NewsGovernment Initiates Amendment to Concession Agreement for Airports

Government Initiates Amendment to Concession Agreement for Airports

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The government is working on resolving contentious issues arising from the current concession process for the Airports of Montenegro, highlighted by the consultant International Finance Corporation (IFC), a part of the World Bank Group. This information was confirmed by the Ministry of Transportation and Maritime Affairs (MSP), led by Filip Radulović (PES).

The engagement of IFC as a consultant in the process of granting a 30-year concession for the airports in Tivat and Podgorica, initiated during the tenure of the DPS government under Prime Minister Duško Marković, lasted from February 2018 to February 2021.

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During that period, the IFC identified challenges that needed to be addressed to protect the interests of the Government of Montenegro. Additionally, it aimed to ensure that the envisaged modernization of airport infrastructure aligns with industry standards and best practices. This document was submitted to the government in 2020, as announced yesterday by the Ministry of Transportation and Maritime Affairs (MSP).

Earlier, Vijesti reported parts of one of the analyses prepared by the Ministry and Airports of Montenegro regarding the final decision on whether to proceed with the concession of airports. Among other things, the document highlighted numerous shortcomings in the current airport concession award process, initiated in 2019 and reaching the second phase, where three bidders entered the shortlist to submit their final offers.

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However, in a letter to the government in 2020, the IFC consultant stated that they do not endorse the analysis of passenger flows conducted before the pandemic. They warned the government that the 2011 Master Plan for airport development is outdated and a new one must be developed. The IFC emphasized that ‘the parameters defined in the Concession Agreement jeopardize the feasibility of the transaction and the integrity of the tender procedure,’ and that ‘the proposed form of the Concession Agreement does not protect the interests of the Government of Montenegro.’

Concerns were also raised about unresolved property issues related to nearly all the real estate on which Tivat Airport is built and the area where it should expand. Without addressing these issues, the concession could be at risk of failure. The consultant also pointed out that ‘Montenegro’s laws do not recognize tripartite agreements,’ leading the IFC to believe that this could result in zero final bids.

In addition to the deficiencies in the current concession process highlighted by the IFC, the analyses also pointed out potentially inadequately defined catches from the public call for interested bidders, outdated analysis of passenger flows, and particularly the absence of so-called ‘minimum technical requirements’ towards the future concessionaire. This absence could make it challenging to compare offers for the development of Montenegrin airports.

The former government of Prime Minister Duško Marković initiated the process of granting Montenegrin airports into a long-term concession in 2019. They completed the prequalification of interested bidders, reaching the stage where three shortlisted bidders – Aeroport de Paris and TAV, Incheon Airports, and Corporation America Airports – were expected to submit final bids.

Marković’s government, intending to lease the airports for 30 years, projected in 2020 to receive an immediate one-time fee of 100 million, an annual variable concession fee of 10% of the total revenue generated by the concessionaire, and a minimum investment of 200 million EUR by the concessionaire in the airports. The investment aimed to ensure that airport capacity would keep pace with tourism development and the increasing number of visitors. However, this process was not completed by Marković’s government, and it was not concluded by the subsequent governments of Prime Ministers Zdravko Krivokapić and Dritan Abazović.

Negotiations with the consultant regarding the potential continuation of the tender

The Ministry of Transportation and Maritime Affairs (MSP) informed Vijesti yesterday that the current government, led by Prime Minister Milojko Spajić (PES), recently gave approval to continue negotiations between the ministry and the International Finance Corporation (IFC) ‘regarding the continuation of the second phase of the tender for the concession project of Airports of Montenegro.’

Upon the arrival of the new government, we identified numerous shortcomings in the concession agreement, as also pointed out by the consultant. IFC has already prepared a proposal for possible solutions that will be implemented in the concession agreement, all with the aim of protecting the state’s interests – stated the MSP, adding that ‘according to the submitted IFC proposal, workshops are planned in the coming period to address the challenges identified in the previous period.’

Only when an agreement is reached and all disputed points in the concession agreement are resolved will the conditions that interested companies need to meet be defined. In this way, the Ministry of Transportation and Maritime Affairs and the government are taking preventive action, developing infrastructure, and safeguarding the state’s interests – emphasized the ministry led by Minister Filip Radulović.

The government is considering four options

The government has the option to continue the current concession process after correcting the identified deficiencies, choosing a new operator for Montenegrin airports from the three shortlisted bidders. The second option is to adequately prepare and launch a new tender to select a concessionaire, a process estimated to take about three and a half years until completion, when the lessee would take over the airports in Tivat and Podgorica.

The third option, proposed to the government last year by the current executive management of Airports of Montenegro (ACG) led by CEO Vladan Drašković, is to keep the airports in state hands. The document ‘Strategic Business Plan – Current Status and Dynamic Presentation of the Path to the Projected Goal,’ prepared almost a year ago by Drašković’s team and submitted to the Ministry of Transportation and Maritime Affairs, shows that ACG, free from political appointments and management along party lines, can be a successful and profitable company. It can independently ensure its own development in line with the needs of the state. According to the plan, ACG could achieve a profit of over 120 million EUR in the next seven years, with a simultaneous investment of 138.4 million EUR in the development of both airports.

The fourth and last option is for the state to retain ownership and strategic management of the airports but temporarily entrust operational management to a reputable foreign management based on a specific management contract.

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