Commercial laws of Montenegro

An assessment by the EBRD

January 2014
COMMERCIAL LAWS OF MONTENEGRO
AN ASSESSMENT BY THE EBRD
January 2014
Legal system ....................................................................................................................................................................... 2
Constitutional and political system .............................................................................................................................. 2
Judicial system............................................................................................................................................................... 2
Recent developments in the investment climate ........................................................................................................ 3
Freedom of information ................................................................................................................................................ 3
Commercial legislation ....................................................................................................................................................... 4
Infrastructure and Energy................................................................................................................................................... 4
Concessions and PPPs .................................................................................................................................................. 4
Energy............................................................................................................................................................................. 6
Gas ................................................................................................................................................................................. 8
Energy efficiency/renewable energy ............................................................................................................................ 8
Public procurement ....................................................................................................................................................... 9
Telecommunications ................................................................................................................................................... 12
Private Sector Support ..................................................................................................................................................... 15
Access to finance ......................................................................................................................................................... 15
Capital Markets ........................................................................................................................................................... 16
Corporate Governance ................................................................................................................................................ 17
Insolvency .................................................................................................................................................................... 20
 EBRD | COMMERCIAL LAWS OF MONTENEGRO – LEGAL SYSTEM Page | 2

There are two first instance commercial courts,

Legal system appeals from which lie to the Appellate Court. The
commercial courts can hear any disputes between
legal entities (non-natural persons), and certain
Constitutional and political categories of dispute, such as those relating to
system intellectual property, competition, and insolvency.
Administrative matters are heard by the first instance
The current Constitution of Republic of Montenegro Administrative Court, with appeals lying also to the
was adopted on 19 October 2007. In July 2013, a Appellate Court. The Supreme Court is the final
set of constitutional amendments were adopted, appellate instance in all matters, with commercial
aimed at enhancing independence of the judiciary. In matters being heard by the specialised Panel for
adopting the constitution, the Montenegrin Commercial Disputes.
parliament has taken one of the essential steps for
joining the European Union (EU). It was stipulated as The Judicial Council is responsible for appointing
a condition for a prospective member state in the judges and for ensuring the overall autonomy and
Stabilisation and Association Agreement (SAA). independence of the court system. It is composed of
Pursuant to the new Constitution the Parliament has ten members, half of whom are judges. The Judicial
the ability to elect and dismiss the Prime Minister Training Centre (JTC), functioning as a department
and members of the Government. The Parliament within the Supreme Court, is responsible for judicial
consists of 81 Members and has a mandate of 4 training and runs separate programmes for sitting
years. and candidate judges.

The Constitutional Court is composed of five justices The EBRD Judicial Decisions Assessment 2012
nominated by the President and appointed by the found court judgments in commercial law matters to
Parliament for a nine-year term. Either at its own be moderately predictable and of reasonable but
initiative, or at the initiative of a government agency variable quality. The pace of justice was considered
or an interested third party, the Constitutional Court relatively slow. There remains a significant case
examines the constitutionality and legality of backlog, which is being reduced slowly: in 2011
legislative acts, examines alleged violations of the there was a 4% reduction in the backlog compared to
Constitution by the President, hears complaints 2010. Judges continue to have a large workload,
involving the violation of constitutionally protected despite Montenegro having one of the highest ratios
rights and freedoms, and rules on conflicts of of judge to population amongst the Council of Europe
jurisdiction between various levels or different member countries. The lack of a formal system to
branches of government monitor the length of trials has been noted as a
deficiency in the current system and is an area of
The Republic of Montenegro has a unicameral suggested reform. Access to court judgments has
Assembly composed of 71 deputies directly elected improved recently, with decisions of appeal courts
for a four-year term. The Assembly can impeach the now generally available, contributing to greater
President if the Constitutional Court rules that the certainty in legal proceedings. However, more work
President has acted unconstitutionally. The President remains to be done in this area; full public access to
proposes to the Assembly the candidates for the decisions at all instances would facilitate the
position of Prime Minister as well as the president country’s efforts to strengthen the transparency and
and justices of the Constitutional Court. accountability of judiciary.
The Prime Minister is nominated by the President One of the main on-going concerns relating to the
and appointed by the Assembly. The candidate for judiciary is the perception that it remains significantly
the position of Prime Minister proposes his politicised. This is referred to in recent reports of the
programme and the list of Ministers to the Assembly. European Commission as one of the main challenges
If the Assembly fails to adopt the programme, the confronting Montenegro on its path to accession.
President nominates another candidate for the Among recent measures taken to address these
position of Prime Minister within ten days. The issues are the establishment of a Judicial Disciplinary
Assembly may dismiss the Government by a vote of Commission, as well as a Commission for conducting
no confidence. The Prime Minister may request the new written tests for candidate judges. A new code of
Assembly to recall any member of the Government. ethics for judges and prosecutors was recently
adopted, and a commission created to oversee
Judicial system compliance with it. In additional, the institutional
effectiveness of the Judicial Council has been
Montenegro’s judicial system consists of courts of enhanced by the adoption of detailed rules of
general jurisdiction covering both civil and criminal procedure; however greater transparency in the
matters, and specialised commercial and appointment of members to the Judicial Council
administrative courts. The general courts are made would be welcome, and is currently being considered
up of 15 first instance “basic” courts, with appeals by the government.
lying to one of two second instance “higher” courts.
 EBRD | COMMERCIAL LAWS OF MONTENEGRO – LEGAL SYSTEM Page | 3

Weaknesses in the enforcement of commercial law reflective levels. In December 2011 the energy
judgments are another concern. Recent measures to regulatory agency of Montenegro approved an
improve the situation include the establishment of a increase in electricity prices to compensate the
bailiff service. This has entailed the transfer of electricity generation company, EPCG, for its rising
enforcement powers from specialised departments production and import costs. The regulator approved
established within the first instance “basic” courts to an average increase in tariffs of 6.13 per cent. The
new public bailiffs, following the adoption of the Law highest increases of on average 6.7 per cent were
on Enforcement and Security of Claims in July 2011 applied to households. This represents a partial
and the Law on Public Bailiffs in December 2011. reversal of moves by the energy regulator last year to
Under the new system, the bailiffs rather than courts lower consumer tariffs.
will be responsible for the issuance and
implementation of enforcement orders in all matters
other than those concerning family and labour
Freedom of information
relations, and requiring a debtor’s personal Unlike the other countries in the region Montenegro
performance. The system is not yet functional. did not establish a general right of freedom of
Priorities are now to recruit and training bailiffs and information (FOI) in its Constitution.1 Article 19 gives
professionalise the new role. everyone a right to "timely and complete information"
about the environment. Article 31 gives individuals a
Recent developments in the right to access personal information and prevent the
abuse of that information.
investment climate The first single act (the Law on Free Access to
The Republic of Montenegro has continued to Information) was adopted in November 2005, to
improve its legal framework in recent years, with the some extent to fall in line with the rest of the
view of harmonising it with the EU legislation. countries in the region.
In June 2012, the country began formal accession Most recently Montenegro adopted a new law on FOI,
talks with the EU. Consequently, the Montenegrin the Law on Free Access to Information, at the end of
Government has put forward a set of amendments to 2012, this entered into force in February 2013.
the Constitution aimed at limiting political influence
The new law will provide for, amongst other things;
over key judicial appointments, which is one of the
an effective oversight of the implementation of
EU’s key recommendations for national judicial
regulations on free access to information by a single
reform.
second-instance body, which will be composed of
Also, as part of its EU harmonisation efforts, the non-partisan professionals; regular quarterly
Government of Montenegro has been working on reporting on the application of the Law by officers
strengthening and augmenting laws governing tasked with addressing the requests for free access
business activities. For example, a new Law on to information to a single second-instance body;
Protection of Competition came into force in October creation of a list of documents that must be
2012. It regulates both market behaviour (restrictive proactively published by each institution (government
agreements and abuse of dominance) and merger ministry, agency and other bodies tasked with public
control. With respect to the latter, the most duties) subject to the Law; and promotion of the idea
significant changes relate to notification thresholds that free access to information is obligatory, with
and deadlines, as well as deadlines within which the some restrictions in place to provide for justifiable
newly established national competition authority exceptions.
must review mergers and issue appropriate
The law, when it was published in draft was
decisions.
subjected to substantial criticism as it was rated as
Montenegro became a full member of the World being only a marginal improvement upon the law
Trade Organization in April 2012. Among its adopted in 2005. It remains to be seen if
commitments as a new member, Montenegro agreed enforcement of the law will be robust enough to
to liberalise its trade and foreign investment rules counteract these deficiencies.
and regulations, including annual reporting on the
privatisation program, application of price control
measures to the WTO standard, and elimination of
most of its existing restrictions on imports (such as
quotas, permits, etc.).
Important steps have been taken to develop
Montenegro’s energy potential. Tariff reforms have
progressed in the power sector, and plans are
advancing in the development of an underwater
interconnection cable between Montenegro and Italy.
Electricity tariffs are rising towards more cost-
 EBRD | COMMERCIAL LAWS OF MONTENEGRO – CONCESSIONS and PPPs Page | 4

Commercial legislation
The EBRD has developed and regularly updates a series of assessments of legal
transition in its countries of operations, with a focus on selected areas relevant to
investment activities. These relate to investment in infrastructure and energy
(concessions and PPPs, energy regulation and energy efficiency, public
procurement, and telecommunications) as well as to private-sector support
(corporate governance, insolvency, judicial capacity and secured transactions).
Detailed results of these assessments are presented below starting with
infrastructure and energy and going into private sector development topics.
The completed assessment tools can be found at www.ebrd.com/law.
Infrastructure and Energy
Concessions and PPPs
Montenegro has quite a modern and comprehensive The Concession Law provides for a non-exhaustive
concessions act, enacted in 2009 (the “Concession list of sectors where concession arrangements may
Law”). There is no special Law regulating all forms of be applicable. The granting of concessions is
private-public partnership, however, there have been organised generally through a competitive procedure
reports about the existence of a PPP Working Group based on the well recognised principles of
with one of the tasks being the drafting of such a law. transparency, non-discrimination and competition
In addition, the Law on Participation of Private Sector clearly seen through the Concession Law. During the
in Performance of Public Services, as amended in recent EBRD PPP/Concessions Laws Assessment
2009, remains applicable for public services throughout the EBRD countries the quality of laws of
operated through leasing and management Montenegro were rated as “in high compliance” with
agreements. international best standards” (see Chart 1). However
the effectiveness of the laws in practice was ranked
Concession is defined fairly broadly thus conveniently as in “low compliance” largely due to the absence of
making it possible to utilise the PFI-type of PPPs a clear PPP policy and the underdeveloped
without the delegation of the public service itself and institutional infrastructure (see Chart 2).
providing for a payment by the contracting authority.
 EBRD | COMMERCIAL LAWS OF MONTENEGRO – CONCESSIONS and PPPs Page | 5

Chart 1 – Quality of the PPP legislative framework in Montenegro

Note: The extremity of each axis represents an ideal score in line with international standards such as the UNCITRAL Legislative Guide for
Privately Financed Infrastructure projects. The fuller the “web”, the more closely concessions laws of the country approximate these standards.
Source: EBRD 2012 PPP Legislative Framework Assessment (LFA)
 EBRD | COMMERCIAL LAWS OF MONTENEGRO – CONCESSIONS and PPPs Page | 6

Chart2 – How the PPP law is implemented in practice in Montenegro

Note: The extremity of each axis represents an ideal score, that is, a fully effective legal framework for PPPs.
Source: EBRD 2012 PPP Legal Indicator Survey (LIS).

There is no special PPP Unit or an equivalent body. fix the weak institutional infrastructure and
Furthermore, there are certain bodies involved in the enhance PPP in the country
process of awarding concessions, mostly per sector,
such as the ports authority as far as relevant
activities are concerned. In addition, some bodies
Energy
are formed ad-hoc within the relevant ministry for the Electricity
purposes of awarding specific concessions
(maritime, railway, etc.). Based on the government’s The market is partially open, but impediments to
paper on summarising the award of concessions it development exist. In theory, the market is open
looks like the main challenges relate to the because by law all customers have the right to
monitoring of concessions implementation and the purchase electricity from any supplier. In practice,
overlapping authority of the agencies participating in the percentage of electricity purchased on the free
the process. In addition, Montenegro remains one of market is around 15% and from imports. A Market
the very few countries in the region that has not yet Opening Plan is in place, and this Plan suggests a
ratified the Washington Convention (ICSID) which staggered opening consistent with market conditions.
may be seen as a negative sign to investors. The recent EBRD energy law reform dimensions
assessment project has shown that regulatory
Currently there are PPP projects in the health sector
independence, transparency and tariff structure are
and in medical waste management, both structured the key strengths of the country’s electricity
under the Concession Law. A few projects in the
framework, while public service obligations and
transport sector are under development. In the market framework are its key weaknesses (see Chart
energy sector, over a dozen concessions for the
3).
construction of small hydro plants have been
awarded. Montenegro has partially unbundled its electricity
sector; the transmission company is completely
The setting up of a specialist PPP Unit could unbundled and is established as a separate legal
contribute to the solving of the identified problems, entity, though a part of the EPCG holding company.
Generation, distribution and supply businesses are
 EBRD | COMMERCIAL LAWS OF MONTENEGRO – ENERGY Page | 7

accounting and functionally unbundled within EPCG, and to guard against corruption by clearly allocating
and each is a separate licensed activity, though one the amounts to each within the tariff structure.
auditing procedure is applied to the company as a Customer classes are divided based on voltage level,
whole. and for low voltage there are several groups,
depending on the characteristics of the customer.
Montenegro has a regulated market. The wholesale
The tariffs are designed to reflect actual costs,
market is officially established, but is not yet
including operational costs, depreciation and return
functional.
on assets. However, cross-subsidisation does exist
Regulated tariffs are set ex ante and published on between the households and commercial low voltage
the Agency’s websites. Under the Energy Law, the consumers.
Agency regulates and licenses as separate activities;
Overall, Montenegro performs relatively well with
generation of electricity, transmission of electricity
respect to its electricity sector. As a small country
(including ancillary services), distribution and retail
with limited domestic energy resources, Montenegro
supply of electricity for tariff consumers. The
must look to regional market development, and has
regulated tariffs are approved by the Agency and
taken an active position in the Energy Community. In
published. The tariff methodology is published as
2009, Montenegro signed a Memorandum on
well. In the first phase, the Agency approves the
common procedures for congestion management
regulatory revenue, based on which the undertakings
and coordinate auction with other South East
submit the tariffs for approval. The tariff approved by
European system operators. Montenegro’s small size
the Agency is an end-user tariff, which combines cost
makes integration into regional markets key to its
elements from generation, transmission, distribution
development.
and supply, taking care to avoid cross-subsidisation
Chart 3 – Quality of energy (electricity) legislation in Montenegro

Note: The spider diagram presents the sector results for Montenegro in accordance with the benchmarks and indicators identified in an
assessment model. The extremity of each axis represents an optimum score of 100 that is full compliance with international best practices.
The fuller the “web”, the closer the overall regulatory and market framework approximates international best practices. The results for
Montenegro are represented by the green area in the centre of the web.
Source: EBRD 2011 Energy Sector Assessment
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Gas
The gas sector is non-existent, with legislation membership negotiations have been the main
pending to meet the Energy Community catalyst behind the recent legal and regulatory
requirements, and the adoption of a strategy to reforms. Harmonisation of national laws with the
develop gas infrastructure, such as an LNG terminal, energy acquis, in particular, the EU Third Energy
but the regulatory framework has not yet been Package of 2009 is ongoing.
enacted and no projects have been started to build The Energy Law covers the broader energy sector,
infrastructure. including the RE sector; several implementing
There is minimal natural gas resources and regulations in the RE sector envisaged by the Energy
infrastructure Montenegro, with only small amounts Law have been adopted. The new RE regulatory
of liquefied petroleum gas (LPG). Existing (LPG) oil framework provides for differentiated feed-in tariffs
and gas companies (with only one exception) in and system of guarantees of origin of electricity for
Montenegro are private companies; the only the first time. It also allows RE producers to obtain
previously state-owned company Jugopetrol was the status of a “privileged producer” enabling them
privatised and sold to Hellenic Petroleum. to use a price support scheme established by the
government and priority in delivery of produced
Montenegro’s Energy Strategy (through to 2025) electricity within the transmission or distribution
includes strategic goals for the gas sector, such as networks. The Energy Law does not regulate in detail
developing the gas infrastructure, namely a gas the licencing and production of energy from
pipeline connected to South East European renewable energy sources (RES). The incentives for
neighbours, and a liquefied natural gas (LNG) the producers are to be provided for in special laws
terminal, along with offshore exploration. A law on and regulations. The Energy Law sets forth certain
gas has been drafted and pending before parliament protection for socially vulnerable consumers.
awaiting adoption for some time, and most recently
provisions of the law were combined into a new draft Montenegro ratified the Kyoto Protocol to the United
Energy Law, currently under consideration. Nations Framework Convention on Climate Change
(the “Kyoto Protocol”) in 2007; however, the
government is yet to take steps to implement it.
Energy efficiency/renewable
Similar to the RE sector, Montenegro’s current policy
energy framework for the energy efficiency (EE) sector is set
Montenegro’s policy and legal framework in the forth in the Policy and the Strategy, which envisage
energy efficiency and renewable energy sector improvement of EE and growth of EE measures in
consists of: the Energy Law (April 2010), the Energy various sectors.
Efficiency Law (April 2010), the Energy Policy of With a view to harmonisation with the acquis on the
Montenegro until 2030 (March 2011), the Energy way towards EU accession, the EE regulatory
Development Strategy of Montenegro by 2030 framework has been upgraded in April 2010 with
(December 2012), the Action Plan for adoption of the new Energy Law as well as the Energy
Implementation of Energy Development Strategy for Efficiency Law. A number of implementing
2008-2012 (2007), the Energy Efficiency Strategy for regulations envisaged by the Energy Efficiency Law
Montenegro (2005), and the Energy Efficiency Action have been issued, with several yet remaining to be
Plan for Period 2010-2012. adopted. The new regulatory framework sets forth
Montenegro’s policy framework for renewable energy the basis for energy service companies (ESCOs)
(RE) is set out in the Energy Policy of Montenegro functioning, broader third party financing structures
until 2030 adopted in March 2011 (the “Policy”) and in the EE sector, as well as energy performance
the Energy Development Strategy of Montenegro by contracts execution. A requirement for undertaking
2030 adopted in December 2012 (the “Strategy”). energy audits has been further introduced for certain
Both the Policy and the Strategy cover the broader types of buildings as well as certain types of
energy and RE sector and were adopted with a view equipment such as boilers, along with the related
to harmonise the Montenegrin legal framework with requirement of issuing appropriate certificates. The
the acquis communautaire. The Strategy replaced an introduction of EE labelling of household appliances
earlier Energy Development Strategy adopted in is among other novelties of the Energy Efficiency
2007, revised due to the need of further integration Law. It further requires the adoption of a three-year
of the country’s policy framework with the EU energy efficiency action plan indicating a national
Directives. Both the Policy and the Strategy place the target for energy savings, annual operational plans
development of RE on the government’s priority list. for EE improvements in public administration
institutions and EE improvement programmes of
The regulatory framework in the RE sector has also municipalities. Overall the EE framework remains to
been recently upgraded, with the adoption of the new be yet brought in line with the EU EE standards as
Energy Law in April 2010 (the “Energy Law”) that part of the country’s EU accession process.
replaced the previous Energy Law of 2003. EU
 EBRD | COMMERCIAL LAWS OF MONTENEGRO – PUBLIC PROCUREMENT Page | 9

With the basic framework for the sector being set up, consideration should be given to setting up a
several RES projects are being undertaken, including specialised RE institutional capacity.
with respect to developing new hydro, wind and
Efforts undertaken by the government of Montenegro
biomass energy capacity. The EBRD is supporting
in creating a developed and comprehensive
improvement in the district heating systems of
framework for the EE sector has yielded little
Montenegro by financing a new biomass heating
progress so far, and efforts should be intensified in
facility in Pljevlja, in the north-western part of the
adopting regulations aligned with the EU standards
country. Other notable projects include pending
as well as putting in place implementation
construction of a hydro power plant on the Morača
arrangements enabling both the government and the
River, as well as a successful on-going project
market players to contribute to effective market
providing for 0% interest bank loans for solar water
development. In particular, the ESCO model shall be
heating to households.
given further consideration, with a view to making it
Further efforts in the RE sector need to be an efficient instrument for EE financing. Setting up
undertaken to fully align the country’s RE regulations relevant incentives, including financial ones, such as
with the acquis, including adoption of a work establishing an ESCO fund, along with providing
programme for the development and use of RES over necessary capacity building for the state authorities
a ten-year period. and market players will further benefit the country.
Awareness campaigns on ESCOs’ functioning and
A number of EE financings have been made available
benefits should also be considered.
by international donors, including the EBRD, the
World Bank, UNDP, and GIZ, with a few more in the Overall, the country has made some progress
pipeline. Furthermore, a number of technical towards creating well-functioning RE and EE sectors
cooperation projects have been launched with a view as part of the negotiations towards its EU
to improving the EE framework, including a study by membership; however, efforts should be intensified
the EBRD on ESCO models and related gap analysis, in order to set up a modern and enabling regulatory
and study on the implementation of Energy and institutional framework for both the RES and EE
Performance of Buildings Directive. The government sectors.
has unofficially expressed interest in developing the
framework and effective implementation of the ESCO
model and relevant institutional development, as well
Public procurement
as setting up relevant incentives for attracting Public procurement in Montenegro is regulated by
financing in the sector. [[Notably, EBRD has launched the Public Procurement Law (the PPL), adopted in
a regional project Western Balkans Sustainable 2012. Four pieces of secondary legislation
Energy Direct Financing Facility: Institutional Capacity supplement the PPL—the Regulation on expressing
Building Component, with a focus on developing award criteria into corresponding number of points,
ESCOs, in order to facilitate development of EE the Regulation on standard templates and forms, the
projects in the public sector. The project is part of a Regulation on public procurement records and the
broader Regional Energy Efficiency Programme for Regulation on violation of anti-corruption rules.
the Western Balkans, comprising: (i) a component of
The PPL covers both national and local government
institutional capacity building as well as regulatory
procurement. It contains specific rules for
support and new product development for public
procurement in the utilities sector; however, it does
sector energy efficiency, (ii) setting up credit lines for
not extend to public law institutions. Separate
financing of smaller scale sub projects in public and
legislation regulates PPPs and concessions, and the
private sector (including ESCOs), intermediated by
PPL clearly states that it does not apply to the
local participating banks, and (iii) a component of
granting of concessions or the privatisation of the
direct financing for medium-sized renewable energy
economy. The Public Procurement Administration
and energy efficiency measures, including for
and the State Commission for Control of Public
ESCOs.]]
Procurement Procedures are established by law as a
On a regulatory level, EE regulations are being separate regulatory authority and a review body in
considered, with a view to their revision in line with charge of procurement related issues.
the EU standards.
The PPL regulates pre-tendering, tendering and post-
With some progress achieved in introducing a tendering procurement phases. As to the pre-
developed RE regulatory framework, the government tendering phase, it requires the mandatory planning
should make further efforts on putting in place of public procurement and appropriate budgetary
necessary implementation arrangements and authorisation prior to publicising the contract notice.
providing for appropriate capacity building, as well as The law also states that a contract profile or general
setting forth required incentives for the RE projects terms and conditions must be prepared prior to
implementation, including providing training to both launching the tender process and that all tender
public authorities and local players. Further documents must contain a draft contract. As to
tendering process, the law requires that the
 EBRD | COMMERCIAL LAWS OF MONTENEGRO – PUBLIC PROCUREMENT Page | 10

procurement process must be conducted by  lack of the contract management options

dedicated procurement officers, whose duties are and also lack of computerised procurement
separated from the decision making process and monitoring and administration mechanisms;
supply management. However, the post-tendering  absence of any prohibition on granting
phase is not as comprehensively regulated as the domestic preference to local bids;
pre-tendering and tendering process. The PPL does
 lack of addressing the open procedure as
not contain any requirements for contract revisions
the default method for conducting
and amendments and contract management
procurements;
capability to be expected from the procurement staff.
 absence of the alternative dispute resolution
The PPL states primary public procurement eligibility methods such as arbitration and mediation
rules, which are distinguished from the qualification which could be applied in case any dispute
and technical requirements to be met by tenderers arise from the procurement contracts;
as defined by contracting entity in individual tenders.
 lack of a regulation as to post tendering
The PPL provides for public procurement procedures
phase, specially contract management
for goods, services and works, including negotiated
phase;
procedures and framework agreements. The law
establishes thresholds; however it fails to specify  lack of any regulation which prohibits
open or restricted tender as a default procedure. The negotiations on final tenders and proposals
law contains guidelines on how to draft tender after they are submitted.
documents for all types of procurement. Moreover, Legal gaps in Montenegro are around 10-20 % in
the PPL regulates that relevant information must be every key regulatory area: regulatory gap in adopting
published at every stage of the procurement transparency safeguards, regulatory gap in adopting
procedure and records must be kept of both efficiency instruments and regulatory gap in adopting
procurement procedures and public contracts. The appropriate institutional and enforcement framework
law also provides for the conditions under which a measures. Under the Bank’s operation, the EBRD
procurement procedure can be cancelled and a Procurement Policies and Rules shall be imposed.
“standstill period” to allow tenderers time to submit
an appeal to the State Commission for Control of The EBRD assessments conducted in 2010 and
Public Procurement Procedures. 2012 shows that regulatory framework is being
modernised in terms of stability and integrity
The PPL contains some provisions aimed to control measures. On contrary, results from assessment of
corruption and to prevent the conflict of interest. The the legislation in 2012 suggest that no action has
PPL gives the tenderer the right to seek remedial been taken to improve the law since 2010, since all
action or monetary compensation by initiating an the indicators other than competition scored the
appeal procedure with the State Commission which same and competition scored lower than in 2010.
is simple and inexpensive. (see charts 7&8 below).
The public procurement legal framework in The PPL in Montenegro needs to be updated to
Montenegro scored high competence on average improve the regulatory framework in those areas
compared to the legislation in Western Balkans and such as transparency, uniformity, flexibility and
Turkey. With regard to accountability, stability and efficiency. The reform should aim to improve
competition principles, the legislation is in full transparency, efficiency and flexibility by further
compliance with international standards. However, developing the Public Procurement Portal,
the main regulatory shortcomings are in Montenegro's e-Procurement platform and also by
transparency, efficiency and enforceability indicators allowing for tenders and qualification documentation
and they include: to be submitted in electronic form in all cases, not
 absence of an efficient disclosure just when specified by the contracting entity.
mechanism for secondary and tertiary Additionally, the legislation should be amended in
legislation; order to provide specific procurement rules for public
 lack of online publication mechanism as to law institutions
tender documents;
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Chart 7 - Montenegro’s quality of public procurement legislation

Note: The chart shows the score for the effectiveness of the national public procurement laws. The scores have been calculated on the basis of
a questionnaire on legislation that is developed from the EBRD Core Principles for an Efficient Public Procurement Framework. Total scores are
presented as a percentage, with 100 per cent representing the optimal score for each Core Principles benchmark indicator. The bigger the
“web” the higher the quality of legislation.
Source: EBRD 2011 Public Procurement Assessment
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Chart 8 - Quality of public procurement practice in Montenegro

Note: The chart shows the score for the extensiveness of the national public procurement laws. The scores have been calculated on the basis
of a questionnaire on legislation that is developed from the EBRD Core Principles for an Efficient Public Procurement Framework. Total scores
are presented as a percentage, with 100 per cent representing the optimal score for each Core Principles benchmark indicator. The bigger the
“web” the higher the quality of legislation.
Source: EBRD 2011 Public Procurement Assessment
competitive safeguards, including reference offers
Telecommunications for interconnection and wholesale broadband access
published by the incumbent, number portability in
The main legal basis for electronic communications fixed and mobile markets and regulatory obligations
regulation is the Law on Electronic Communications, enabling national roaming and access to mobile
2008. virtual network operators, their impact has yet to
Montenegro formally liberalised its become apparent.
telecommunications markets at the beginning of EBRD does not currently have direct investments in
2004, but remaining high licensing fees created a the sector in Montenegro; however (at a technical
barrier to entry up until 2007. A general and business level) the presence of an EU-compliant
authorisation framework for all electronic legal and regulatory framework makes the overall
communications networks and services was environment for the sector attractive for investment,
introduced in 2008. Fixed telephony and broadband promotes broader competitiveness across the
remains dominated by Crnogorski Telekom. The economy and aids social development.
overall penetration of fixed-lines, while decreasing,
remains above the regional average though The main reform efforts are understood to be centred
significantly below EU levels. Fixed Broadband on increasing harmonisation of the national
penetration matches the regional average though regulatory framework with the most recent EU
shows a very high growth rate. A competitive framework (2009), with a new law aimed at that
environment has emerged in mobile with three objective understood to be currently under
operators having similar market shares (Telenor, consideration.
MTEL and Crnogorski Telekom). Mobile penetration is Competition in fixed markets remains low, as most of
among the highest in the region and also significantly the competitive safeguards introduced in 2011 do
higher than the EU average. While the regulator not yet appear to be effective. Worryingly, the
(EKIP) has made progress in implementing maximum fine that can be imposed for non-
 EBRD | COMMERCIAL LAWS OF MONTENEGRO – TELECOMMUNICATIONS Page | 13

compliance does not appear to be a sufficient high inter-operator wholesale rates. Better regulatory
deterrent to anti-competitive behaviour. Competition approaches, including the use of modern cost
in the mobile market could enter a new phase when models should eventually reduce these
the obligation imposed on the three existing interconnection rates. On the legislative side, while
operators to admit virtual network operators is substantial aspects of the current law are broadly
implemented. The very high mobile penetration consistent with the EU 2003 framework several
figures recorded in recent years do not appear to areas have yet to be fully aligned including
have been sufficiently adjusted downwards to independence of the regulator, more effective
exclude inactive numbers, and the figures are allocation of inspection and monitoring
artificially high due to consumers typically holding responsibilities, meaningful penalties for breaches of
three SIM cards in an effort to avoid paying the high the law and comprehensive provisions for obtaining
off-net call charges of these operators, with these rights of way (see Charts 5 and 6).
charges fuelled by the very

Chart 5 – Comparison of the legal framework for telecommunications in Montenegro with international practice

Regulator independence
and structure
1.0

0.8
Numbering Authorisation regime
0.6

0.4

0.2
Interconnection and
Consumer protection 0.0
infrastructure access

Market analysis and

Universal Service
enforcement

Spectrum management

Key: Extremities of the chart = International best practice

Note: The diagram shows the quality of the legal framework as benchmarked against international standards (European Union). The extremity
of each axis represents an ideal score of 100 per cent, that is, full compliance with international standards. The fuller the “web”, the closer the
overall telecommunications legal framework of the country approximates these standards.
Source: EBRD 2012 Electronic Communications Comparative Assessment.
 EBRD | COMMERCIAL LAWS OF MONTENEGRO – TELECOMMUNICATIONS Page | 14

Chart 6: Comparison of the overall legal/regulatory risk for telecommunications in Montenegro with international practice

Legal Framework
1.0

0.8

Information Society 0.6 Sector Organisation &

Progress Governance
0.4

0.2

0.0

Market Conditions for Wired

Fees and Taxation
Services

Market Conditions for

Wireless Services

Key: Extremities of the chart = International best practice

Note: The diagram shows the quality of the legal framework as benchmarked against international standards (European Union). The
extremity of each axis represents an ideal score of 100 per cent, that is, full compliance with international standards. The fuller the “web”,
the closer the overall telecommunications legal framework of the country approximates these standards.
Source: EBRD 2012 Electronic Communications Comparative Assessment.
 EBRD | COMMERCIAL LAWS OF MONTENEGRO – CORPORATE GOVERNANCE Page | 15

Private Sector Support can be done by public auction or direct sale. In

general, this shall be done by a public auction, held
in the office of public enforcement officer. Parties
Access to finance however may agree on the sale by direct negotiation
during the enforcement proceedings (Article 172 of
Montenegro’s legislation regulating access to finance the Law on Enforcement and Securing).
topics includes the Law on Property Rights, Official
Provisions on taking pledge over movable assets and
Gazette of the Republic of Montenegro, No 88/02,
rights are regulated in the Law on Secured
the Law on Secured Transactions, Official Gazette of
Transactions No. 01-2178/2 adopted on 19 July
the Republic of Montenegro, No 38/02, the Law on
2002 and applicable as of 1 January 2003. Any
Enforcement and Securing, Official Gazette of the
movable property that may legally be transferred
Republic of Montenegro, No 36 /11, the Law on
pursuant to the applicable law may serve as
Financial Leasing, Official Gazette of the Republic of
collateral and general description sufficient to
Montenegro, No 81/05, and the Banking Act, Official
reasonably identify the collateral is sufficient. Future
Gazette of the Republic of Montenegro, No 17/08,
property can be collateralised as well, including
44/10, 40/11.
uncut timber, future crop and future livestock as well
The Law on Property Rights provides a detailed, as fluctuating pool of assets such as inventory. Art.
comprehensive and well developed framework for 13 paragraph (2) of the Law on Secured Transactions
creating a mortgage over immovable property. A provides that the assets are transferred free of
consensual mortgage is created by execution of a pledge if sold in the ordinary course of pledgor’s
written agreement between the owner of an business and the Law defines what is considered an
immovable property whose signature needs to be ordinary course of business. Unless provided in the
certified by the competent body and the mortgage security agreement or by a written waiver, a pledge
creditor. A unilateral mortgage can be created on the secures the entire amount of a secured obligation,
basis of a pledge statement prepared by the owner including unpaid principal, interest, penalties, costs
by which he unilaterally obliges himself to bear, in of repossession, maintenance, sale, and any other
the case the debt is not paid out when due, the obligations secured. Article 4 of the Law provides
satisfaction of the creditor’s secured claim from the that a pledge may secure one or more obligations
value of mortgaged immovable property, in the and that the secured obligations may be identified
manner prescribed by law. The pledge statement generally or specifically. Future obligations can be
corresponds in form and content to the mortgage secured by pledge.
agreement. Perfection of mortgages is done by
To perfect a pledge a Notification Statement must be
registration into the cadastre of real property. The
registered into the records of the Registration Office
law allows for the securing of conditional, future and
of a Notification Statement (Secured Transactions
revolving loans as long as the maximum amount of
Registry of the Commercial Court in Podgorica) can
debt is registered. The mortgage secures the entire
be done electronically by authorised persons
claim, interests and other ancillary claims and
authorized persons (lawyers and commercial banks)
enforced collection costs.
or in a written form or by telefax by everyone else.
While authorities issued a campaign for registration The effective time and date of the registration shall
of the property in the cadastre, it appears that this is be the time and date of the Notification Statement as
still work in progress and that title over all the presented to the Registration Office. The registry is
property in the country cannot be established with centralised and can be searched on-line against the
certainty. The law regulating restitution prescribes name of the pledgor, the serial number of the
that encumbrances (including mortgage) created pledged assets or registration number.
before the law came into force cease when the
Extrajudicial sale of collateral is provided for by
restitution decision becomes final. Thus, there still
Property Rights Law. If a pledgor has the status of a
may be subsequent claims for restitution that may
business entity, the pledge contract may envisage
affect mortgagor’s right to property. Cadastral data is
that a pledgee has the right to sell the collateral
available on the website of the Montenegrin Real
through extra-judicial public sale, if his claim is not
Property Administration.
satisfied when due. Judicial enforcement is covered
According to the Law on Property Rights, by the Law on enforcement and securing.
enforcement of mortgage may be by out of court and
Financial leasing is regulated by the Financial
court enforcement. In case of extrajudicial sale, the
Leasing Law. The law provides a legislative
selling agent is a person authorised by an agreement
framework for undertaking financial leasing
between the parties. The sale is done via public
transactions. Leasing companies are not regulated
auction (Article 342 Law on Property Rights). The
by the Financial Leasing Law. The Banking Act
mortgagee may appoint the bailiff, an attorney at law
prescribes that supervised banks and micro-credit
or real estate agency to administer enforcement
institutions can provide financial leasing services but
(Article 201 of the Law on Enforcement and
this does not effectively exclude non-FI companies
Securing). In case of a court-administered sale, this
 EBRD | COMMERCIAL LAWS OF MONTENEGRO – CORPORATE GOVERNANCE Page | 16

from providing financial leasing services. There are 2000 (as amended). The Law on Securities regulates
five active providers of leasing services (1 bank and the types of securities, their issuance and trade, the
4 private companies) with 1650 contracts signed in rights and obligations of the subjects involved in the
2011 with more than 95% being different type of securities' markets and the scope and activities of
vehicles. the securities markets regulator in Montenegro.
Other relevant legislation includes the Business
There is no special legislation of factoring apart from
Organization Law, the Law on Business Organization
general “assignment of claim by contract” provisions
Insolvency, the Law on Investment Funds and the
of the Obligations Law which provides a basis for
Law on Banks.
assigning account receivables. As a result there is no
definition of factoring services or types of factoring The Montenegro Stock Exchange (the “MSE”) is the
transactions which can help increase legal certainty only operating stock exchange, however, until the
of the factoring transactions and hence reduce end of 2010 Montenegro had two stock exchanges,
involved costs and risks of re-characterisation of MSE and NEX Montenegro Stock Exchange, which
transactions. Traditional or reverse factoring is were merged in 2011.
almost non-existent in Montenegro.
The legal framework governing capital markets is
Montenegro has a very developed and well- rather basic and displays various drawbacks. Among
functioning credit bureau (the Credit Bureau of the major flaws, it is worth noting the lack of
Montenegro) which automatically collects data from comprehensive legislation on self-regulatory
banks, leasing organizations, savings banks, organisations, bonds and derivatives. The
insurance companies, funds, public companies and Montenegro capital market is rather nascent and, for
public utilities companies, trade organizations, example, IPOs are not common and information
telecommunication companies, and others. The required to be included in the prospectus is not
system’s users can at the same time be those that comprehensive and does not seem to be reliable as
are data resources, but also other interested to identification of risks of the proposed investment.
institutions and individuals. There is a developed Private enforcement mechanisms are generally
feedback system for reporting and dispute lengthy and burdensome.
processing. Clients, who have objections, are as a
In Montenegro, the Bank focuses on the private
result of this system, given the possibility to submit a
corporate sector, tourism and property sector where
dispute on data accuracy, at the office of any user of
the Bank plays an important role by providing both
the CBME services. The system itself identifies the
funding and political comfort to foreign investors.
data source concerned by dispute, and forwards the
dispute for further processing. The data sources In terms of financial markets, there seem to be no
themselves have a simple way of correcting the on-going reform, except the USAID work on the
inaccurate data within 24 hours of the dispute being integration of stock exchanges from Southern and
submitted. Clients are automatically informed by e- Eastern Europe in order to increase their
mail that the dispute is processed. attractiveness to issuers and investors. Within this
project, the USAID is planning to implement a special
Improving access to finance, especially for SMEs, is
IT system that would allow for more efficient
an important part of the EBRD’s mission. There are
execution of cross-border trades. The involved
no currently reported reforms in the sector.
exchanges, including the MSE, established various
Supporting development of factoring services by working groups, including a legal and regulatory
introducing legislation on factoring and developing group, which is tasked to identify whether any legal
reverse factoring programs and platforms might help or regulatory changes would need to be introduced
to improve overall access to finance of SMEs by for the implementation of this project. USAID is
giving credibility to the service through supervision, discussing possible cooperation on this project with
making factoring services more transparent and the EBRD.
legally certain
It is advisable that the regulator considers improving
the required content of the prospectus to the level
Capital Markets that would allow potential investors to take an
informed investment decision when purchasing
Under the current regulatory and legal framework
securities. This would, for example, include higher
governing the local debt capital markets of
disclosure standards required from prospective
Montenegro, the primary regulatory institutions are
issuers. The legal framework governing enforceability
the Ministry of Finance (the "MOF"), the Securities
of derivatives and close-out netting could be
and Exchange Commission (the “SEC”) and the
considered to be developed in the longer term.
Central Bank (the “CBM”).
Capital market activities in Montenegro are rather
There are several important laws and regulations
low, however, the government could consider
that regulate Montenegro’s primary and secondary
addressing the drawbacks relating to (i) the content
capital market activity. The basic legislation on the
of the prospectus; and (ii) derivatives.
securities market is the Law on Securities enacted in
 EBRD | COMMERCIAL LAWS OF MONTENEGRO – CORPORATE GOVERNANCE Page | 17

Corporate Governance stock exchange to comply with the recommendations

included in the Code or explain any deviation (so-
The corporate governance framework in Montenegro called “comply or explain” mechanism). The Code
is primarily detailed in the Business Organisation deals with shareholders’ rights, general
Law, enacted in February 2002, as amended. shareholders’ meeting, board of directors, board
According to this law, commercial activities can be committees, remuneration of directors, company’s
organised as individual entrepreneurships, joint executive body, company’s secretary, supervision
stock companies (“JSC”), limited liability companies, and control activities, disclosure of company’s
general partnerships, limited partnerships and information, and corporate conflicts. A Scorecard for
foreign company branches. JSCs are organised under reporting compliance with the code has been
a one tier system. adopted by the Stock Exchange.
Corporate governance of banks is detailed in the Law According to the results of the EBRD’s 2007
on Banks, enacted in February 2008. The Law Corporate Governance Sector Assessment legislation
regulates the organisation, operation, management under which the quality of corporate governance in
and control of activities of banks and financial force in November 2007 was assessed, Montenegro
institutions. resulted to be in “very low compliance” with the
OECD Principles of Corporate Governance, showing a
The Law on Accounting and Auditing, issued in 2002, framework under an urgent need for reform in all
as amended, requires companies to adopt sectors under consideration (see Charts 11 and 12).
International Accounting Standards (IAS) and Since then, the corporate governance legal
International Financial Reporting Standards (IFRS) as framework has been amended several times and
promulgated by the International Accounting considerably improved. Pursuant to the 2011 and
Standards Board (IASB). 2012 Progress Reports issued by the EU,
In March 2011 the Parliament adopted the Law on Montenegrin legislation on company law is largely
Takeovers of joint stock companies, partly aligned consistent with the EU acquis, but some
with the Takeover Bids Directive. discrepancies remain to be addressed. In particular,
an independent public oversight body for auditors
In May 2009, the Montenegro Stock Exchange and a quality control system need to be clearly
adopted a Corporate Governance Code planned and established.
recommending JSCs whose shares are listed on the
 EBRD | COMMERCIAL LAWS OF MONTENEGRO – CORPORATE GOVERNANCE Page | 18

Chart 11 – Quality of the Corporate Governance Legislative Framework in Montenegro

Note: the extremity of each axis represents an ideal score, that is, legislation fully in line with the OECD Principles of Corporate Governance; the
fuller the ‘web’, the better the quality of the legislative framework.
Source: EBRD Corporate Governance Assessment 2007
 EBRD | COMMERCIAL LAWS OF MONTENEGRO – CORPORATE GOVERNANCE Page | 19

Chart 12 – How the corporate governance framework works in practice in Montenegro

Note: the extremity of each axis represents an ideal score: the fuller the ‘web’, the more effective the corporate governance framework.
Source: EBRD Corporate Governance Assessment 2007

The Corporate Governance Code undoubtedly board members. The effectiveness of this structure
provides some good guidance on how to shape should be assessed, as it might not be the most
corporate practices of listed companies, but it omits efficient in order to establish sound “lines of
to detail some key aspects of corporate governance. defence” within banks. Further, banks' compensation
For example, the Code recommends that companies practices do not seem to be aligned with prudent risk
should establish board committees (i.e., management.
Appointments, Remuneration and Audit committees) The issues outlined above are all relevant for the
but it fails to provide guidance on how the EBRD direct investments in Montenegro. However,
composition of these committees should be. The no investee companies’ corporate governance
Code also recommends companies to consider related suits have been reported.
having independent directors on their board but it
only provides limited guidance on what The framework should clarify the role of independent
“independent” means. Further, it is not clear what directors on boards and board committees and
the role of the independent director should be within provide a comprehensive definition of
the board or committees. Further, the Code’s “independence” applicable to both listed companies
implementation is quite limited: based on the and banks; and assess the effectiveness of the audit
information available on the Montenegro Stock committee and consider whether to transform it into
Exchange, it seems that only five companies have a proper board committee, made only of
adopted the Code. (independent) board members.
When turning the attention to corporate governance The Montenegro corporate governance framework
of banks, the recent EBRD assessment highlighted has recently improved but room for further
that banks are required to create audit committees, improvement remains, especially in ensuring that the
made by a majority of persons “not connected with legal provisions are well understood and
the bank”. It seems that “not connected” persons are implemented.
considered to be “outsiders” and not independent
 EBRD | COMMERCIAL LAWS OF MONTENEGRO – INSOLVENCY Page | 20

Insolvency quality with no areas of significant weakness (see

Chart 13). In particular the Assessment noted that
Montenegro’s legal framework in the insolvency the Insolvency Act was strong in the areas of
sector is based on the Law on Insolvency (Official commencement of proceedings, creditor rights and
Gazette of the Republic of Montenegro, no. 01/11) liquidation. Nevertheless the Assessment noted that
(the “Insolvency Law”). The Insolvency Law contains provisions in the Law relating to insolvency
two main procedures for companies in financial administrators would benefit from review. Since the
difficulty: (i) bankruptcy resulting in liquidation; and Assessment, a new Insolvency Law has been
(ii) reorganisation. introduced into Montenegrin legislation (effective as
of 20 January 2011) which has closely followed the
The Insolvency Sector Assessment (the provisions set out in the UNCITRAL Guide on
“Assessment”) completed in late 2009 concluded Insolvency Law 2004.
that Montenegrin insolvency law was of very high
Chart 13 – Quality of insolvency legislation in Montenegro

Note: the extremity of each axis represents an ideal score, that is, legislation fully in line with international standards such as the World Bank’s
Principles and Guidelines for Effective Insolvency and Creditor Rights Systems, the UNCITRAL Working Group’s “Legislative Guidelines for
Insolvency Law”; and others. The fuller the ‘web’, the better the quality of the legislative framework.
Source: EBRD Insolvency Sector Assessment 2009
The reforms introduced by the new Insolvency Law before any other preferential creditors); (iii)
are wide-ranging and include: (i) redefining redefining of the consequences of the insolvency
insolvency criteria as a permanent inability to pay procedure, including provisions related to important
debts (evidenced by non-settlement of debts within matters such as the right to set-off and conditional
45 days of the due date or suspension of all claims (clear provisions have been introduced to
payments for 30 consecutive days or more and over restrict set-off of rights acquired after the initiating of
indebtedness (where the company’s debts are insolvency proceedings or 6 months before the
greater than the value of its assets) and enabling insolvency petition where the creditor knew or ought
insolvency proceedings to be initiated where the to have known of the grounds for insolvency); (iv)
debtor fails to adhere to the reorganisation plan or if changes to the regime for the challenging of the
such plan is adopted fraudulently; (ii) changes to the transactions of the insolvency debtor (widening
procedural provisions that relate to the insolvency provisions to include regular and irregular
estate, the ranking of creditors and the settlement of settlement, direct and wilful harm to creditors,
insolvency creditors (secured creditors are entitled to transactions at undervalue or without consideration
full settlement of their claims from secured assets as well as transactions with related parties); (v)
 EBRD | COMMERCIAL LAWS OF MONTENEGRO– INSOLVENCY Page | 21

further provisions regulating reorganisation, as well counterparty performs its obligations akin to under
as the detailed regulation of the reorganisation plan; the US Chapter 11 reorganisation proceeding.
and (vi) new provisions regulating cross-border
The Insolvency law is cross-sector and affects all
insolvency and international cooperation.
sectors where the EBRD has either an equity or a
Under the Insolvency Law, a reorganisation plan may debt stake. Moreover, it impacts on the willingness
be filed from the outset with the insolvency petition, of creditors generally to invest in the country and
effectively as a ‘pre-prepared reorganisation plan’ therefore also to enter into joint ventures with the
with relevant support from creditors, or 90 days EBRD.
(extendable by 30 days) following the opening of
We are not aware of any current or proposed reforms
insolvency proceedings. As a rule secured creditors
to the Insolvency Act.
cannot enforce their security against the debtor in
insolvency proceedings, although there are some Montenegro has recently introduced further
important exceptions, notably if it can be improvements to its insolvency legislation, which
demonstrated that the collateral is not adequately have raised the overall standard of the legislation
safeguarded or is depreciating in value or whether still further. Subject to consideration of how the
the collateral is worth less than the secured claim Insolvency Law operates in practice, we have no
and it is not essential for a reorganisation. It is worth significant policy recommendations at this stage.
noting that security created 60 days prior to the
initiation of insolvency proceedings will be Montenegro has advanced insolvency legislation that
automatically invalid. In addition to preventing the promotes the reorganisation of businesses in
initiation or continuation of proceedings against the financial difficulty, as well as the liquidation of non-
debtor, the Insolvency Law contains an important viable companies and contains detailed provisions
safeguard for reorganisation in that it provides the regarding the more complex areas of insolvency law
bankruptcy administrator with a right to resume such as on avoidance of transactions and insolvency
performance of a contract and ensure that the set-off.

1
www.venice.coe.int/docs/2005/CDL(2005)096-e.pdf