China Eximbank provides $46.4 million preferential buyer's credit for Barska Plovidba Cargo Ship Procurement Project (Linked to Record ID#42327)

Project narrative

On January 29, 2013, the Export-Import Bank of China and Barska plovidba A.D. Bar (Montenegro Lines) — a Montenegrin state-owned shipping company — signed a $46.4 million (EUR 33,663,200) preferential buyer’s credit (PBC) agreement [contract ID#09PLEX0250255] for the Barska Plovidba Cargo Ship Procurement Project. The Government of Montenegro issued a sovereign guarantee for this loan on the same day. The loan (PBC) carried the following borrowing terms: a maturity of 20 years, a grace period of 5 years, and an interest rate of 2%. 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 $1.95 million. Its (principal) amount outstanding was $9,296,429.31 (EUR 6,732,640) as of December 31, 2013, $41,891,700 (EUR 37,320,000) as of December 31, 2019, $38,717,252 (EUR 31,480,000) as of December 31, 2020, $37,140,013.93 (EUR31,390,000) as of December 31, 2021, and $32,020,808 (EUR30,450,000.00) as of December 31, 2022. The purpose of the project was to finance the procurement of two Chinese-made cargo ships (‘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. Poly Technologies — a Chinese state-owned enterprise — was the contractor responsible for the design and construction of the cargo ships. Each of the bulk carriers — known as ‘Bar’ and ‘Budva’, respectively — has the capacity to transport 36,000 tons of cargo (36,000 DWT). The ‘Bar’ and ‘Budva’ were constructed at CSC Jinling Shipyard, and handed over to Barska plovidba A.D. Bar (Montenegro Lines) upon completion. The ships began operations on September 18, 2014, and October 8, 2014, respectively. However, the Barska Plovidba Cargo Ship Procurement Project was plagued by controversy. On January 18, 2021, 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 Barska plovidba A.D. Bar in the amounts of EUR 3 million in 2019 (to help Barska plovidba A.D. Bar make loan repayments to China Eximbank in 2019). It subsequently ruled that these loan repayments represented unlawful state subsidies. Minority shareholders of Barska plovidba A.D. Bar announced at the time that they would go to court to protect their interests. Then, on January 21, 2021, the borrowing institution (Barska plovidba A.D. Bar) was responsible for making another $1.95 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 Barska plovidba A.D. Bar. Then, twenty days ahead of the next semi-annual repayment obligation of $2.7 million coming due on July 21, 2021, Barska plovidba A.D. Bar 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 (Barska plovidba A.D. Bar)