Category: Montenegro

Article 2 of the Montenegrin Law on the Protection of Competition limits the law’s application to acts undertaken within the territory of Montenegro and acts undertaken outside of Montenegro which have as their object or effect the distortion of competition in Montenegro. In practice, however, the Law on the Protection of Competition (the “Law”) seems sometimes to be applied beyond its territorial scope.

Maybe the best example of this is the merger control regime. It appears that transactions that have no obvious and immediate ties to Montenegro – typically called foreign-to-foreign transactions – are still reviewed and cleared by the Montenegrin Commission for Protection of Competition (the “Commission”). In other words, the Commission apparently accepts jurisdiction in such cases, even though it seems unlikely that the subject transaction would have any effect in Montenegro. 

The reason for this could lie in the jurisdictional thresholds of the Montenegrin merger control regime set out in article 50 of the Law. The thresholds are set very low and structured in a way that allows situations in which only one party to the concentration can exceed them. This leads to the absurd situation in which, judging based only on jurisdictional thresholds, an undertaking with any Montenegrin turnover above EUR 1 million has to notify the Commission in Montenegro of each and every transaction in the world (for example, a transaction resulting in control of a company located and exclusively operating in Cambodia). 

Yet, it is doubtful that this was the legislator’s aim when it drafted the Law and established the Montenegrin merger control regime. In other words, it is unlikely the ex ante review of foreign-to-foreign transactions was necessary for the protection of competition in Montenegro.  

One possible explanation is that the legislator was being overly cautious. Another is that it was unaware of the volume of transactions that would be caught under the jurisdictional thresholds. Neither explanation seems likely, not just because of globally accepted principles in competition law and merger control, but also because of the wording of the Law and the interplay between the provisions on the territorial scope of the Law and its jurisdictional thresholds.

One of the most commonly accepted competition law principles – especially in EU competition law and the national competition laws of many EU member states – is the domestic effects doctrine. According to this principle, domestic competition law may only be applied to acts carried out by (foreign) entities undertaken abroad if the acts have effects in the domestic territory. Only in such extraterritorial situations is the application of domestic law proportionate and permissible. The wording of Article 2 of the Law, Territorial Scope, resembles the domestic effects doctrine, at least on paper. 

Nevertheless, as one of the guiding principles of the Law, the territorial scope of the Law should be interpreted as prevailing. Jurisdictional thresholds are typically set to limit the scope of the merger control to important transactions only – i.e., a transaction large enough to potentially affect competition. However, this particular purpose of the jurisdictional thresholds cannot override the basic principle of the territorial scope of the Law itself.  

For these reasons, it appears that the Law should not be applicable to typical foreign-to-foreign transactions. The same should also hold true for agreements – for example those concerning the export of goods outside of Montenegro – as long as they do not contain restrictions that could affect competition in Montenegro.  

By Rasko Radovanovic, Partner, CMS 

This Article was originally published in Issue 5.9 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.

In 2017, the Parliament of Montenegro adopted a new Law on Spatial Planning and Construction of Facilities (the “Law”), introducing major innovations in the field of spatial planning and construction. The Law entered into force on October 8, 2017.

Among other things, the Law was designed to implement EU standards and harmonize Montenegrin laws with EU law through increased transparency and accountability of spatial planning and development processes. Additionally, the Law employs a number of environmental, societal, and spatial planning principles, including integral approach principles in the planning process, a focus on spatial development sustainability and  increased quality of spatial and urban planning and construction, an emphasis on horizontal and vertical integration, and striking a balance between protecting the public interest and protecting individual interests. 

Given that the new legislation introduces important changes, it is expected that the overall process of obtaining necessary approvals for construction and use of constructed facilities will be significantly easier and faster for investors, resulting in a more favorable environment for investments in Montenegro.  

The main innovations in the Law are:

Centralization of the Construction System and Decision-Making. The new Law shifts spatial planning and construction powers from local authorities to the Ministry of Sustainable Development and Tourism (the “Ministry”). 

New instances are introduced in the form of the chief state architect and chief local architect. The chief state architect approves urban projects and protects the authenticity of space and identity of settlements, while the chief local architect approves conceptual solutions for buildings, squares, and other public areas within settlements and the facades of temporary facilities, and attests the compliance of the conceptual solutions with urban projects. 

The Ministry is given the authority to maintain a Central Register of Construction, where each facility under construction will be registered jointly with technical documentation.

Decrease in the Number of Planning Documents. While previous legislation distinguished between eight different planning documents, the new Law envisages only two: (i) the spatial plan of Montenegro (a strategic document determining state goals and measures for spatial development (including guidelines), to be enacted for a 20-year period), and (ii) the plan of general regulation (to be enacted for a 10-year period). Both documents will be enacted by the Parliament of Montenegro.

The plan of general regulation is to be enacted within 36 months of the date of entry into force of the Law, which will annul all state and local planning documents except the Spatial Plan of Montenegro.  

Abolishment of Construction and Operational Permit for Simple Projects. The Law abolished the obligation to formally obtain (i) a construction permit prior to the commencement of construction, and (ii) an operational permit before using the facility, except for energy and heavy industry facilities (i.e., complex engineering facilities). This is a significant departure from the previous law. 

Save for exceptional cases, construction may now start once notification on commencement of work has been submitted to the relevant authority together with relevant technical documents. 

This will result in a considerably shorter and simpler initial phase of construction. 

Specific Terms of Legalization. The Law regulates the issue of the legalization of illegal buildings, which was previously regulated by the Law on the Regularization of Informal Facilities. To ensure the integrity and continuity of the system, especially in light of the significant new solutions proposed by this regulation, the need to regulate the matter of legalization was clear. 

The key change envisaged by the Law in the field of illegal construction refers to the basic premise of legalization. Namely, the new solution “allows” legalization only and only if the illegal building is envisaged by the planning document. 

Completion of Urban Parcel. The most common problem in Montenegro has been the development of urban parcels consisting of cadastral parcels owned by different owners. 

In order to develop such a site, each owner of the cadastral parcels composing the urban parcel had to provide his or her consent, making it hard to achieve mutual agreement. This created major obstacles for investors. 

The new Law makes it possible for the owner of the largest cadastral parcel to buy out the land required to complete the urban parcel from the other owners. If that owner does not use this right, other owners will be allowed to do so. The price of the buyout –  i.e., the certified value – will be determined by the cadastre.

If no agreement on completion of the urban parcel is reached, either the provisions of the Law on Expropriation will apply or the land could be brought to its use based on the provisions of the Law.

By Dijana Grujic, Senior Attorney at Law, Ana Vukcevic, Associate, Moravcevic Vojnovic and Partners in cooperation with Schoenherr

This Article was originally published in Issue 5.6 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.

The plans to regulate public-private partnerships have been in the program of the Montenegrin Government for at least ten years now. Despite its central importance to both the public and private sectors, a specific legislative and institutional framework in the area of PPPs is still not in place. Instead, PPPs are regulated by laws from several sectors and by the Law on Concessions. The main authoritative bodies in charge of implementing PPP projects are the Privatization and Capital Investment Council and the Concession Commission.

Several PPP projects were implemented between 2007 and 2018, mainly at the municipal level and valorization of large scale tourist locations, primarily based on two PPP models: authority-pay and user-pay contracts. As the procedure for awarding authority-pay contracts is not explicitly regulated, user-pay contracts, which are defined by the Law on Concessions, are the most common. Currently, the following types of PPP user-pay contracts may be adopted by public authorities for undertaking infrastructure projects: Concession, BOT, Private Finance Initiative, and Institutional PPP. There have also been cases where the competent authority adopted a combination of those contractual arrangements, which incorporate or combine some of their elements.

A number of those projects have been identified as exposed to corruption and investigated by the Special State’s Prosecutor’s Office. Obviously, there seems to be consensus that the current regime is inappropriate, inefficient, and lacking in transparency. 

Potential PPP Projects

Montenegro has a variety of potential PPP projects ranging from the energy sector to traffic infrastructure. The so-called “Blue Corridor” or Adriatic Ionian Highway, which is planned to pass from Slovenia through Croatia, Bosnia and Herzegovina, Montenegro, Albania, and Greece, is one of the key traffic infrastructure projects, and its Montenegrin part could be developed through the PPP model. The upgrade of Montenegro’s Podgorica and Tivat airports is a necessary precondition for the further growth of the local tourism industry. Other opportunities include the second section of the Bar-Boljare Highway, which is supposed to link Montenegro with Serbia, as well as a bridge across Boka Bay. There are also several projects in the energy sector such as the Moraca River Cascade hydropower plant and the second unit of Pljevlja Thermal Power Plant, among others. 

Expected Benefits of a New PPP Regime in Montenegro

All relevant stakeholders (i.e., the public authority, international financial institutions, and private investors) agree that the introduction of a new legislative and institutional framework in the area of PPPs would not only help identify successful projects, but would at the same time help guide these projects effectively and transparently towards closure, while ensuring the country’s development goals are met and private investors are satisfied.  

Considering the increasing public debt levels of the Montenegrin economy, to a large extent due to the construction of the Bar-Boljare highway, revising the PPP legislative framework is becoming even more important. Since Montenegro’s economy growth — boosted by the implementation of large investment projects — is expected to continue over the medium term, the Government of Montenegro has the very important duty to bring the process of adoption of a new, concrete, and elaborate PPP legislative and institutional framework to closure. The new regime must clearly define the roles and responsibilities of all relevant stakeholders and it must ensure that these stakeholders are empowered to deliver projects — and that the processes are carried out in full transparency.  

It does not mean that the adoption of a PPP framework shall automatically lead to the successful implementation of large scale infrastructure projects through the PPP model, since they are subject to various obstacles and challenges. The lack of knowledge and best practices, the lack of expertise on the part of contracting authorities, and poor cooperation between public authorities can all threaten the success of PPP projects, regardless of the presence of an adequate legislative framework. However, the well-elaborated legislative framework adopted in close consultations with all relevant stakeholders shall constitute the necessary tool and condition sine qua non of large infrastructure projects in Montenegro.

By Vladimir Radonjic, Partner,  Radonjic / Associates

This Article was originally published in Issue 5.3 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.

A decade ago, I was a Competition Law PhD scholar at the City Law School in the London borough of Islington sitting at my desk and watching a beautiful sunset over St. Paul’s Cathedral and thinking about career alternatives and opportunities in front of me.

Pursuing an academic career in the legally and socially stable environment of England or becoming a lawyer in Montenegro, the country of my origins? The latter meant moving back to the Balkans, which I think it would be fair to say have in the last few centuries been a synonym of instability, and which even now, in 2018, still have the real potential to be unstable. I picked the Balkans route, which, obviously, was the more challenging – but at the same time brilliant – experience. 

One of the first lessons that you learn as a corporate lawyer in the Balkans is that nothing can be taken for granted here. The countries in the region are still not fully effective democracies, as enforcing the rule of law remains problematic and accountability channels are still dysfunctional, and the soundness of their financial system remains a big issue. 

While growing to encompass the Balkans remains one of the EU’s most important projects, it seems that the focus of this project for many years was on creating formal institutions and harmonizing Balkan countries’ legislation with the acquis communautaire instead of consolidating local democracies. As a result, lawyers in the Balkans are used to working in an environment where judicial security is lacking and where the efficiency of the judiciary is highly questionable. Indeed, in its country progress reports the EU Commission usually points out that progress in strengthening the independence and professionalism of the judiciary in the Western Balkans countries is urgently required. This is not a very comfortable environment to be professionally engaged in, you must agree. Unsurprisingly, then, the day-to-day work of a lawyer in the Balkans is very different – and in many aspects more complex – than the work of a lawyer in Western European democracies. 

On the other hand, being a lawyer in the Balkans means taking an active part in the transformation of a region. It also means contributing to the reversing of the negative image that the Balkans sometimes have in the West. And, of course, it means sending the message that lawyers in the Balkans may well be as competent, professional, and trustworthy as their counterparts in the EU. 

The famous quote of Thomas Chalmers, the Scottish mathematician and a leader of the Free Church of Scotland, that “it has been said that there is nothing more uncommon than common sense,” must have its origins somewhere in the mountainous Balkans. Indeed, to my surprise, I have seen much of what I considered to be basic common sense etiquette and many manners of professional conduct broken over the past decade. But this brings me to my next point: All these challenges represent nothing else but the great and unique opportunity to build a successful legal practice in the Balkans: an opportunity that you cannot find easily elsewhere, especially not in the developed legal markets of other Western democracies. So, my point is that in the Balkans, to be successful at running a legal practice, you need to not only know how to practice law and how to run a business, but you need to know how to turn the Balkan weaknesses into your own strength – something that is not taught in law school and which lawyers rarely get much training on. You need to be and practice in the Balkans to master this new skill.

And when you succeed in that, you will be rewarded with the Balkans’ beautiful nature, its gaping canyons, rugged mountain ranges, placid lakes, and stunning coastlines. Ultimately, it’s a great place for a lawyer to settle in and find a perfect balance between professional and private life. I made the right choice back then in Islington. There’s nowhere else I’d rather be.. 

By Vladimir Radonjic, Partner, Radonjic/Associates

This Article was originally published in Issue 5.2 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.

The first upscale exploration of oil and gas in Montenegro started in 1914, when King Nikola Petrovic approved the National Assembly’s decision for oil exploration around Lake Skadar. The first well in the area of Crmnica dates back to 1922 – although it produced nothing of significance.

In later researches of the Montenegrin offshore, the existence of geological structures with the potential for hiding hydrocarbon deposits was confirmed. During the 70s and 80s, several American firms set up wells in the Montenegrin undersea area and confirmed oil and gas findings. However, no significant work was done pursuant to this confirmation, mainly due to the political and social instability of this Balkan country. 

In the years that followed, and especially following the dissolution of the state union of Serbia and Montenegro in 2006, oil and gas exploration and exploitation formed the center of the Government’s energy policy, and Montenegro made a significant effort to develop the industry. The country has defined its energy policy until 2030, adopted the Energy Development Strategy until 2025, and signed the Declaration of Accession to the Energy Charter in late 2012. The main objective of the adopted energy policy is the creation of an adequate legislative, financial, and regulatory framework to encourage private sector involvement and investments. Research shows that the total oil core potential in two separate submarine zones in Montenegro amounts to 12.5 x 109 tons. According to existing data, potential oil reserves amount to approximately 7 billion barrels, while potential natural gas reserves amount to 425 billion square meters.

Montenegro aims to follow the achievements of other countries in the Adriatic Sea that have valorized their potential in this field with around 1,500 exploration wells. Italy is the clear champion, with around 1,400 drilling sites. Neighboring Croatia drilled around 140 exploration wells and currently has 18 gas production platforms in the northern Adriatic.

As a sign of progress and the decisiveness of Montenegro to use its existing potential, the first tender for oil and gas exploration and production was announced in late 2013. So far, the Montenegrin Government has signed concession agreements with two consortia: the Italian-Russian Eni/Novatek (which was granted concession rights over four offshore blocks, covering 1,228 square kilometers), and the Greek company Energean oil & gas (which was granted two offshore blocks with a surface area of 338 square kilometers in shallow waters).

In the light of normative regulation, Montenegro adopted the Law on Exploration and Production of Hydrocarbons, the Tax Law on Hydrocarbons, and regulations governing the method of calculating compensation payments for oil and gas production, construction of exploration and exploitation plants, development and production of hydrocarbons, drilling, and so on. Additionally, the Government has adopted the model of the Concession Contract for the Production of Hydrocarbons, which is divided into two phases: the Exploration phase and the Hydrocarbons production phase.

The exploration phase may last for a maximum of six years for onshore or seven years for offshore blocks. Upon the concessionaire’s request, and only in cases specified by law, the exploration phase may be extended for up to two years. However, the hydrocarbons production phase begins from the day of the commencement of the first extraction of hydrocarbons from the reservoir and lasts until the expiry of the deadline envisaged by the production concession contract, or a maximum of up to 20 years. The production phase may, at a request from the concessionaire, be extended at most for half of the duration of the production phase period specified by the production concession contract; i.e., for a maximum of 10 years.

With the Tax Law on Hydrocarbons, Montenegro made a plan to acquire revenue from companies doing business in the industry involving taxes and reimbursements for produced oil and gas. The strategy for acquiring revenue is progressive – meaning that the companies that have the most profit will pay an increased (progressive) rate for the produced oil and gas. In the period during the production of oil and gas, oil companies are due to pay a tax of 54% on the profit acquired from the exploration and production of oil and related assets, as well as 9% on dividends (i.e., capital gains). 

The next tender for the exploration of oil and gas in the Montenegrin undersea area should open during this year or in 2019, since the Montenegrin Government is striving to introduce as many concessionaires as possible to the Montenegrin off-shore territory.

By Petar Mitrovic, Partner, and Nikolina Kazic, Associate, Attorneys at Law in cooperation with Karanovic & Nikolic  

This Article was originally published in Issue 5.2 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.