Madrid risks court action over ‘golden shares’ in privatisations

Date: 10/06/1999

By Peter Chapman

MADRID is facing the prospect of legal action over a privatisation law which regulators believe could fall foul of EU single market rules.

European Commission sources say the institution is considering taking Spain to court over its 1995 framework law which regulates the hand-over of state assets to the private sector.

They say the Commission's concerns focus on the government's right to keep special voting rights in companies, known as 'golden shares', even after it has sold capital to the private sector. These special privileges include the right to stop foreign bidders - even those from within the EU - from taking control of a privatised company.

The clash with Spain is the latest in a string of similar cases as Acting Single Market Commissioner Mario Monti seeks to guarantee the unfettered movement of capital throughout the Union.

The threat of legal action comes as Spain finalises plans to complete the €3.48-billion privatisation of flagship airline Iberia. Five Spanish institutional investors were hand-picked by the authorities to take 30&percent; of the capital in the airline in April. Foreign rivals British Airways and American Airlines were also allowed to take 9&percent; and 1&percent; shares in the flag-carrier respectively.

But Pedro Ferreras, chairman of the Spanish state holding company, said the state would hang on to a golden share for up to ten years when the remaining capital is offered to the public later this year.

The Iberia sell-off follows a string of others, including the privatisations of oil group Repsol and the Spanish telephone company Telefónica.

Sources said the Spanish rules were likely to be discussed later this month by a committee of Commissioners' advisors specialising in single market infringements.

This is the final step before Acting Commissioners decide whether or not to sanction the start of formal legal proceedings, beginning with a formal warning letter.

A Commission questionnaire sent to member states last year uncovered three distinct infringements of single market laws during privatisations: the accrual of 'special powers' to governments allowing them to influence or veto certain corporate decisions; curbs on foreign investment in real estate, sea-transport and fisheries; and tiered stock structures which prevent new private shareholders from exercising full voting rights.

To deal with the more blatant rule violations, the Commission announced that it had launched a probe into the golden share held by the French authorities in oil giant Elf-Aquitaine, curbs on foreign investment in Italian petrochemical firm ENI and general privatisation restrictions in the UK and Portugal.

Belgium was also taken to task over its decision four years ago to sell off energy transmission and distribution companies Distrigaz and Société Nationale de Transport par Canalisations (SNTC).