that have established, or are actively pursuing, carbon markets through mandatory cap and trade systems, such as the EU ETS. The partnership was formed in 2009 with the aim of providing a forum to exchange experiences and knowledge.

It has 30 members and 4 observers, including the European Commission, Australia, California, New York, Japan, Ukraine and Uzbekistan. As part of their outreach and capacity building activities they organize trainings and workshops, enabling a sharing environment for participants from countries that are considering, or are in an early stage of ETS development.

The most recent training program was held this September at the Istanbul Technical University in Turkey, consisting of a group of 27 participants from 9 countries including India, Russia, Egypt, Serbia, Albania and Montenegro. The course provided a comprehensive review of existing emissions trading systems; besides the

8

well-known EU ETS, the audience was able to hear about the trading systems of Australia, New Zealand, Regional Greenhouse Gas Initiative in the United States and Canada and more. However, the most interesting discussions often took place among the participants themselves, since the group was a blend of people working in public and private sectors, as well as in organisations of civil society.

Given the fact that Montenegro is acceding to the EU, the issues regarding the current state of the EU ETS and its potential structural reforms that are underway were of the utmost interest. In the context of preparation for implementation of this system in Montenegro, it was highly beneficial to hear from German and Dutch officials.

They shared their years-long experience in setting up an ETS scheme, the difficulties they encountered and how they tackled them along the way. The Slovenian experience was particularly relevant, since their representative was able to demonstrate the process that is likely to be quite similar for Montenegro, where the whole system and its accompanying institutions needed to become operational within a short period of time and with limited capacities. Most importantly, their experiences showed us that such an endeavour is achievable. That, together with the case of Montenegro

airlines analysed in the previous issue of Montenegro business outlook is a reason for optimism regarding the ETS implementation in Montenegro.

The other important topic was the issue of structural reforms of EU ETS, currently under consideration. Bearing in mind that EU ETS has already changed three times since its inception in 2005, it is likely to expect that the development will continue in its fourth phase in 2020, when Montenegro is expected to join it, should the EU accession process go as planned. One of the proposed changes is the inclusion of the maritime sector in the system, which could further negatively impact the national shipping industry. Other measures refer to higher reduction targets and even more limited access to international offsets. Montenegro had already felt the consequences of such measures earlier this year, when the decision to limit CDM credits to those from Least Developed Countries came into force. None of these options is yet adopted, thus there is still sufficient time to take them into consideration and adapt management practices in accordance with the changing policies.

However, such changes can significantly affect the flow of investments so should be carefully followed and accounted for in strategic planning at the state level. â–

In The Spotlight

GOLF in Montenegro One of the first golf clubs in the area of today’s Western Balkans was formed in Cetinje, the then Royal capital of Montenegro. A short driving range was built for the Club’s opening in 1906, although the full course was never built.

It was located in the suburb of Nova Varos. The opening ceremony was honored and conducted by the King, Nicholas I and the first balls were hit by his daughter Grand Duchess Militza of Russia (Militza Petrovic Njegosh) and his daughter-in-law Crown Princess Militza, wife of Crown Prince Danilo.

The grand opening was attended by Cetinje’s youngsters who were a special part of the event.

After gaining independence, Montenegro was again able to revive the sport that has a long tradition. With a surge in foreign investors’ interest in this sport, Montenegro has a chance to become a prestigious sports tourism destination in this part of Europe.

John Kennedy the founder and CEO of Boka Group has introduced British capital to Montenegro to finance and build an 18-hole Championship Golf Course. This will be not only the first 18 hole course in the country, but on the on the Eastern Adriatic.

The British Duke, the 19th Duke of Somerset, the head of one of England’s oldest families, is President of the Royal Montenegro Golf & Country Club, creating an important link to the country which is seen, around the world, as the home of Golf.

The new course will make history by being the first golf course in Montenegro and its importance was marked by it being declared the National Course by the Golf Association of Montenegro in August of this year. The Club also received Royal patronage and became the Royal Montenegro Golf & Country Club when Prince Dimitri Romanov of Russia became Club Patron. The Prince is a member of the Russian Imperial Dynasty, but is also a great grandson of King Nicholas I of Montenegro. He is the grandson of Grand Duchess Militza of Russia (Princess Militza Petrovic-Njegos), one of the pioneers of golf in Montenegro.

On the day of the opening of the new 300 meter driving range, John Kennedy said, “We truly believe that this golf course will bring long term benefits to this Country. Montenegro can start to become a cross-season touristic destination which will have a positive impact on tourism and future economic growth. Golf will start to fill the gap between the end of the summer season and the start of skiing in December, giving Montenegro at least 10 months of tourism in a 12 month cycle and new job opportunities for young school leavers of the future”. ■

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EU Corner

MONTENEGRIN STEPS TOWARDS EU Adopted action plan for negotiation chapters 23 and 24 10.10.2013. The government of Montenegro adopted an action plan for chapters 23 and 24 relating to the rule of law and justice that are crucial in the process of negotiations between Montenegro and the European Union. With clear fiscal policy and terms of usage when it comes to non-refundable aid formulated in cooperation with certain state members, information related to the enforcing and reporting of planned actions were defined.

Adopted negotiation position for chapters 23 and 24 08.10.2013 The government of Montenegro adopted a negotiation position for chapters 23- Judiciary and fundamental rights and chapter 24- Justice, freedom and security.

Both of the documents were delivered to the Lithuanian presidency of the Council of the European Union who must create a joint negotiation position when it comes to these chapters.

EU screening report for chapters 5, 6 and 10 10.09.2013- Bilateral screening of EU legislation was held on the following topics: Chapter 5- Public Procurement, Chapter 6-Company Law and Chapter 10 – Information Society and Media. Screening reports are available on the web page of the Ministry of Foreign Affairs and European Integration.

Source: www.mip.gov.me

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EU Funds Cross-border Program

The Instrument for Pre-accession Assistance (IPA) is an instrument for pre-accession and was established by the EU Council Regulation 1085/2006, and its financial value for the period of seven years amounts to EUR 11.468 billion. The main objectives of the IPA program include assistance to candidate countries and to countries of potential candidates in their harmonization and implementation of the acquis communautaire as well as in preparing for the use of the Structural Funds.

In the period September - October 2013, two calls had been posted Cross-border Program: Croatia Montenegro 2007-2013 The Agency for Regional Development of the Republic of Croatia and The Delegation of the European Union to Montenegro in cooperation with The Ministry of Foreign Affairs and European Integration of Montenegro and The Ministry of Regional Development and EU Funds of the Republic of Croatia are seeking proposals deal-

ing with the “Creation of favorable environmental and socio-economic conditions in the programme area by the improvement of cooperation in the jointly selected sectors and good neighborly relations in the eligible areas” through the following measures: (1) Joint actions for environment, nature and cultural heritage protection; (2) Joint tourism and cultural space; (3) Small cross-border community development projects.

A total amount of €1,800,000 has been made available for this call.

The deadline for submission proposals was 13th December 2013.

Cross-border Program: Bosnia and Herzegovina – Montenegro 2007-2013 The Directorate for European integration in Bosnia and Herzegovina and the Ministry for foreign affairs and European integration in Montenegro, in cooperation with the Delegation of European Union to Bosnia and Herzegovina and the Delegation of the European Union to Montenegro, invited potential candidates to submit project proposals for projects within the following measures:

EU Corner (1) Cross-border economic development initiatives with an emphasis on tourism and rural development (2) Environmental development initiatives mainly for protection, promotion and management of natural resources (3) Social cohesion and cultural exchange through institutional and people-to-people interventions Any grant requested under this Call for Proposals must fall between the following minimum and maximum amounts depending for which measure they will apply: • minimum amount: € 65,000 • maximum amount: € 500,000 The deadline for submission proposals was: 9th September 2013.

Civil Society 2013 call for proposals The global objective of this Call for Proposals is to enhance the contribution of CSOs to Montenegro’s advancement in the process of EU approximation.

The specific objectives of this Call for Proposals are: • To further the participation of CSOs in the creation, implementation and monitoring of public policies at all levels; • To support initiatives of NGOs linked to the capacity building of small CSOs to participate in community development and provide services to citizens; Any grant requested under this Call for Proposals must fall between the following minimum and maximum amounts: • minimum amount: € 100,000 • maximum amount: € 200,000 The initial planned duration of an action may not be shorter than 12 months nor exceed 36 months.

The deadline for submission proposals was 6th December 2013 Source: http://www.delmne.ec.europa.eu/

In Focus: Montenegro 2013 Progress Report On 16 October 2013 the European Commission issued the 2013 Progress Report on Montenegro, representing a part of the 2013 Enlargement Package and encompassing the timeframe from October 2012 to September 2013.

In key findings of the 2013 Progress Report on Montenegro by the European Commission, it was estimated that Montenegro had made some further progress towards a functioning market economy, improved the ability to take on the obligations of EU membership, and continued to sufficiently meet the political criteria. Screening meetings had been completed, while two negotiating chapters had been opened and provisionally closed. The negotiation process incorporated the new approach for Chapter 23 (Judiciary and Fundamental Rights) and Chapter 24 (Justice, Freedom and Security). Montenegro had adopted action plans for both chapters. On those grounds, it had been asked to send negotiating positions for these chapters, which had been delivered at the beginning of October. The implementation of the action plans would determine the further course of negotiations. Montenegro needs to continue achieving measurable results in this field, especially with regard to high level cases of corruption and organised crime.

that the transparency of work had been further enhanced, and the administrative and professional capacities strengthened. Additionally, the oversight role of the Parliament had been enhanced, while it was estimated that the monitoring of implementation of the conclusions adopted by the parliamentary committees needed to be promoted.

The Report also highlighted that the Parliament had adopted the anAction Plan for Strengthening the Legislative and Oversight Role of the Parliament, also representing the answer to the recommendations of the European Commission from the Progress Report for the previous year. Based on those recommendations, among other things, the regular monitoring of implementation of the conclusions had been established.

Apart from the 2013 Progress Report on Montenegro, the European Commission also published the 2013 Progress Reports on Albania, Bosnia and Herzegovina, Macedonia, Kosovo, Serbia, and Turkey.

Source: http://www.skupstina.me

In part of the Progress Report on Montenegro relating to the work of the Parliament of Montenegro, it was concluded, among other things,

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MBO Interview

Interview with

Mr. Michael Posch General Manager of Regent Porto Montenegro

You have recently been appointed as General Director of Regent; to what extent is it a challenge for you?

Porto Montenegro is a unique place and this project offers everything all in one: shops, restaurants, residences and a marina, all at a very high standard. And then there is the Regent Porto Montenegro which is not a standalone property – it is one part of a larger project where different elements work together to create one great experience.

One challenge will be the seasonality. The main season in this region lasts only three to four months. There are another four months of shoulder season and the low season. We have to offer the right packages to our guest. With the Regent Spa and our restaurant concept we will be also successful during the low season. Our guests can relax and dine and can take a break from everyday life. We also have function rooms for meetings, weddings, birthday parties and any other kind of events.

Another challenge is the recruitment of people. Our aim is that Regent Porto Montenegro will be the best and most luxury hotel within Montenegro. Therefore we have to recruit the best people with international experience in the luxury hotel business. All together we need 160-170 employees to offer the unique Regent Service that we are known for. For this reason in addition to a HR manager we will also be employing a training

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manager. We have a close relationship with the Regent Berlin, where some of the Porto Montenegro staff has been trained previously, so we can link with them if necessary and we also have the support of our head office in Taipei.

Could you briefly present to our readers the brand Regent?

Regent is an iconic name in the global hospitality industry, including hotels, resorts, residences and cruises. Born in Asia in the 1970s, it became the world’s most admired hotel brand and for many years set the benchmark for luxury hotels worldwide. In 2010, Regent returned to its Asian roots, with an acquisition by FIH Regent Group, the largest and most profitable hotel company listed on the Taiwan Stock Exchange.

The Regent experience combines Eastern simplicity and Western elegance melded with intuitive service, bespoke amenities and traditional hospitality. Regent Hotels & Resorts currently operates hotels in Bali, Beijing, Berlin, Phuket, Singapore, Taipei, and Turks and Caicos. In 2011, all hotels in the Regent-managed portfolio were listed as the best luxury hotels in the world by the Condé Nast Traveler’s Readers’ Choice Awards, becoming the first and only international luxury hotel group to ever achieve this recognition. And in 2013, the group was ranked fifth in World Luxury Index

measuring the most searched and sought-after luxury hotels.

What are your expectations regarding the project? When do you expect the hotel to be able to receive its first guests?

As I mentioned before, our aim is to be the best hotel in Montenegro.

The hotel’s 5-star-deluxe standards and interiors are very much in line with the country’s elite tourism plan and will help move this forward. The luxury clientele is here, and growing year on year in Porto Montenegro.

I am hopeful that as more hotels and projects invest in the region transport links will improve, not just in frequency but also the variety of destinations.

The planned opening date is 1st of July 2014 and therefore we expect to receive our first guests in the beginning of July 2014.

What is going to bring new Regent to Porto Montenegro’s present offer?

We are delighted to engage in this hotel development within such a diverse and lavish destination. Regent will be bringing its own storied history into this culturally rich location. Montenegro will be one of the fastest growing travel and tourism economies over the next ten years and we are pleased that Regent will be part of this development. The Regent Porto Montenegro will have something for every visitor, from

MBO Interview

About Mr. Michael Posch Mr. Michael Posch is the newly appointed General Manager of Regent Porto Montenegro, a luxury hotel scheduled to open in the summer of 2014. From food & beverage to sales to operations, Posch has a demonstrated expertise across all operations in luxury hotels. Starting out as a Front Office Clerk, Posch then moved on to the food & beverage department before gaining a focus on sales. During his role as the Director of Sales at Estrel Hotel Berlin, Posch was responsible for the sales of Germany’s largest hotel, with 1,125 rooms and over 5,000 key accounts.

As Executive Assistant Manager and later General Manager, Posch effectively planned and oversaw the opening of Leonardo Royal Hotel Berlin Alexanderplatz, having been involved in the pre-opening planning and the leading of hotel operations in F&B, Front Office, Housekeeping and Engineering. In addition, he was responsible for sales and strategic positioning of the hotel and its conference facilities both domestically and internationally. restaurants to shopping to water activities; and as such, ensures that our guests will be part of the bespoke Regent experience.�

What can we expect from Porto Montenegro in the years to come?

PM’s goal is to be the Number 1 fullyear yacht homeport in Europe. To achieve this, much infrastructure has been created: a new, world-class village of the highest beauty and standards, a high-tech marina to house some of the most sophisticated yachts afloat, and over 50 commercial units to support the new businesses that are the

engine of this new industrial cluster.

Furthermore an international school teaching English has firmly rooted Tivat in the global economy and the international yachting industry.

ronment, the hardworking, dynamic and entrepreneurial people of this country, the internationally competitive tax system, and the prioritization of high-end tourism.

Porto Montenegro has completed only 1/4 of the development and they have a lot of work ahead, yet they are keen to invest with greater intensity if we, all together with the people of Montenegro, agree to keep and protect the important competitive advantages that have attracted PM investors initially and attracted many other credible investors since which include the protection and revitalization of the envi-

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Business News

Business News Montenegro adopted 11.000 new standards The Institute for Standardization of Montenegro adopted 11.000 standards that are identical to the European and International ones, in order to improve the quality system, as well as the overall economic and social development of the country – it was announced by the institution to mark the 14th October, World Day of Standards.

The Institute for Standardization has announced that so far adopted standards represent half of the applicable European standards, and will continue in that direction for successful integration of Montenegro into the international mainstream.

World Standards Day is celebrated this year under the motto “International Standards provide a positive change”, in which the three leading international organizations in the field want to draw attention to the benefits of the adoption and implementation of standards.

Iceland holds first place, and according to estimates made by that world organization published last year, in Iceland, about 96 % of the population regularly uses the Internet.

Slovenia, former Yugoslav state, uses the Internet the most, and is 42nd in the world. Bosnia and Herzegovina (BiH) holds second place in the region, and 45th in the world. Macedonia is third in use of the Internet in the region, and the world’s 49th position. Montenegro holds fifth position in the region.

Despite the high development of broadband networks, more than 90% of the population in the 49 least developed countries does not have access to the Internet.

Fund for Development of Abu Dhabi approves $ 50 million for Montenegrin Agriculture

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Organized by the Union of Employers of Montenegro (MUE) and the International Labour Organisation (ILO), MUE’s document was presented - a strategic framework for improving the business environment in Montenegro, entitled “5 business killers.”

Key business barriers which in the opinion of MUE experts are the five killers of business: • inadequate regulatory system, • difficult access to financial resources,

Montenegro holds 58th place in the use of Internet According to a research conducted by the Broadband Commission, Montenegro is in 58th place in the use of the internet (calculated by population), in the list of 192 countries.

Union of Employers presented the document “5 business killers”

• high share of the grey economy, It was announced from the Ministry of agriculture and rural development that Montenegro received financial assistance from the Fund based in the Emirates. Namely, the Abu Dhabi Fund for Development approved to Montenegro $ 50 million for agriculture to implement projects in the future period in order to increase agricultural production and the number of cultivated fields.

• corruption in all areas and levels • mismatch between the educational program and the actual needs of the labor market.

At this joint event, the representatives from the Centre for employers of the Adriatic region (AREC), as well as representatives of employers’ organizations from Slovenia, Croatia, Serbia, Bosnia and Herzegovina, Macedonia and Albania were represented.

Business News Open Science Day “Knowledge Factory” The largest educational IT event in the region, “Knowledge Factory”, for the third time was held at the University of Donja Gorica.

Started with an idea to promote new technologies and their role in the educational process, Knowledge Factory is a unique event in South East Europe. Within the project, about 3.000 students each year have the opportunity to experience at firsthand the current trends in the field of hardware and software, with the help of more than 50 experienced lecturers and demonstrators, as well as more than 100 volunteers.

The program is designed for elementary school students, high school students and all Montenegrin schools and colleges, as well as all members of the IT community.

EU prize for Women innovators

After a successful first presentation in 2011, the European Commission has launched the second presentation of the EU Prize for Women Innovators to reward three women who have developed outstanding innovations and brought them to market.

The contest was open until 15 October 2013, to all women who have founded or co-founded their own company and who have at some point in their career benefited from the EU’s research framework programs or the Competitiveness and Innovation framework program. The European Commission aims to raise awareness about the contribution, potential and importance of Women researchers to entrepreneurship and to encourage women to exploit the

commercial and business opportunities offered by their research projects and become entrepreneurs.

Global Entrepreneurship Week 2013: Policy Survey

lowed by Ireland with 29.318 billion and Luxembourg with 27.878 billion. On the other hand, the European countries with least foreign investment last year were Macedonia where foreigners invested only 135 million and Moldova with $ 159 million.

Research has shown that the countries of South East Europe last year received a total of 4.325 billion dollars of foreign direct investment.

Miločer Development Forum 2013

Global Entrepreneurship Week is dedicated to the world in which more and more people take their ideas and turn them into a promising new business – addressing the global challenges and contributing to strengthen the stability of the economy. In preparation for this year’s Global Entrepreneurship Week in November – GEW2013, a survey was conducted among entrepreneurs with the aim that the survey results contribute to the creation of policies that affect new and young firms.

The aim of the survey was to understand the perception of entrepreneurs, especially those who lead fast-growing companies, or have the potential to become so.

Montenegro takes fourth place in the Balkans by foreign investment Montenegro with $ 609 million in foreign direct investment was fourth last year in the Balkans in foreign investment, according to a latest report of the United Nations Conference on Development (UNCTAD).

The Association of economists and managers of Montenegro continue the tradition of organizing the Miločer Development Forum. The Forum was held on 8, 9, 10 and 11 of September 2013 in the hotel “Maestral”, Pržno, Montenegro. The main topics presented at the Forum were: the economic crisis, education and youth employment. Also, the most successful projects were presented: Porto Montenegro, Azmont investments, Luštica bay and Quatari Diar Property investment Montenegro.

Also, a number of round tables were organized with the following themes: education, food safety, computer science, agro-tourism and rural development as well as creative industry.

Of all European countries, last year most foreign direct investment were invested ​​ in the United Kingdom amounting to 62.351 billion, fol-

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Coming Up! Editor in chief: Darko Pekić iper@t-com.me MBO Team: Dragana Radević Mihailo Zečević Vesna Bojanović Biljana Janković Jovana Stojković Ana Filipović ASSOCIATES Charles Brogden, Editor Marko Mihailović, graphic designer Front page picture: MBO archive

The 3rd international Climate Change, Economic Development, Environment and People Conference (CCEDEP)

The third international Climate Change, Economic Development, Environment and People Conference (CCEDEP) of the Alliance of Central-Eastern European Universities (ACEU) will be organized by the School of Food Technology, Food Safety and Ecology of the University of Donja Gorica in Montenegro, from the 5th to the 7th of December. Subjects for this conference will be: Environmental Management, Rural Development, The Green economy, Biodiversity and Ecosystem Services and, Climate Change and Energy. Detailed information regarding the conference can be obtained via the official conference mail ccedep@udg.edu.me

Strategy of Sustainable Development and CAMP Public Participation Processes

The public participation processes for both big nationally implemented plans- Strategy of Sustainable Development and Coastal Area Management Program Montenegro (CAMP) have started and are expected to finish in 2014. Both plans are of high importance for the development of Montenegro and more information about them can be found on the following web sites: www.camp.mrt.gov.me and http://www.potpredsjednikregraz. gov.me/potpredsjednik

Christmas debate on the economy 2014

The twenty-second Christmas debate will be organized in January at the University of Donja Gorica. This year’s host of the Christmas debate is rector of the University of Donja Gorica, prof. Veselin Vukotic. For more information you can contact UDG at info@udg.edu.me