Long-term Lease Agreement for the Location of Lastavica Island with “Mamula” Fortress – Herceg Novi

The long-term lease agreement for the location of Lastavica Island with “Mamula” Fortress – Herceg Novi was concluded on February 23, 2015, between the Government of Montenegro as the Lessor and the company “Orascom Development Holding” AG from Switzerland as the Lessee. The lease was agreed for a period of 49 years from the date of signing the Memorandum on the fulfillment of preconditions for the Agreement to enter into force. The Memorandum on Fulfillment was signed on June 10, 2017. The subject of the lease is Lastavica Island with “Mamula” Fortress, cadastral parcel number 3438, registered in LN 215 KO Radovanići, Herceg Novi municipality, with an area of 31,848 m², owned by Montenegro.

The Investment Program defined a program for the reconstruction of the fortress in accordance with Conservation Conditions into a 5-star hotel of a museum-like character, with the following facilities: 34 hotel rooms, 4 catering establishments, a memorial room for visitors, a dock, a pool, 2 cascades with recycled water, and infrastructure facilities (potable and wastewater reservoir and a substation with a generator). It is also planned that up to 200 jobs will be directly and indirectly created during the resort’s operation, with the same number expected during the construction period, and the project is estimated to generate €7.5 million in combined revenues for the Government of Montenegro in the first 10 years, excluding rent.

The Lessee’s investment obligation is 15 million EUR, and the Lessee is required to submit a report from one of the four defined auditors, confirming the full realization of the investment obligation in accordance with the Agreement, within 180 days of the completion of works and obtaining an occupancy permit, currently equivalent to registration with the Real Estate Administration. This contractual obligation was fulfilled in mid-December 2023 when this task was contracted with “Deloitte.”

According to the Lessee’s representatives, the following activities were carried out in 2023:

  • All works involving over 40 contractors of various profiles were completed, errors detected during the system checks were rectified, and the hotel was prepared for commercial operation;
  • Temporary approval for performing hospitality activities was issued on May 25, 2023, gwith a duration of one year;
  • Fiscalization for commercial operations in accordance with Montenegrin legal regulations was secured on May 20, 2023;
  • A decision on the categorization of the hotel as 5-star was issued on June 15, 2023;
  • Insurance policies for works, operations, equipment, and third-party liability are in force, last renewed on September 1,2023;
  • In accordance with the contractual obligation, the Lessee provided a new performance guarantee from UBS bank to the Government of Montenegro, i.e., the Privatization and Capital Investment Council, amounting to 1.5 million EUR, valid until October 2024.

According to data from the Lessee’s representatives, 36.6 million EUR was invested in the project, including an additional 1.2 million EUR for movable equipment and consumables for the hotel’s functioning in 2023. Considering it is the hotel’s first operational season, operations and employee salaries were subsidized with an additional 5.4 million EUR. As of June 30, 2023, the hotel had 203 direct employees on the payroll.