Montenegro will pay back a 22 million-euro ($29.3 million) loan that Kombinat Aluminijuma Podgorica AD, partly owned by Oleg Deripaska’s En+ Group, took out from Deutsche Bank AG and failed to service.

The German bank told the government it is activating a guarantee the state provided in 2009 when it backed the loan to the aluminum producer, the biggest industrial plant in the smallest former Yugoslav republic. Montenegro will use budget proceeds to satisfy the bank demands, the Finance Ministry said in an e-mailed statement.

Authorities asked KAP’s managers last month to sign documents stating the company can no longer service the loan, which would’ve shifted the liability to the state under the original loan conditions. Managers refused to sign, triggering an “accelerated procedure” last week for the full principle plus 1.4 million euros in maturing interest, the ministry said.

“The authorities were constantly trying to force KAP to sign a trilateral agreement between KAP, Deutsche Bank and the Government of Montenegro,” En+ said in an e-mailed comment today. “Such an agreement would infringe on the rights of the other KAP lenders,” including OTP Bank Plc and Russia’s VTB Bank OJSC. “That was completely unacceptable for us.”

Montenegro sought to regain control of KAP and stop subsidizing the electricity it consumes, a key cost in aluminum production. Previously it also backed other KAP loans, totaling 132 million euros.

En+, which owns 29.3 percent of KAP, said “KAP’s future could not be secured unless two fundamental problems were solved -- long-term electricity supply at acceptable prices and a reduction of the 360 million-euro debt.” It reiterated it may claim damages from the Montenegrin government after having invested 200 million euros in the company.

En+ Group Ltd. offered on Feb. 17 that all KAP debts be converted into equity, including 86 million euros to En+. It also threatened legal action against any unilateral attempt to wrest away its current stake in KAP.

(Corrects ownership structure in April 3 story, adds En+ comment from first paragraph.)
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