As already known, total value of the construction of priority highway section was established by the Contract on the Projection and Construction of the Highway, concluded between the Ministry of Transport and Chinese company, CRBC and it amounts to €809,6 million. Around 85% of total funds will be earmarked through borrowing with the Chinese EXIM Bank whereas the remaining 15% will be used form the budget or other sources, representatives of the Ministry of Finance said.
As they explain, €944 million loan arrangement with Exim Bank was concluded and the envisaged repayment period is 20 years. The loan will be repaid on a six-month basis staring from July 2021. Annual fees on the grounds of the repayment of the principal will amount to $67,5 million.
“It is important to notice the following: Contract on the Projection and Construction defines 1:1.3718 EUR/USD ratio and refers to the fulfillment of duties stipulated in the contract”, representatives of the Ministry pointed out.
As far as the Loan Agreement itself is concerned, it was concluded in dollars and is influenced by the EUR/USD correlation trends. The exchange rate has changed since the moment the Agreement was concluded and, currently, it is lower than the concluded. According to the experts’ estimates, the forthcoming period will see its changes and growth. If
“If around $67,5 million is due every year, and dollars are bought on the market on the due date, that is when we can talk about the foreign exchange differences and additional expenses. However, even in that case, total revenue or loss on the basis of foreign exchange differences will be known only after the loan is repaid, that is, in 2035, when total repayment amount is calculated in domestic currency”, said the representatives of the Ministry.
With the aim of providing protection from currency risk, the Government has undertaken activities to protect itself. Negotiations with six banks are currently under way, with a view to preparing and harmonizing comprehensive legal documentation, leading finally to the conclusion of ISDA agreement. This agreement will be a legal basis for the implementation of hedging transaction when the situation in Montenegro is considered critical.
“Essential element in the entire process is choosing the moment that indicates that the situation in Montenegro might be sticky. That means that the Ministry is considers the most favorable and safest model for the currency risk protection, in relation to EUR/USD exchange rate projections, current and future differences in interest rates in EUR and USD, trying to quantify the improvement of the country’s credit profile”, said the representatives of the Ministry.
In addition, if the trend of interest rates declining continues and Montenegrin economy continues to grow steadily, even better conditions can be expected in future.
“Given the fact that Montenegro’s economy is in full swing and that credit rating is expected to increase, credit risk is reducing and the perception of investors is growing year-on-year. Therefore, it wouldn’t be very responsible to conclude contracts on the protection from currency risk since there’s a great number of ever-changing variables and there’s no one simple formula for that. Ministry of Finance creates legal framework for the trade of financial derivatives including hedging”, said the representatives.
It would be inappropriate to multiply the entire debt in EUR or USD in accordance with the present exchange rate and then present is a loss in real time.
“In the similar way we could also say that Montenegro has saved some €178 million on the construction of priority section”, pointed out the representatives of the Ministry.
If we consider the claim that duties on the grounds of highway construction are by €124 million as some media announced, and that there’s €178 million of savings, then we come to the conclusion that there is €54 million savings now.
Such transactions should not be calculated until the total amount of all expenses is known.
Considering all this, some expenses which incur due to differences in exchange rate, can be compensated through a fixed exchange rate established by the Contract.
