China Eximbank provides $47.4 million preferential buyer's credit for Crnogorska Plovidba Cargo Ship Procurement Project (Linked to Record ID#42467)

China Eximbank provides $47.4 million preferential buyer's credit for Crnogorska Plovidba Cargo Ship Procurement Project On January 26, 2010, the Export-Import Bank of China and Crnogorska plovidba A.D.

Kotor — a Montenegrin state-owned shipping company — signed a $47.396 million (EUR 34,385,798) preferential buyer's credit (PBC) agreement [contract ID#09PLEX0250255] for the Crnogorska Plovidba Cargo Ship Procurement Project. The Government of Montenegro issued a sovereign guarantee for the loan.

The loan (PBC) carried the following borrowing terms: a maturity of 15-years, a grace period of 5-years, and a fixed interest rate of 3.0%.

After the expiration of the loan’s grace period, the borrower was expected to make semi-annual repayments of principal and interest to the lender worth $2.7 million.

The proceeds of the loan were to be used by the borrower to pay for approximately 85% of the cost of the two ships, which cost $27.88 million each. Crnogorska plovidba A.D. Kotor was expected to cover the remaining 15% ($8.364 million) of the cost of acquiring the ships.

The loan's (principal) amount outstanding was $47,396,000 (EUR 34,385,798) as of December 31, 2013, $26,187,925 (EUR 23,330,000) as of December 31, 2019, $21,363,363 (EUR 17,370,000) as of December 31, 2020, and $14,640,000 as of December 31, 2021.

The purpose of the project was to finance the procurement of two so-called ‘handymax’ ships (or handymax bulk carriers).

Montenegro once possessed a merchant fleet of 27 ships, but they were all sold or decayed from a lack of maintenance because of the economic crisis from the Yugoslav Wars of the 1990s. Shanghai Shipyard Co., Ltd. and Poly Technologies were the contractors responsible for building the ships. Each ship was 179.9 meters long and 28.4 meters wide and had the capacity to transport 35,000 tons of cargo.

The ships were to be used by Crnogorska plovidba A.D. Kotor to transport bulk cargo such as grain, timber, and ore. The deadline for the delivery of the first ship was 21 months after the loan signing (October 2011). The deadline for the delivery of the second ship was 24 months after the loan signing (January 2012).

The first ship — known as ‘Kotor’ — was delivered on January 1, 2012. The second ship — known as ‘21st May’ (Dvadesetprvi maj) — was delivered on August 31, 2012. However, the Crnogorska Plovidba Cargo Ship Procurement Project was plagued by controversy.

On December 10, 2020, the Agency for Protection of Competition—a body established through the EU integration process with a mandate to investigate anti-competitive behavior—decided to open an investigation into state aid granted by Montenegro’s Ministry of Transport and Maritime Affairs (later renamed the Ministry of Capital Investments) to Crnogorska plovidba A.D.

Kotor in the amounts of EUR 4,913,358 in 2018 and EUR 4,830,093 in 2019 (to help Crnogorska plovidba A.D. Kotor make loan repayments to China Eximbank in 2018 and 2019). It subsequently ruled that these loan repayments represented unlawful state subsidies. On January 21, 2021, the borrowing institution (Crnogorska plovidba A.D.

Kotor) was responsible for making a $2.7 million semi-annual repayment. However, it failed to do so.

Shortly thereafter, the Government of Montenegro announced that it had reached an agreement with China’s Eximbank on a temporary deferral of the repayment obligations of Crnogorska plovidba A.D. Kotor.

Then, ahead of the next semi-annual repayment obligation of $2.7 million coming due on July 21, 2021, Crnogorska plovidba A.D.

Kotor informed the Government of Montenegro that its did not have sufficient funds to make the principal and interest payment.

The Government of Montenegro reportedly made the July 21, 2021 repayment without activating the sovereign (repayment) guarantee, which would have allowed the creditor (China Eximbank) to demand that that guarantor (the Government of Montenegro) immediately repay the entire outstanding debt of the borrowing institution (Crnogorska plovidba A.D.

Kotor). In 2023, Crnogorska plovidba A.D. Kotor again could not fully meets its repayment obligations to China Eximbank.

Despite a ruling from the anti-trust agency declaring state guarantees illegal, the Government of Montenegro had to provide $3.6 million to meet its obligations as the guarantor of the loan from China Eximbank. Then, on January 21, 2024, Crnogorska plovidba A.D. Kotor missed another $2.7 million principal and interest instalment (repayment) to China Eximbank.

It again asked the the Government of Montenegro make the repayment on its behalf and the Government of Montenegro did so in February 2024.