American Times on Energy Investments with Montenegro’s Minister of Economy Vladimir Kavaric

American Times Presents: Minister of Economy Montenegro, Mr. Vladimir Kavaric


There are some exciting projects happening within the country’s energy sector. Please share with our readers the specifics of these critical investments.

Minister Kavaric: For the past 15 years the government has been working toward developing a suitable climate for investors from taxes to general legislation framework regarding protection of property rights and freedom of trade and movement of capital. We have 3 strong competitive advantages regarding sectors for investment: Tourism, energy and agriculture. Regarding energy we began opening this market five or six years ago in terms of free trade but it’s a sector which is inherently a bit more complicated due to the required infrastructural necessities. We have partially privatized our State-owned power production company, Electric Power Company of Montenegro (EPCG), with the State having 55% and Italian firm A2A owning 43.7% of shares as well as management rights in order to harmonize our production and distribution functions for future commercialization. This privatization was at the request of the European Commission in order to increase efficiencies.

We are currently in the midst of an exciting project between another Italian firm, Terna, which is laying an undersea cable connecting Montenegro and Italy with 1,000 MW of energy. This project is valued at almost €900 million, with €800 million coming from Italy and the remainder from Montenegro. The division of the responsibilities is as follows: Terna is responsible for developing facilities on the Italian side as well as a portion of the facilities on the Montenegrin coast and of course the laying of the cable connecting the two. Montenegro is responsible for improving the grid and distribution network within our borders and speaking with neighboring countries Serbia and Bosnia to improve the extended network where the structure regarding Albania is already in place. According to our joint efforts, the proposed timetable is to have the cable in place by 2016 with the facility construction on the Montenegrin side beginning this summer with tenders currently being made for that work. Tenders on the Italian side have already been fulfilled for equipment and as well as for the construction of their facilities. They have stated to us that everything is going as scheduled.

Aside from this, we are reaching out to investors for 3 different energy projects. The first is the Morača Hydropower Plant (HPP) capable of producing approximately 240 MW. There follows the Komarnica HPP which can realize roughly 170 MW and Maoce Thermal Power Plant in the north has about 500 MW capacity. For these projects we are interested in open dialogue with all investors based on the Design, Build, Operate, Maintain, Re-cultivate ( DBOMR) model and development of a finance scheme.

This project is of significant importance not only for short term employment but because it will open up a broad array of future investments within the sector. Our ambition is to be an energy exchange hub in the region. This initiative offers the Eastern Balkan nations an attractive new route to reach Western Europe through Italy and of course a large market for sale in Italy itself.

AT: So the intention is to develop not only as an exchange hub but as a net exporter to Italy itself?

Minister Kavaric: The cable is designed to exchange energy both ways. However, there will be more export flowing from Montenegro to Italy as they are running huge deficits especially if we are talking about green energy. Their consumer energy prices are significantly higher than in our region making this attractive for both sides.

AT: Are there any investment opportunities outside energy production?

Minister Kavaric: Yes, we have recently closed the tender for the exploration and exploitation for oil and gas off our coast. This initial tender had a deadline of May 15th and we are proud to say that we received three bids from six companies detailed as follows:

  1. Joint Venture: Marathon Oil Corporation (USA) and OMV (Austria)
  2. Consortium: Eni S.p.A (Italy) and Novatek (Russia)
  3. Consortium: Energean Oil & Gas (Greece) and Mediterranean Oil & Gas (Great Britain)
These companies represent operations in over 80 countries generating more than $70 billion USD in revenue with profits totaling $10 billion USD in 2013. We expect the procedure of evaluating bids and selecting partners to be completed by the end of 2014.


This specific tender offering was something new to us. As such, we worked to develop new legislation in order to ensure a fair and transparent tender process as dictated by our pre-accession EU mandate. This legislation is based on the industry standard for exploration and exploitation, the so-called “Norway Model”. There was not a limited number of selected bidders but rather decisions based on their overall quality which allows for several operators to maximize efficiency. This type of legislation also creates a solid foundation for exact rules and parameters of shares should a discovery be made. This means negotiation is simple and straightforward leaving no room for issues regarding the government’s stake and so forth.

AT: Regarding green energy, what follow-on investments exist within your country that can contribute to the energy feed?

Minister Kavaric: We know that this will open doors to investments in hydro-power, solar, thermal and wind. We are currently in the final stage of communications between EPCG and private bidders to rehabilitate a thermal power plant (TPP II) in the north of Montenegro which will have a 250 megawatt capacity. Right now, these bidders are coming from the Czech Republic and China and we believe in the next few months contracts will be signed.

Aside from this, we are reaching out to investors for 3 different energy projects. The first is the Morača Hydropower Plant (HPP) capable of producing approximately 240 MW. There follows the Komarnica HPP which can realize roughly 170 MW and Maoce Thermal Power Plant in the north has about 500 MW capacity. For these projects we are interested in open dialogue with all investors based on the Design, Build, Operate, Maintain, Re-cultivate ( DBOMR) model and development of a finance scheme.

AT: We’ve heard some interesting news regarding a gas pipeline which may include Montenegro on the transit route. Can you go into more details regarding that please?

Minister Kavaric: More regional integration concerns are reflected through the finalized agreement of the Trans Adriatic Pipeline (TAP) which will commence pipeline operations for export from the Shah Deniz II gas field in Azerbaijan’s Caspian Sea coast in 2017-2018. TAP will connect from the Trans-Anatolian Gas Pipeline (TANAP) at the border of Turkey and go through Greece into Albania with a final destination in Italy. In December of last year we participated in an MoU signed by ourselves as well as Azerbaijan, Croatia and Albania in Baku to develop a pipeline labeled as the Ionian Adriatic Pipeline (IAP). The IAP will connect from TAP in Albania moving north through Montenegro into Bosnia-Herzegovina with a final destination of Split, Croatia where it will be connected with Croatia’s existing gas transmission system.

AT: Based on American know-how within the energy sector and everything you’ve mentioned thus far; what specific areas would you like to see them invest in?

Minsiter Kavaric: We prefer investors that are interested in developing the DBOMR model. The thermal and hydro power plant investments we discussed earlier are great examples. After the concession expires they’ll release the investment back to the Montenegrin government.

AT: When we met with the EU Ambassador to Montenegro he mentioned that there is almost no Industry in this country. Is there anything worth noting regarding this sector?

Minister Kavaric: I am glad you asked, yes. We are preparing to offer very strong incentives for industrial production investors. By that I mean food processing, metallurgy processes and so on. We are developing industrial zones in municipalities throughout the country. In those zones you will find the requisite tax incentives investors have come to expect in such economic zones.

AT : And these zones are up and running?

Minister Kavaric: We have defined business zones in 7 municipalities with a few more underway; all of which are at the promotional stage. We are beginning the search for the very first entrants.

AT: What are some of the challenges facing the economy today?

Minsiter Kavaric: I would say maintaining our investment climate during a period of rapid change and expansion. We must consider the effects of the financial crisis that has forced many Western European and American companies to hold onto their capital. The hope is that they will begin to open their coffers and start looking towards interesting and promising destinations like Montenegro.

Additionally, in some sectors we are still going through a difficult transition as a former socialist nation. For example, our Commercial Court has recently finished the bankruptcy procedure at a former state-owned steel plant where operations have been taken over by a Turkish investor. We hope the same will be accomplished with a separate aluminum factory. These are complicated and historical industries that require much energy. However, we are optimistic that that investment can turn around the steel industry here in Montenegro and others will follow suit.

AT: If you could offer a selling point to our investor readers what would that be?

Minister Kavaric: It is important to mention that we are a full member of the WTO and a signatory of the CEFTA and EFTA agreements. Additionally, we have free trade agreements with the EU, Russia and Turkey. All this should indicate to investors that Montenegro is not only a country with clearly defined trade rules but also a destination where they have cheaper access to an incredibly broad 800 million person market.

AT: We’ve spoken about opportunities as well as some of the challenges. Where do you see Montenegro’s economy in 5 years’ time?

Minister Kavaric: It’s an appropriate timeline because at the moment we are transitioning through an inherited state of issues; the most difficult period. I believe during the next 5 years these old items will be moved off the table and we will be poised to develop in a more traditional manner. At that point the submarine cable will be finished and fully functioning, there will be substantially more investments within the tourism sector and we will be that much closer to EU accession and most likely already a member of NATO. Through all this, I am certain we will have a great atmosphere for investment with many strong memberships and precedents that will generate sustainable growth.

Personal Message from Montenegrin Minister of Economy:

The best way to deliver a message isn’t through the words of a politician but rather through the regulatory framework set in place to deliver investor confidence. Although our lack of visibility is an issue that we are working on it does, however, offer a reciprocal effect for investors: Those unfamiliar would do well to take note of our “under-the-radar” stage and benefit from a true first entrant position.

In fact, we were meeting with the Italian Union of Commerce and they made the comment that they are going all the way to Latin America for something that, unbeknownst to them, is available just next door in Montenegro! The framework is in place, now just take note!