Category: Montenegro

Harrisons has advised the EBRD on EUR 10 million in financing for Alter Modus.

Alter Modus is a Montenegrin microfinance organisation. According to Harrisons, the financing aims to “support young entrepreneurs, women in business, and micro, small and medium-sized enterprises. EBRD will provide financing for three different projects, totaling EUR 10 million: a) up to EUR 4 million financing under EBRD’s Financial Intermediaries Framework; b) EUR 2 million loan under EBRD’s Youth in Business program, for on-lending to companies owned or managed by entrepreneurs under the age of 35 to help them surpass the obstacles in accessing finance, and c) EUR 4 million loan under the Women in Business program Western Balkans – Phase II.”

Earlier in 2024, Harrisons advised EBRD on three financing facilities for Banca Intesa Beograd (as reported by CEE Legal Matters on July 17, 2024) as well as on its inaugural EUR 50 million loan to AIK Banka in Serbia (as reported by CEE Legal Matters on February 8, 2024). In 2023 Harrisons advised on EBRD’s EUR 27.6 million loan to District Center and PKS-LATEX-HLC (as reported by CEE Legal Matters on November 20, 2023), on EBRD’s EUR 5 million loan to Banca Intesa Belgrade (as reported by CEE Legal Matters on June 29, 2023), and on its EUR 4 million loan to Montenegrin retail chain Voli (as reported by CEE Legal Matters on June 15, 2023).

The Harrisons team included Principal Mark Harrison, Head of Banking and Finance Ines Matijevic-Papulin, and Associate Mina Zeljkovic.

Komnenic & Partners’ real estate practice has been navigating complex challenges, including zoning issues and frequent changes of the government and responsible bodies, while managing several high-profile projects, according to Managing Partner Milos Komnenic, who discusses the ongoing developments in the hospitality and retail sectors, the impact of regulatory uncertainty on investment, and the outlook for Montenegro’s real estate market over the next year.

CEELM: What work has been keeping your real estate practice busy over the past year?

Komnenic: We’ve been heavily involved in several ongoing projects, particularly in the hotel sector. A significant part of our work focuses on further developing the Hotel Montis, led by Golden Group, and the ambitious 5-star Hotel Galeb project, which will have over 400 rooms. However, zoning issues have created some challenges, especially since the Galeb project stems from a privatization deal made 15 years ago. The property was acquired two years ago, with a commitment of our client to invest once zoning changes are finalized, but progress has been slow.

Legal uncertainties around zoning are a significant concern. Even when the technical documentation for the project is nearly complete, it doesn’t have “acquired rights” until a construction permit is secured, which means any zoning change could affect the project. This is especially problematic if you’ve bought the property but haven’t started construction; only the construction permit provides protection, and there is a mandatory time gap and administrative work between acquisition and construction permit.

One of our biggest concerns during 2024 has been the Riviera project, a mixed-use 5-star hotel. For procedural reasons, the government has repeatedly terminated consent for the project’s design – which approval is based on visual concept only – and this has happened two times now, in 2022, and 2024. Even though we managed to reinstate the decision, the situation shows how bureaucratic processes can severely impact development timelines. Fortunately, our clients are now back on track with construction, but any further delays could risk the entire investment and most likely lead to investment arbitration.

Outside the hotel sector, we are assisting BIG CEE, a major retail chain expanding in Montenegro. They recently acquired Delta and City Mall and are working on the reconstruction for expanding BIG Fashion, a prominent shopping center in Podgorica. While our client has support from the government and local municipality, zoning is again a condition precedent yet we must say that for this investment so far there are no delays.

CEELM: What has been the primary driver behind these levels of activity?

Komnenic: The hospitality sector, often with a residential/timeshare twist, is at the core of our activities. Mixed-model and condo developments, where parts of the property are sold, offer quicker returns on investment and make projects more attractive to developers. Tourism accounts for about 25% of Montenegro’s GDP, so it’s a logical focus. It’s encouraging to see that this isn’t just about foreign investors; local companies are also major players. For instance, the Hotel Montis is primarily owned by local investors, and the Hyatt, operational since 2023, is fully owned by a local entity.

CEELM: Apart from hospitality, are there any other sectors of note in the mix?

Komnenic: Apart from hospitality, we see a lot of interest in residential developments, though finding suitable locations, particularly for high-scale projects, is challenging. The capital city of Podgorica has experienced a price boom, with some areas seeing increases of 80-120%, depending on infrastructure and location.

We are also working on agricultural and solar energy projects of which we would emphasize project Dubrovsko, owned by Sunrise Europe LTD, with an installed power of 229 megawatts that has a grid connection agreement and is in the near-final stage of being ready to build. During the energy crisis in 2022, there was a surge in interest in renewable energy, particularly solar. However, only projects that have secured grid connections are moving forward, as the current infrastructure can’t support all planned developments.

CEELM: Finally, what do you think the next 12 months will look like?

Komnenic: The next year will hinge on how quickly the government and municipalities implement new zoning regulations, promote the country, and potentially target certain types of investments with incentives or fast-track procedures. The construction and zoning law has been under revision for over two years, but progress has been slow due to political instability – Montenegro has seen four urbanism ministers in as many years. This uncertainty has left many investors in a “wait and see” mode, which could impact the entire real estate market going forward.

Montenegro lacks specific legal regulations or national strategies for AI, with current AI activities governed by general legal principles from existing laws. Despite the absence of detailed regulations or strong government support, public awareness of AI is relatively high, with 59.1 % of citizens familiar with the technology. Several initiatives are actively promoting the safe development and use of AI, reflecting a growing public interest in influencing future AI regulations.

Key legal gaps and challenges

The lack of AI-specific regulations poses significant challenges in applying existing laws to AI projects, potentially deterring investment. Key legal areas such as contracts, liability, labour and consumer protection are inadequately addressed in the context of AI, underscoring the urgent need for clearer regulations.

In particular, AI systems often process large volumes of personal data, raising serious privacy concerns in legal frameworks not aligned with the GDPR, as seen in Montenegro. This regulatory gap not only fails to provide adequate guidelines for data protection and privacy issues related to AI, but also heightens the risk of data misuse due to Montenegro’s weak general data protection framework. Although the Montenegrin Personal Data Protection and Free Access to Information Agency has yet to officially address these concerns, its publication of the “Overview of the Council of Europe Activities on AI” in July 2023 suggests that it may be awaiting further European guidelines to align its practices with EU standards.

Regarding the use of copyrighted works for AI training, Montenegro’s Copyright and Related Rights Act lacks exceptions for text and data mining for commercial purposes. The Act’s narrowly defined exceptions do not accommodate the use of copyrighted materials for AI training, and AI-generated works are currently ineligible for copyright protection, as existing legislation requires that a copyrighted work be an individual’s spiritual and intellectual creation, implying it must originate from a natural person.

Promoting AI development

Despite the lack of a clear legal framework, several initiatives are fostering AI development in Montenegro. Both the President and the Government have expressed support for AI, aiming to make Montenegro a regional hub. AI is being integrated into strategic planning, such as in the draft Strategy for Higher Education, and the Innovation Activity Act and Innovation Fund are encouraging AI projects. The Montenegrin AI Association (MAIA) and the IT sector are also actively advancing AI, with notable projects like Uhura Solutions and AI integration in the media.

Future prospects

Montenegro is expected to align with EU AI regulations, particularly the Artificial Intelligence Act, but the lack of proactive government measures could cause it to fall behind neighbouring countries. In addition, the absence of a clear legal framework creates uncertainty for AI investments. To address emerging challenges, Montenegro will likely need to develop a national AI strategy or additional legislation, especially in areas like AI ethics.

By Andrea Radonjanin, Partner, and Luka Veljovic, Attorney at law, Schoenherr

The Parliament of Montenegro passed the Law on the Use of Energy from Renewable Sources, which was published in the Official Gazette of Montenegro on August 23rd, 2024. The Law will enter into force on the eighth day from the day of its publication in the Official Gazette of Montenegro.

This Law fully transposes Directive 2018/2001/EU of the European Parliament and Council dated December 11th, 2018, on the promotion of the use of energy from renewable sources – CELEKS 32018L2001.

The Law defines renewable energy sources as renewable non-fossil energy sources, such as wind energy, solar energy (solar thermal and solar photovoltaic) and geothermal energy, ambient energy, tidal energy, wave energy and other marine energy, hydropower, biomass, landfill gas, gas from wastewater treatment plants and biogas.

The Law regulates in more detail the matter of planning the renewable sources energy share and administrative procedures; incentive systems for generating electricity from renewable sources; market premium systems; feed-in tariff system for small plants and demonstration projects; financing the incentive system; buyers-producers; Energy communities; use of renewable energy in traffic; use of renewable energy in the heating and cooling sector; criteria of sustainability and savings of greenhouse gas emissions for biofuels, bioliquids and fuels from biomass; measures and activities for the realization of public interest, and similar.

As a novelty, the Law recognizes Energy communities, which regulates the grouping of natural and legal persons into communities of renewable energy sources, which is based on open and voluntary participation with the aim of promoting and using renewable energy.

Also, the Law specifically regulates the use of renewable energy in traffic, which significantly affects the obligations of fuel suppliers, achieving the renewable energy share in traffic, encouraging the clean energy transition, use of renewable energy sources in the transport sector and the establishment of the necessary infrastructure.

An interesting aspect is the regulation of the market premium as a type of incentive that is calculated during the accounting period and is paid as the difference between the reference market price and the realized price based on the contract on the market premium, concluded between the authorized contracting party and the temporary privileged producer – if in the accounting period the reference market price price higher than the realized price, privileged electricity producers are obliged to pay the difference between these prices to the authorized contracting party in accordance with the contract on market premium. Then it is a negative market premium. Law stipulates the possibility for privileged producers to exercise the right to compensation for electricity that they could have produced and made available to the system operator, but were prevented from delivering such energy due to delivery restrictions by the competent system operator. In addition, the obligation to adjust the realized price at the auction with the inflation rate is determined, as well as the amount of incentives in the market premium system is determined based on the reference market price on the day-ahead electricity market.

The law also defines the right to a fid-in tariff, which can only be acquired in connection with small plants or demonstration projects. The right to.. Namely, the authorized contracting party is obliged to sell the electricity purchased from the privileged producer to the supplier and to the self-supplier customer during the incentive period.

The main effects of the adopted Law are the creation of better conditions for investing in the construction of facilities for generating electricity from renewable sources and highly efficient cogeneration. The Law represents an improvement in the legal framework for the use of electricity generated from renewable sources in the electricity sector, as well as in the heating, cooling, and transport sectors. Furthermore, the Law establishes additional improvements to the regulatory framework for the production of electricity by buyers-producers.

It is estimated that the adoption of this Law will have a positive effect on the buyers due to the development of the electricity market and the improvement of the regulatory framework for electricity production by customers – producers, as well as on investors in terms of improving the possibility of investing in renewable energy sources.

By Aleksa Jankovic and Dajana Drljevic, Associates, JPM & Partners

In August 2024, Montenegro’s government took a significant step towards modernising the country’s gambling industry by adopting the Fiscal Strategy for 2024-2027. This ambitious plan, aimed at ensuring macroeconomic stability and responsible governance, includes substantial changes to the gambling framework that could reshape the sector’s future.

The highlight of these changes is the upcoming Law on Gambling, which is expected to introduce a more systematic and sustainable framework for gambling operations in Montenegro. While the draft of the new law has not yet been made public, the Fiscal Strategy outlines several key areas of reform that the law will address.

One of the main objectives of the new law is the reform of the concession system for organising gambling activities. The new regulations will significantly amend the requirements for acquiring and revoking these concessions, aiming to create a more strict and accountable process. This move is expected to ensure that operators meet higher standards of compliance.

Another critical aspect of the law will be the strengthening of the competencies of the Gambling Administration and the Gambling Inspection Department. By providing these bodies with clearer and more effective powers, the government aims to improve the regulation and oversight of gambling activities, reducing the potential for operating in the grey area.

The new law will also emphasise safer gambling practices, with a strong focus on protecting minors. This includes an introduction of rules on the advertising of gambling activities and a review of the regulations concerning the minimum distance between gambling establishments and educational institutions. Additionally, the law is expected to introduce a system for allocating public revenues from the gambling sector to fund initiatives aimed at mitigating the negative social impacts of gambling.

Besides the Law on Gambling, the Fiscal Strategy also proposes amendments to the Law on Personal Income Tax. These amendments, which have already been put into procedure, will introduce a 15% tax on gambling earnings, calculated as the total winnings after deducting the amount invested. This tax should be calculated and withheld by the gambling operator and remitted to tax authorities by the next business day.

Both the new Law on Gambling and the amendments to the Law on Personal Income Tax are expected to be enacted by the end of 2024. These changes are part of Montenegro’s ongoing efforts to enhance the integrity and boost public revenues in the gambling sector by an estimated several million euros annually. As the details of these legislative changes unfold, it will be crucial for operators and investors to stay informed and prepared to adapt to the new regulatory landscape in Montenegro.

The information in this document does not constitute legal advice on any particular matter and is provided for general informational purposes only.

By Ivan Nonkovic, Partner, Sava Draca, Senior Associate, and Filip Vukovic, Associate, Karanovic & Partners

At its session held on June 6^th of this year, the Parliament of Montenegro adopted, as part of a set of seven so-called IBAR laws, a new Lobbying Act regulating the conditions and manner of conducting lobbying activities, rules, and other significant matters related to lobbying.

The Lobbying Act, which for the first time introduces normative regulations on lobbying activities, was passed at the end of 2011, while the second act in this area came into force at the end of 2014. The reason for the reform of the existing act stems from the need to comply with the international practices aimed at achieving the best normative solutions to prevent unauthorized influences in the process of adopting regulations and other general acts, as well as preventing potential corruption, enhancing workplace transparency in institutions and effectively enforcing the law in practice.

Some of the key novelties compared to the previous legal resolutions include:

1. Regulation of Lobbyists: the new act introduces stricter criteria for the registration of lobbyist, which includes additional transparency obligations regarding their activities and reporting;
2. Control and Supervision: enhanced measures for control and supervision of lobbying activities are introduced, including more precisely defined sanctions for non-compliance with legal provisions;
3. Ethics and Integrity: new provisions regarding the ethical conduit of lobbyists have been added, to prevent conflict of interests and corruption;
4. Access to Information: the law now more thoroughly regulates access to information that lobbyists must provide, which leads to the increase of the transparency in their work. This promotes the principles of public accountability, integrity and the avoidance of conflicts of interest.

The term lobbying entails influencing representatives of the executive and legislative branches in the process of creating laws and other regulations and acts under their jurisdiction to achieve the interests of the lobbying client, while considering public interest. Thus, the proper regulation of this activity is crucial as it ensures that such influence is exercised legally. This is particularly significant in smaller regions, such as Montenegro, where potential lobbying clients often choose to exert influence through direct and often informal communication, which indicates that lobbying activities still occur outside the legal framework.

These amendments are part of a broader effort to improve the legal framework in accordance with European Commission recommendations, which is crucial for Montenegro’s progress towards EU membership.

By Vasilisa Pejovic, Attorney at Law, VP Law Firm

The Montenegrin Ministry of Internal Affairs recently implemented a Rulebook on Ultimate Beneficial Owner (“UBO”) Registration, effective from 27 July 2024. It introduces significant changes in how legal entities in Montenegro must manage their UBO information as part of the country’s effort to strengthen its fight against money laundering.

For legal entities established before the new Anti-Money Laundering (“AML”) law, which came into effect on 20 December 2023, there is a crucial compliance deadline. These legal entities must register or update their UBO information in the UBO Registry by 26 August 2024.

To comply with the new Rulebook, legal entities must use the online application and a qualified e-signature from an employee, authorized representative, or attorney with permanent residence in Montenegro. Required information includes details on paid capital, bank accounts, authorized representative, and UBOs, supported by relevant documents. Legal entities with complex ownership structures (owned by at least one legal entity) must also provide an ownership structure scheme and registry extracts for each legal entity within the ownership chain.

In addition, the Rulebook introduces automated supervision of the UBO Registry, aiming to ensure continuous compliance and up-to-date information. The most relevant aspect of this system is expected to be the automatic flagging of legal entities that fail to perform an annual update by 31 March each year.

Non-compliance can result in significant penalties, including fines up to EUR 20,000 for the legal entity and up to EUR 2,000 for the authorized representative.

The information in this document does not constitute legal advice on any matter and is provided for general informational purposes only.

By Sandra Perisic, Senior Associate, and Filip Vukovic, Associate, Karanovic & Partners

Montenegro is making significant strides towards European Union membership by satisfying interim benchmarks in negotiation chapters 23 and 24, essentially aimed at strengthening the rule of law, according to BDK Partner Luka Popovic who shares a number of updates on important legislative changes in the country.

“Satisfaction of interim benchmarks under Chapters 23 and 24 in negotiations with the EU have been the key topics these days,” Popovic begins. “These chapters focus on judiciary and fundamental rights, as well as justice, freedom, and security. A few years ago, the EU revised its negotiation model, requiring candidate countries to satisfy criteria on the most critical chapters before progressing with other negotiations.” As Popovic reports, obtaining a positive report on satisfying these criteria represents “significant progress for Montenegro, offering a realistic perspective of joining the EU by 2028. Given the current geopolitical situation, the EU might expedite the process to send a strong message in the Western Balkans. I must say, this optimism is already influencing investors, as some are eyeing Montenegro as a future EU member state.” 

Focusing on specific legislative measures that Montenegro took to align with these EU requirements, Popovic reports heightened legislative activity in the past few months. “We’ve adopted around ten laws related to the court system, the state prosecutor and the special prosecutor for organized crime and corruption, fight against corruption, media. Although these laws were passed somewhat hastily and may require fine-tuning later, they meet the preliminary EU criteria.” Additionally, he reports there have been updates to labor and company laws, focusing on refinements rather than revolutionary changes.

Highlighting a few upcoming legislative updates that businesses should be aware of, Popovic shares that a new company law is being prepared and is currently under public debate. “There’s also a draft for a new labor law, open for business comments. We expect a new competition protection law later during the year, and a set of energy laws in July.” Crucially, Popovic stresses that the expected amendments of the energy law are “particularly significant, as they will enable more flexible terms for connecting new generators to the grid, despite current limitations.”

Continuing, Popovic places a focus on the challenges the energy sector faces. “The energy sector is crucial for Montenegro, especially with numerous renewable projects in the pipeline. However, the existing grid infrastructure cannot accommodate new projects without significant investment.” The solution, as Popovic reports it, has been to amend the energy law to allow operational limitations, meaning generators can connect to the grid but must assume the risk if the grid cannot intake their energy. “This flexibility has been welcomed by investors who are ready to invest but were hindered by the connection rules.” 

Popovic goes on to report that the Montenegro government has recently “terminated a concession agreement for the Briskovo mine, the largest concession project in Montenegro. This decision followed local activist concerns and a government review that found the investor allegedly in breach of certain obligations. Popovic feels that the termination was not justified and says that it could impact “Montenegro’s reputation as an investment destination and potentially lead to arbitration.”

Finally, Popovic reports there are general reforms underway, focusing on “tax collection and the organization of the registry of commercial entities.” Although there are obvious staff issues in the registry of commercial entities, the government seems aware of the issue, and it seems to be seeking solutions. “Additionally, last year, we amended the anti-money laundering law, and the focus afterward has been put on making the Ultimate Beneficial Owner registry functional. The registry still faces technical challenges but is expected to be fully operational by the end of the year.” In conclusion, Popovic shares that he feels Montenegro to be at a pivotal point. “The legislative changes and EU accession prospects are promising, but it’s crucial to maintain momentum and address existing challenges. If we continue on this path, Montenegro could see substantial economic growth and stronger integration into the European community.”

JPM Partners has successfully represented photographer Stevo Vasiljevic before the Court of Appeals of Montenegro in a case against NGO Radio Skala concerning a violation of copyright rights.

According to JPM Partners, “with this ruling, the court not only established the infringement of copyright but also prohibited the defendant from unauthorized publication of the plaintiff’s photographs on its website and obligated the association to compensate the plaintiff for both material and non-material damages, which represents a step further in the development of case law regarding the determination of the amount of compensation for material damages in cases of copyright infringement regarding photographs.”

The JPM Partners team included Partner Marija Zivkovic and Associate Mina Coguric.

On 13 May 2024, the Parliament of Montenegro passed the Draft Law on amendments to the Copyright Law. The entry into force is yet to be announced, but it could be expected after June 2024.

The primary objective of these amendments was to align domestic legislation with the Marrakesh Treaty, which facilitates access to published works for individuals who are blind, visually impaired, or have other difficulties using printed materials. The amendments also aim to comply with EU directives issued in 2017. Unfortunately, newer EU directives are not covered by these changes.

The amendments primarily address the accessibility of content for disabled individuals and cable retransmission. However, they do not cover the direct injection of audio-visual content.

Under the revised copyright Law, the author retains the exclusive right to allow or deny the simultaneous, unchanged, and unabridged retransmission of their work’s first transmission contained in television or radio programs intended for public reception. The right of cable retransmission encompasses retransmission using a cable or microwave system for public reception, carried out by an individual other than the one who performed the first broadcast.

The revised Copyright Law also elaborates on the accessibility of copyrighted products for disabled individuals, referred to as “Users”. It states that a User, or someone acting on their behalf, is permitted to create an accessible format copy of a copyrighted product or related rights subject, without obtaining the appropriate rights or paying compensation, provided the User has legal access to it. This copy is intended for the User’s exclusive use.

Certain institutions, such as The Public Library for the Blind People of Montenegro, National Library of Montenegro, and organisations serving disabled individuals and non-profit NGOs that offer education, training, adapted reading, or information access services, are allowed to create accessible format copies of copyrighted products or related rights subjects. These organisations, referred to as “Authorised Persons”, can distribute these copies, communicate them to the public, or make them available to the User or another Authorised Person on a non-profit basis, solely for the User’s use.

Furthermore, Authorised Persons, Users, or individuals acting on behalf of Users are permitted to import, obtain, or access copies in an accessible format distributed, communicated to the public, or made available to Users or Authorised Persons by Authorised Persons established in other Marrakesh Treaty member states. They can then use these copies for the benefit of Users without the need to obtain any appropriate authorisations or pay compensation. Consequently, domestic Authorised Persons are allowed to distribute, communicate to the public, or make available copies in an accessible format to Users or Authorised Persons established in other Marrakesh Treaty member countries.

Further alignment of Montenegrin Copyright legislation with EU law, including direct injection and exemptions regarding the creation of artificial intelligence (AI) is anticipated in future amendments.

The information in this document does not constitute legal advice on any particular matter and is provided for general informational purposes only.

By Nikola Kliska and Sandra Perisic, Senior Associates, Karanovic & Partners