04 May Abu Dhabi Funding Fails to Kickstart Montenegro’s Agriculture
Despite his excellent English, Montenegrin Businessman Dragan Buric has been having trouble explaining to his American partners and friends why – until recently – he had been unable to start a project in which he invested 13 million euros in Montenegro.
It was because of – electricity. The project, to build stables and dairies was supposed to mean that 60,000 liters of milk would start flowing each day last March. But, administrative problems in the municipality of Bijelo Polje over the supply of water and power to the site, got in the way.
“I tell them that Montenegro is just a baby that has not even started crawling and we are nursing it … Slowly, it will learn to walk, and soon enough, to walk properly,” this Honorary Montenegrin Consul in Panama says.
The new stables and hangers in the huge complex in Pavino Polje, on the road between Bijelo Polje and Pljevlje, remain empty. Were it not for guards and some newly set-up power transformers – and the mast with the flag of Montenegro – it might look like an abandoned film set.
During 2015 and 2016, these buildings really were a set for frequent TV reports, however.
They were the backdrop to the promotion the large loan project for the development of agriculture in Montenegro, which the Abu Dhabi Fund for Development, ADFD, was backing with 50 million US dollars.
Before the then Minister of Agriculture, Petar Ivanovic, brought the cameras and diplomats from Abu Dhabi, Buric and his company, Milkraft, had already bought the land, secured the permits and erected the buildings for a future modern farm, with 420 cows, milking and calving machines.
The ministry signed an agreement loaning Buric 3 million dollars late in 2015. Completion of works was announced for 2016 – and production was to start last March.
Eight more companies were financed from the 50-million-dollar loan that the Abu Dhabi Fund granted the Montenegrin government in June 2015.
Announced with much fanfare, the loan was intended mostly for big players in the market, as they were expected to drive the development of the Balkan country’s otherwise fragmented agriculture system.
However, even when money, ideas and entrepreneurs were ready, collisions with administrative barriers, messy plan documents and the modest capacities of the local communities created problems, according to research by CIN-CG/BIRN.
This caused delays and unnecessary costs related to the postponement of production and the storing of equipment.
The debts of some of the companies meanwhile increased, due to exchange rate differences, as the result of the US dollar strengthening.
It turned out that, even with the help of loans of 1 to 3 million dollars – even after investing significant sums themselves – when it comes to agriculture, Montenegro still does not have sufficiently good ideas and entrepreneurs to realise big projects over a short period of time.
By June of last year, 23 of the 50 million dollars had been handed out in loans.
The government then decided to separate the Fund from the Agriculture Ministry and to place it under the jurisdiction of an Investment Development Fund.
The conditions for obtaining loans were also changed, so that small farmers could take part as well.
But all the information on the loans remains a secret, including the findings of the internal and external auditors.
While the new credit line is awaited, through the Investment Development Fund, experts are divided about the initial strategy – whether supporting major companies was correct, and whether the conditions of the loans should have been tailored to them or to smaller producers.
Contracts kept under a veil of secrecy
Agriculture remains underdeveloped and fragmented in Montenegro, which is estimated to have as many as 49,000 small farms.
The intention of taking the loan from the Abu Dhabi Fund was to provide incentives for export and employment in the farming sector, especially in the undeveloped north of the country.
Although the board of directors of the Fund seated in Abu Dhabi offered Montenegro a loan in June 2014, the government wanted first to negotiate a cut in the interest rate and a longer repayment period.
The agreement, therefore, was not signed until June 2015, under more favourable conditions – with an interest rate of 2.5 per cent, a grace period of four years and a repayment period of 17 years.
By the middle of 2017, the government had signed contracts with 11 companies for projects worth 23.2 million US dollars.
Only nine of the 11 them actually got any money; two did not get loans after the government conducted additional checks.
However, according to the government itself, by halfway through last year, only one of the nine companies, Vektra Jakic, which got a loan to produce wooden fuel bricks, had actually started production.
The loan terms favoured larger companies, which were asked to invest 25 per cent of their own funds for loans up to 3 million US dollars.
The specific conditions under which these loans were granted to various companies are unknown, however, because the individual agreements are not publicly available.
That is why it cannot be proven whether some companies violated the loan conditions, or whether they are running late with implementation.
The Ministry of Agriculture, now run by Milutin Simovic, has refused to show the contracts and accompanying documentation.
“The Investment Development Fund is in charge of the project, so they [the ministry staff] do not have the requested information,” it said.
Meanwhile, the Investment Development Fund rejected CIN-CG/BIRN’s request for information on the contracts, saying that “giving them [to the public] would have an adverse effect on the commercial and other interests of both the Fund and other contractual parties”.
Milorad Vujovic, Deputy Prime Minister at the time, from the ranks of the opposition, says he also failed to see the master agreement and its annexes, agreements and mortgage securities, despite asking to see them.
“Declaring these documents secret is … illegal because they do not meet any of the requirements of the Law on Secrecy of Information, and such a decision of the Investment Development Fund would have to be disputed before the Administrative Court,” he said.
He said he also suspected that the information was “deliberately made unavailable to hide the illegal use of funds from the public”.
However, the former Agriculture Minister, Petar Ivanovic, from the ruling Democratic Party of Socialists, DPS, claims the process of selecting companies was entirely transparent.
He says they received 32 applications and rejected more than half of them, because the companies – instead of applying for new and development projects – applied for a loan to repay previous debts or solve liquidity issues, which was not in line with project goals.
No power flowing – but interest rates rising
Some of the nine companies that were financed faced serious difficulties in the municipalities where they operated from the start.
Some of the projects are now in the final stage, while others are thinking of abandoning the loans because of the high interest rates they are paying due to the currency’s unfavourable exchange rate.
In the municipality of Bijelo Polje, Dragan Buric, owner of Milkraft, says he faced unresolved property-legal relations, there were no water connections, and he waited a year for the electricity connection.
He lost both time and, with each passing month, tens of thousands of euros of “hard-earned” money.
“I want to make something for Montenegro and I am greatly affected by what has been happening,” Buric told CIN-CG/BIRN at the seat of his company, GNC, in Podgorica.
He says he decided to invest in agriculture even though it is the most difficult sector of the economy.
“Serious companies did an analysis and a business plan, and estimated that the north of the country was best for this. When I saw Pavino Polje, I felt that was it,” he said.
The municipality of Bijelo Polje and the Ministry of Agriculture have confirmed that problems occurred in the realisation of this project, but say they have since been rectified. Buric himself now hopes that his dairy farm will be up and running by summer.
But it is not just electricity and water that have created problems for Buric. While he waited to start production, the US dollar rose in value.
When the companies took out loans indexed in dollars, their owners did not expect to lose tens of thousands of euros due to the rise in the dollar in just one year.
Milkraft is paying 70,000 euros in interest per year as it is, during the grace period. Because of exchange rate changes, he claims that he has already lost an additional 50,000 euros.
Cedomir Popovic, director of the company Carine, which is the sole owner of the company AgroCarine, also complains about the exchange rate changes.
“The amount of the principal debt went up from an initial 2.5 million US dollars to 2.56 million … So, in a year and a half, the negative exchange rate differences amount to about 60,000 dollars, or 51,000 euros,” Popovic said.
He now wonders whether such a loan agreement in the long run is profitable.
When the loan agreement was signed, he said, it was acceptable, given the interest rate and repayment period for his loan, which was set at 16 years, with a three-year grace period.
For now, despite the difficulties, Popovic says his company is settling its liabilities under the loan from the Abu Dhabi Fund. But the future is uncertain.
“It will soon be possible to get a loan under the same conditions with commercial banks, and without the risk of negative exchange rate differences, so the possibility of withdrawing from this loan agreement is not ruled out,” he said.
Dilemma of supporting big or small businesses
Although the decision was made to transfer the project from the Ministry of Agriculture in the middle of last year, the Investment Development Fund says it is still in the take-over, analysis and agreement phase with the Abu Dhabi Fund, surrounding the realisation of the loan.
However, it is known that the loan conditions will change and that the minimum size of a loan, now set at a million US dollars, will fall to 200,000 dollars.
The government said the change reflects a wish to secure “a considerably wider scope of users”, and to adjust the conditions to loans’ “real absorption capacity”.
This is interpreted as an admission that the initial loan conditions overestimated the potential of Montenegro’s farmers.
Former Minister Ivanovic, under whose mandate the Fund was formed, still believes it was right to back bigger projects, which would then clear the path for smaller ones like icebreakers.
He doubts that small producers can spearhead the development of Montenegrin agriculture, manage the currency risks or provide guarantees for loans easily.
“Nowhere in the world are small producers driving agriculture forward. Whether someone likes it or not, this can only be done by the major players,” he said.
But, according to the agriculturalist Zeljko Vidakovic, the new concept is a better one. The loan from the Abu Dhabi Fund could have been a good locomotive had it been directed towards “ordinary farmers,” he believes.
However, he fears that Montenegrin agriculture is in such a poor condition that the new loan terms will also be difficult to fulfill, because they are still a stiff test for small producers.
“If you take a loan of 100,000 euros, you will have to provide guarantees worth 150,000, or usually 200,000, euros, so the collateral will always be 50 to 100 per cent of the value of the loan,” he noted.
“I fear that it would be a business barrier, exactly because of the collateral. Only a few farmers have high-value real estate in their villages, which they could mortgage,” Vidakovic added.
He says Montenegro needs a proper Agricultural Fund first. This would provide the guarantees for the farmers, and assess whether their pledged property is of any value.
It would also monitor any possible misappropriation of the funds, “so that the money does not go on buying cars, instead of tractors”.
Fund works in region as well as in Montenegro
The Abu Dhabi Fund is a state agency of the emirate, which mostly provides loans for financing economic and social projects throughout the world.
Apart from aiding development projects in agriculture, the Fund loaned 130 million US dollars to a water supply project in Montenegro.
It funds similar projects in Serbia and Albania.
Some are content with their loans
At the end of November, CIN-CG/BIRN visited Mesopromet in Bijelo Polje, which got 3 million US dollars from the ADFD loan to modernise and expand its production of cured meats and fermented sausages.
Lejla Haskovic, from Mesopromet, said the funds had been used to get equipment and, in part, to finance permanent working capital.
Agro Carine, from Podgorica, claims that, apart from the difficulties over the dollar exchange rate, no problems have arisen over the realisation of its project.
Up to now, they say they have built a restaurant for product tasting, procured agricultural machines and reconstructed the facilities for housing and farming sheep and hay.
A dairy still has not been built, nor has the water tank of 400 cubic meters, but they have been slowed down only by the short construction season.
By mid 2017, nine projects had received backing as part of the Abu Dhabi Project: Agro Carine, Vektra Jakic, Mesopromet, HM Durmitor, Milkraft, Eko-per, F.M.L., MI Goranovic and IM Gradina.
A government document, however, confirms that only one of them, Vektra Jakic, completed all works by the middle of last year.