PM says Montenegro best to suspend OTP loan talks

PODGORICA, Nov 10 (Reuters) - Montenegro should suspend talks with Hungary's OTP and seek a loan from domestic lenders for redundancy payments to 2,600 workers of troubled aluminium plant KAP, the prime minister said on Wednesday. "Talks with OTP Bank should be suspended," Milo Djukanovic told state-run Radio Crne Gore, adding that the government should turn to local banks for a loan and that liquidity of local banks was not low. He was speaking hours after local media reported that talks with the Hungarian bank on a 50 million euro loan had collapsed. Talks collapsed after OTP asked Montenegro's government to set aside funds in its budget for the repayment of the loan if KAP's majority owner defaults on debt servicing, media said. The government had been negotiating the 50 million euro ($74.90 million) loan to secure redundancy payments to 2,600 workers of Kombinat Aluminijuma Podgorica and a bauxite mine in Niksic, both part-owned by Central European Aluminium Company (CEAC), part of En+ Group of Russian businessman Oleg Deripaska. A half of the OTP loan should have financed redundancy payments, and the rest KAP debts to OTP and a state-owned local warehouse management company. Earlier this year, the government regained a stake in KAP, saving the company from bankruptcy after the Russian owners defaulted on their debt to the state. A part of the bailout package was for KAP to optimize its workforce and cut costs. The KAP aluminium smelter accounts for 50 percent of the country's exports, but runs at a loss because of low global metal prices. Earlier this year, it decided to cut production by half to around 60,000 tonnes in 2009. "With or without OTP, we will define a necessary framework for the social programme for KAP workers," Djukanovic said. The government chose OTP as a potential lender because the bank had financed KAP in the past either directly or through its Montenegrin arm Crnogorska Komercijalna Banka (CKB). (Reporting by Petar Komnenic; Writing by Gordana Filipovic; Editing by David Cowell)