A new State Aid Control Act (Zakon o kontroli državne pomoći) (“SACA“) was adopted in Montenegro on 14 February 2018., bringing significant institutional, substantive and procedural developments to the existing state aid framework. Below we provide a summary of the main changes.

Competition Agency to take over state aid control

State aid control and administration are currently within shared competence of the State Aid Control Commission (Komisija za kontrolu državne pomoći) and the State Aid Preparation Unit (Odjeljenje za pripremu državne pomoći). Both institutions are part of the Ministry of the Finance and therefore not fully operationally independent. The new law provides for the transfer of state aid control functions to the Montenegrin Competition Agency (Agencija za zaštitu konkurencije, “Agency“), a functionally independent institution, which will undergo an internal reorganization, as per the amendments to the Competition Protection Act (Zakon o zaštiti konkurencije), to accommodate new scope of work. The reorganization involves establishment of the Council of the Agency, comprised of a president and two members (one for competition and one for state aid) and separation of powers between the Director of the Agency and the Council. The Director will have two deputies, one for competition and one for state aid.

Clarification of state aid notions

The new state aid legislation further approximates principal notions to those under EU state aid rules. In that sense, the new law spells out that, in order to be state aid, a measure must satisfy the following four criteria:

  1. the financial aid must be directly or indirectly awarded “from the state treasury, by decision of the Government, municipal budget, by decision of a municipal authority, including from the EU funds or other public funds”;
  2. aid recipients must be engaged in economic activity and be accorded a more favourable treatment than other market participants;
  3. aid granted to undertakings on different terms or granted selectively to undertakings based on their size, registered seat or place of business, or aid targeted at a particular undertaking;
  4. aid must impede competition and affect trade between Montenegro and other countries in breach of international agreements.

Regarding the first criterion above that pertains to the origins of state aid, the Commission Notice on the notion of State aid as referred to in Article 107(1) of the TFEU (“EU Notice“) clarifies that “the granting of an advantage directly or indirectly through State resources and the imputability of such a measure to the State are two separate and cumulative conditions for State aid to exist”. The formulation from the new Montenegrin State Aid Control Act, if read literally, could be construed to mean that the aid is imputable to the State only if granted by a decision of the Government or a municipal authority. This would leave aid granted by a decision of a public undertaking which uses public funds but is not a governmental authority, e.g. a state-owned company, outside the coverage of the legislation. We think this reading would be contrary to the spirit of the State Aid Control Act. The EU Notice provides that the imputability to the State of any aid granted by a public undertaking depends on the influence exerted by the State on the public undertaking in the process of granting of aid. However, it does not need to be demonstrated that, in a particular case, the public authorities specifically incited the public undertaking to take the measure in question, as due to the nature of relations between the State and public undertakings, there is a real risk that State aid may be granted through the intermediary of those undertakings in a non-transparent manner.

Furthermore, selectivity criterion under point 3 above is, in our view, defined too narrowly. Article 107(1) of the TFEU defines selectivity more broadly, as “favouring certain undertakings or the production of certain goods“. Narrow definition in the new SACA poses the risk of it being limited only to selectivity based on size or place of registration/business activity of an undertaking, while leaving out selectivity on the basis of favouring the production of certain goods or economic sectors. Therefore, Agency should read this definition with the view of Article 73(2) of the Montenegrin Stablisation and Association Agreement, which obliges Montenegro to asses any practices contrary to competition and state aid rules on the basis of criteria arising from the application of the competition rules applicable in the Community, in particular from Articles 81, 82, 86 and 87 of the EC Treaty and interpretative instruments adopted by the Community institutions.

Non-economic activities are carved-out from the application of state aid law. Non-economic activities are defined as non-commercial activities provided to supply services of general interest, such as pre-school, school and university education, organization of public cultural events, research and development in the fields of culture, education and science, investments into public infrastructure. The Government is granted the authority to adopt a more exhaustive list of non-economic activities in a by-law.

The new legislation also introduces new legal concepts and aligns the relevant terminology with that found in the EU state aid rules:

  • Unlawful aid means aid which is granted without authorisation from the Agency.
  • Incompatible aid means aid which is granted in breach of the State Aid Act.
  • Compatible aid (called “allowed aid” in the previous legislation) means aid granted in accordance with state aid rules.
  • Misuse of aid means aid used by a beneficiary in contravention to the purpose for which the aid has been accorded.
  • Existing state aid means (1) aid which was granted prior to the entry into force of the EU-Montenegro Interim Agreement on trade and trade-related issues, which was in 2008 and is still applicable; (2) authorized aid; (3) aid with regards to which the limitation period for recovery of aid has expired; (4) aid which did not constitute state aid at the time it was put into effect, but subsequently became state aid due to the evolution of the market.

State Aid notification procedure

Current state aid regime requires a prior state aid notification and obliges the authority to render a decision within 30 days. The new legislation introduces a bifurcated notification system, whereby a measure must first undergo (1) a compatibility procedure, where the Agency assesses whether the measure constitutes state aid, and if it does, (2) a notification procedure, where the Agency assesses compatibility of the aid with the State Aid Act.

Total clearance deadline is prolonged: with respect to the compatibility assessment procedure, the relevant authority must submit draft law or by-law (in case of state aid schemes) or draft decision granting individual aid at least 60 days before its planned adoption, and the Agency has 15 days from the moment of notification to issue its opinion on whether the measure constitutes state aid. If it does, the grantor must submit a notification and the Agency has additional 60 days to issue a clearance decision or a decision declaring state aid incompatible.

Existing aid

Aid grantors are given one year from the date of the entry into force of the legislation to review whether they have granted aid which qualifies as existing aid and to ensure that such aid is compatible. If, following the expiry of the one-year deadline, the Agency considers the existing aid incompatible, it will give aid grantor recommendations as to how to achieve compliance. The aid grantor must then either propose a plan on implementing those recommendations, or provide an opinion as to why it considers the specific existing aid to be compatible. In the latter case, if the Agency rejects the arguments of the aid grantor, the authority may initiate an in-depth investigation.

It is unclear why the new legislation requires review process for all existing aid (including aid that can no longer be recovered because recovery is time-barred) and not only for aid schemes. The provisions are borrowed from the Procedure Regarding Existing Aid Schemes, set out in the Council Regulation 2015/1589 laying down detailed rules for the application of Article 108 of the TFEU, which stipulate only for the review of aid schemes. This is probably a drafting oversight and it is to be seen whether in practice the Montenegrin competition authority will require the grantors of individual existing aid to perform the review.

Recovery proceedings

The Agency may initiate recovery proceedings if it establishes that the aid is unlawful or incompatible, or if it finds that the aid has been misused. The aid beneficiary will have four months to refund the received funds and interest.

The new SACA also authorizes the Agency to temporarily suspend the aid if it suspects misuse of aid or that the aid is unlawful. The Agency may also order an interim recovery of aid when (1) there is “no doubt” that the measure constitutes aid; (2) there is a danger of irreparable damage; or (3) there is a serious risk that significant and irreparable damage could be inflicted on other market participant.

Unannounced inspections

The new State Aid Act authorizes the Agency to perform unannounced inspections of the premises of aid beneficiaries if, after it has obtained an explanation from the suspected aid grantor, it still suspects that incompatible aid has been received. The Agency may inspect business premises, land and other estate of the aid beneficiary to review its books and other business documents, and interview the relevant persons. If necessary, the Agency may engage police force and independent experts. We draw attention here to our earlier blog post where we raised the question of constitutionality of dawn raids in Montenegro.


The new law imposes hefty procedural fines on both private undertakings and public officials for violating state aid rules. Procedural fine for a failure to cooperate with the Agency and provide requested data and information in an investigation is capped at 1% of the undertaking’s annual income in the year preceding the year when the procedural misconduct took place. If following a failure to timely submit data the Agency issues an order requesting relevant information, the fine for a failure to comply with the order is in the range between EUR 500 to EUR 5000 for each day of non-compliance, capped at 5% of the undertaking’s annual income in the year preceding the year investigation was initiated. Companies and institutions which manage public resources can be subject to a procedural fine in the range between EUR 60 to EUR 3000 for a failure to submit requested data or for providing false or incomplete information, whereas a public official responsible for misconduct can be individually fined in the amount between EUR 30 and EUR 2000.