The Fall of Montenegro's Maritime Economy

Up to the Neck in Debts

The latest troubles of the Kotor-based Jugooceanija company show the extent of the destruction suffered by the most productive branches of Montenegrin economy in the past decade.

AIM Podgorica, October 28, 2001

First Jugooceanija's Grand Mariner was banned from setting sail, and next another of its vessels, the Kosmaj, was ordered docked... Because of debts, the Lloyd insurance company has simply refused to allow the Kotor-based shipping company's largest ships out into the open sea. Jugooceanija executives humbly admitted that they did not have enough money to pay their debts, and the Montenegrin government initially said nothing... It appeared that the Montenegrin fleet was about to become extinct, after a decade of gradual recession.

And then something miraculous happened. An agreement was reached in London between the Lloyd Bank and Jugooceanija on the US$9.3 million the company owes to its London creditors, and both sides were satisfied. At least this is what Jugooceanija's managing board chairman Branko Kovacevic said after the London negotiations in which he had participated. The company's general manager, Zdravko Milosevic, announced a similar meeting with another major creditor, French Credit Lyonais Bank, to which the company owes about US$6.2 million.

The negotiations with the Lloyd Bank, in which the Montenegrin government also took part, were aimed at getting the Grand Mariner back to sea after being anchored near Singapore for a month. It is believed that government support was crucial in changing the bank's initial decision to sell the ship. The Lloyd Bank's order requiring the payment of the US$9.3 million loan, however, mentioned another two Jugooceanija vessels -- the Grand Carrier and the Kosmaj, which are docked in the U.S. ports of Houston and New Orleans. The bank required the payment of a part of the principal -- US$5 million -- to free all three ships, it was said after the negotiations.

The payment schedule envisages that the Montenegrin government pay the bank US$1.5 million for sailors wages and current expenses. The bank will then let the Kosmaj sail, said Kovacevic. In addition, it was agreed that the Kotor company urgently sends written confirmation that it had paid US$2.45 million it owes to a shipyard in Bijela, Montenegro. To do so, the company will have to sell one of the vessels. This will probably be the Grand Carrier, and the money will be transferred to the Lloyd Bank to reduce the debt. If the sale fails to produce US$5 million, the Montenegrin government will add the remainder. After that, Jugooceanija will sign a new agreement with Lloyd providing for the rescheduling of the remaining debt.

These, however, are not Jugooceanija's only debts. On order of the Credit Lyonais Bank, yet another Jugooceanija ship -- the Pelinovo -- was held in Houston. The Kotor company believes it is lost for good. Namely, it was held three times in October alone, twice by order of the French bank and once by the International Teamsters Federation (ITF). The third arrest was announced when Jugooceanija was struggling to recover the ship from the ITF, and it happened only three days after the Pelinovo was freed.

Since the Kotor shipper has only two additional vessels -- the Novi and the Orjen -- which are undergoing repairs at Bijela Shipyard, it is clear that it simply does not have enough cash to do business. In addition, the repairs cost about US$35,000 per day! This hopeless situation has forced Kotor townspeople to cut their losses and hope to recover at least one ship and start from scratch. It is expected that the Grand Mariner will be selected for this role.

"All this happened because we failed to act rationally – certain loans were unfavorable and were not used properly," says Zdravko Milosevic. Milosevic, who is a naval captain by profession, took office at the beginning of October, after the company's financial troubles were already in full swing. His appointment was seen by the public as an attempt by sailors to take the company's fate into their own hands, but only when it began to sink rapidly. Milosevic confirmed that himself by saying: "The sailors had the least to do with mistakes made so far, because the company was led by people who knew next to nothing about maritime economics."

It appears that this contributed much to the gravity of the problem. The London creditors have shown a good deal of fairness and understanding towards the Kotor company. The debt involving the Grand Mariner, the Grand Carrier and the Kosmaj was rescheduled in mid July. Jugooceanija has been meeting its obligations more or less regularly, within the limits of business customs, although the creditors have had to remind it of its obligations rather frequently this year.

However, the market situation deteriorated, and the company bailout program did not even begin. Profits and used ship prices plummeted and endangered the banks. In other words, the ships financed by Lloyd, say Jugooceanija representatives, due to market conditions and their age are now worth less than the Lloyd loans, and the company cannot pay them off. This is why the bankers are in a hurry to sell the vessels as soon as possible and collect their money before it is too late. The situation is similar with Credit Lione, the other major creditor.

Although the state as the majority owner can be criticized over its indifference towards the problems of the maritime economy, as well as Montenegrin shippers, when Jugooceanija is in question it did invest some money to improve the situation. According to data provided in the bailout program, adopted at the beginning of the year, Jugooceanija's debt to the government is US$4.5 million and DM1,5 million. The government can write off this debt, but it shows that ties between the government and the company were getting closer.

Jugooceanija has owed US$16 million to the National Bank of Yugoslavia since 1994, and on Aug. 27, 2000, interest on the debt amounted to US$6,278,885. But to make matters even more incredible, the final balance of Jugooceanija's poor business results and the share of debts and unpaid credits in the total value of the company are considered a business secret!

It is still clear that the survival of the once prestigious international shipping company does not depend only on negotiations with its creditors and its efforts to save at least one vessel from confiscation. On Nov. 17, 2000, the total market value of the company on land -- offices and facilities including those mortgaged with domestic banks -- was US$1,347,520. This sum is not sufficient to even pay salary arrears to Kotor sailors.

Goran Vujovic

(AIM)