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Montenegro: Between “Chinese Debt Diplomacy” And Oil Exploration

Montenegro: Between “Chinese Debt Diplomacy” And Oil Exploration
Image by Miomir Magdevski

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China has been gradually increasing its economic and political influence in Montenegro – the smallest country in the Balkans, with a population of just over 600,000. Although the Adriatic nation joined NATO in 2017, and is seen as a lead candidate for the European Union membership by 2025, Brussels has openly said that it will not help Podgorica to pay off a $944 million loan to Beijing. Does that mean that the West could soon lose its grip on the Balkan state?

In 2014 Montenegro has taken out a loan of nearly one billion USD from the Export-Import Bank of China for the construction of the Bar-Boljare highway that will link the Adriatic Sea and the country’s border with Serbia. The deal that Podogorica and Beijing signed provides a 20-year repayment period and a six-year grace period, while the first annual repayment of $67.5 million falls in July. The problem for the Montenegrin authorities is that the country is on the verge of bankruptcy and desperately needs help to repay the debt. Otherwise, if Montenegro were to default, the terms of the contract reportedly give China the right to access the nation’s land as collateral. Moreover, in the case of a loan dispute, the court in Beijing has jurisdiction.

EU officials said the bloc will not be paying the Chinese loan, but did not excluded the possibility of exploring other ways of how to help Montenegro to resist to the difficulties.

“We stand by Montenegro and support its EU path. We’re exploring options with Montenegro’s government and our partners to find workable solutions for the country’s investment projects and to ensure sustainability of its public debt and eliminate risks of past arrangements, respecting EU policy and financial rules,” said Oliver Varhelyi, the EU Commissioner for Neighborhood and Enlargement.

Indeed, growing economic ties with China will not necessarily affect Montenegro’s “European Union path”. But what exactly is the “EU path”? It is a phrase used by the EU officials when describing a country that is spending decades waiting for a potential EU membership, and yet implementing numerous agendas. At this point, Montenegro’s accession to the EU in 2025 seems unrealistic, given the bloc suffers from more than enlargement fatigue. In the long-term, however, if any of the Balkan nations join the European Union, it will be Montenegro. In the meantime, the government in Podgorica will have to find a way to pay off its debt to China.

“I do not doubt that the Export-Import Bank will support Montenegro in providing favorable conditions for paying off the loan in the time of the COVID-19 pandemic and its difficult consequences”, wrote Filip Vujanovic, who served as the President of Montenegro from 2003 to 2018, for the Chinese Daily Times newspaper. 

So far, Montenegro has paid only two percent of the interest, but after a six-year grace period, July 21 is the deadline for repayment of the first installment. China may extend Podgorica’s obligations, but the problem is that it is not clear the economic situation in Podgorica will be better in the foreseeable future. On the other hand, the EU could still change its mind and provide a new loan to Montenegro to repay $67.5 million to the Export-Import Bank. Last year, even before the debt crisis occurred, there were speculations that neighboring Serbia could buy Montenegro’s debt. Given that both, Serbia and Montenegro are seen as “hybrid regimes”, such an action is possible only if the major foreign actors approve it. 

Even though the United States and China act as geopolitical rivals, it is hard to imagine that, without Washington’s tacit approval, Beijing could do such significant infrastructure projects in a country that is in the Euro-Atlantic sphere of influence. In addition, Italy’s oil and gas company ENI and Russia’s Novatek recently started exploratory drilling for oil in waters offshore Montenegro. The very fact that Russia – that has been under the Western sanctions since 2014 – freely operates in the NATO member-state is another sign that Moscow and Washington have some lucrative deals in the Balkans, primarily in the field of energy.

Finally, the very future of Montenegro can depend on the oil exploration. If the oil is found, the authorities in Podgorica may not have such a hard time repaying the debt to China. In that case, however, the EU would likely skip all the bureaucratic procedures and grant the tiny Balkan state the full-fledged membership. But what if the United States has different plans for the energy-rich region? 

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2 comments

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Lawrence May 6, 2021 at 12:49 pm

It’s hard to sympathize with either side. The politicians who effectively sold their country’s land and agreed to put it in a Chinese court are idiots. But China launched a biological attack on the rest of the world and should be required to compensate their victims.

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Chen May 25, 2021 at 2:19 am

Good afternoon from Shanghai. Nice report, actually, not many reports for Montenegro could be found here in mainland China.

In accordance with my experience, the interest of EXIM bank loan could be one third as French Development Agency in west Africa, and terms could be more flexibility than world bank. Montenegro government could try seeking loan extension from China, actually i dont know how China would cope with EXIM loan extension.

I believe the Montenegro government would prefer none EXIM founded project, as long as EU really could support fund that affordable.

I do think the infrastructure ,either founded by EXIM or someone else, would be important for Montenegro.
As economic size for Montenegro is small and economic structure is simple, such infrastructure could strength its economic link with Serbia, which would also favor tourism and transportation industry in Montenegro.

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