Montenegro seeks funds to meet aluminium smelter's debts

Montenegro is in talks with unspecified lenders to secure funds to pay two banks owed 102 million euros ($132.96 million) by the country's loss-making aluminium smelter, the finance ministry said on Tuesday. Montenegro had guaranteed the debts of the Kombinat Aluminijuma Podgorica smelter and the banks - Hungary's OTP and Russia's VTB bank - have asked the government to pay up.

The government had expected the banks to do this and last week revised its 2013 budget to secure extra borrowing.

The smelter, which employs 1,200 people and accounted for 4.7 percent of the country's economic output last year, soaks up 3 million euros of state subsidies every month and lost 16.2 million euros in the first quarter of the year.

The state has a 29 percent stake in the plant, as does Russian billionaire Oleg Deripaska's Central European Aluminium Co. Small shareholders own the rest.

The finance ministry said: "Refusal of the state to honor its obligations would have unforeseen consequences."

The draft budget revision, which awaits parliamentary approval, looks for payment of 61 million euros ($79 million) for the smelter's unpaid electricity bills to power company Elektropirvreda Crne Gore and a 46.4 percent increase in borrowing from a previously established 220 million euros.

The government had initially set budget revenues at 1.6 billion euros or 33.3 percent of output and targeted a deficit of 2.7 percent of gross domestic product.

In June, the government had asked a local commercial court to consider whether the smelter fulfilled the conditions needed for bankruptcy proceedings to start over its total debt of some 350 million euros, including electricity bills.