The rulers of Montenegro have coined a new slogan for the new Balkan state. “I call it the new Monte Carlo; that’s what I tell people when I travel,” Milan Rocen, the foreign minister, confided last week. “The people I meet tell me the real Monte Carlo is dull and it’s got no potential left. Not like Montenegro.”

Unlike the French Riviera, the coast of Montenegro is virgin territory. Limestone mountains plunge into crystal waters on a coast studded with bays of sandy beaches and with fortress towns, a landscape that Lord Byron described as “the most beautiful meeting of land and sea”.

Turning its back on decades of Soviet-led rule, the country has launched a massive privatisation offensive which has drawn to it the likes of Oleg Deripaska, the Rothschilds and the French luxury tycoon Bernard Arnault. Deripaska’s presence, reportedly encouraged by Vladimir Putin, the Russian prime minister, is so significant that many now call Montenegro a Russian colony.

Last week Rocen, who escorted Deripaska on his first visit to Montenegro three years ago, bristled at that particular label. “You can’t look at today’s world with cold war glasses. We’ve got 77 different countries investing in Montenegro. You might as well say that London is the new Russian colony,” Rocen said.

But Deripaska owns the giant aluminium plant KAP which alone accounts for 20% of Montenegro’s gross domestic product and 80% of its exports. To buy the plant, Deripaska personally concluded negotiations with Milo Djukanovic, the former communist strongman who is now prime minister of Montenegro.

They sealed the deal over Chivas whisky at the Grand Café on a wide avenue opposite Djukanovic’s office. Djukanovic, after changing into casual clothes, can often be seen having an aperitif on the café’s terrace, where pop music blares from plasma TV screens. Chivas is still his favourite drink.

The precise terms of the deal, including the price, are a mystery. “There are public tenders and bids for privatisations, but the deals are classified as business secrets,” said Vanja Calovic, head of the Mans watchdog, the local nongovernmental organisation partner of Transparency International.

She denounced what she called “the capture of the state” by a political elite allied to big business. “If an investor knows how to sail in murky waters, this is a great system for him,” she said.

Djukanovic’s critics say he always has the last say. “Imagine a man in power for 20 years, who came to power as leader of the Communist party and then changed ideology,” said Zoran Radulovic, economic editor of the weekly Monitor. “His party is the only one in Europe which never lost an election in two decades. Everything goes up to him for a decision.”

The Movement for Change, the biggest opposition party, led by Nebojsa Medojevic, accuses Djukanovic and his entourage of getting rich from his lengthy stay in power. Djukanovic has denied any wrongdoing and told a television interviewer: “I have the apartment in which I live and that’s all. I don’t have any savings in domestic or foreign banks.”

Today the government’s focus is on huge tourism projects along the coast, together with new roads and the better electricity supplies and other infrastructure necessary for them to materialise. A Canadian gold mining billionaire called Peter Munk, along with Deripaska, Nat Rothschild and Arnault, is building the £200m Porto Montenegro marina for big yachts and exclusive real estate in the former naval base of Tivat.

Munk, the 80-year-old head of Barrick Gold, had been looking for a stretch of Mediterranean coast to develop for six years.

“I would go cruising with my wife and kids and it got harder and harder to find room for our yacht in the Portofinos and the Monte Carlos. One day I went into the water off the French coast and I brushed against something; it was a condom. I never went back,” Munk said.

When Munk hit on Tivat five years ago, he met Djukanovic who told him: “We’d love to be the next Monte Carlo. Montenegro has only 600,000 people, but Monte Carlo was smaller at the start, too.”

Munk insists there is no corruption in Montenegro. “I go there three times a year, I spend tens of millions of euros there and I’ve rarely found a place which is more honourable. No bribes, nothing. This isn’t Russia or Kazakhstan,” he said.

Among the next projects is one that will dwarf Porto Montenegro: a €5 billion€15 billion (£4 billion£12 billion) development on the eight-mile Velika Plaza, the longest beach on the Adriatic, with an airport and up to 30,000 hotel beds. Deripaska and the Rothschilds are believed to be interested.

Djukanovic is due to apply next month for his country to become a member of the European Union, but he has publicly toyed with the idea of creating an offshore tax haven.

“People like Deripaska and the Rothschilds would all like to see Montenegro as a financial paradise. Djukanovic’s family is in both finance and business and would like it too,” the opposition leader Medojevic said.

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