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Concurrent to the events surrounding the takeover bids, the European Commission on July 28 went ahead and referred to the European Court of Justice the Elf Aquitaine case for non-compliance with EU rules on free movement of capital (Article 56) and the right of establishment (Article 43), two of the EU Treaty's basic principles.The problem springs from the French 1993 Privatisation Act, under which ordinary Elf shares held by the French State were converted into "specific shares" which gave special powers to the Minister of Economic Affairs, including prior approval of acquisitions of shares which would take holdings above the thresholds of one tenth, one fifth or one third of the capital or of the voting rights. The law also gave the Ministry the right to appoint two representatives to sit on the company's Board, and to veto any decisions assigning or putting up as guarantee the majority of the capital of four subsidiaries of the parent company. French practice aimed at the protection of national interests "creates uncertainty for investors" over the terms on which shares in Elf can be acquired, said the Commission on July 28, when it announced its decision.The Commission spelled out its philosophy on such restrictions in its 1997 Communication on legal aspects of intra-EU investment: authorisation procedures such as for investment in privatised companies must be non-discriminatory, and justified by "imperative requirements in the general interest"; they must also be suitable for their objective, and must not go beyond what is needed to attain it. And there must be objective criteria, and the rules must be stable over time, and be made public.Warnings from Brussels in May and December 1998 did not lead to appropriate changes, and no legislative instrument or draft has yet clearly demonstrated that the authorisation procedure is appropriate and proportionate, according to the Commission. Paris argued, amongst other things, that the golden share was designed to guarantee security of energy supply in case of international crisis. And France's most recent proposals still make insufficient progress on the suitability and proportionality of the mechanism, although they claim to bring the legal framework into line with Community law. So the Commission is now to take its complaint against France to the European Court of Justice.A Commission official confirmed that the procedure had no direct relationship with the current takeover bid from TotalFina, and that in no circumstances was it taken on political grounds. "The internal consultation has just ended, that's all", he explained. "This has nothing to do with the current takeover bid, but of course it would become topical if a non-French company entered the game and would be opposed the French Government's 'golden share'."Spain warned too.The Government in Madrid is also to be sent a reasoned opinion, because Spanish provisions on investment in privatised companies "constitute unjustified restrictions on the free movement of capital and the right of establishment", the Commission said. Since 1996, special conditions have been attached by the Spanish State to the oil and energy company Repsol and to Endesa, the electricity utility (as well as to the telecommunications company Telef[cent]nica, the Argentaria banking group, and the Tabacalera tobacco monopoly). The 1995 legislation the Spanish Government has invoked for these companies requires prior authorisation for decisions of the board of directors on actions such as dissolution, merger, break up, or change of the company's mission. Acquisition by any investor of more than 10% of the capital of companies in which the state owns, directly or indirectly, more than 25% of the shares is also subject to authorisation when the company provides essential or public services, or conducts "regulated activities" subject to a specific administrative regime, or is fully or partially exempted from competition rules.Spain has defended the legislation with the claim that direct intervention of the Government in the ownership rights of certain privatised companies is necessary to protect business continuity and stability. But the Commission says the mechanisms are excessive. Public interest concerns such as assuring the supply of certain services of general interest could have better been pursued by other arrangements without imposing limits on acquisition rights, and risking discriminatory treatment of foreigners.
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Publication:Europe Energy
Geographic Code:4EUFR
Date:Sep 3, 1999

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