After four years of thought and at times different developments… Close to four years have been necessary but the result is there: the EU today has fairly clear principles and sufficiently precise criteria concerning "Golden Shares" and other mechanisms that grant a State special powers in the management of private undertakings. The rulings passed down by the Court of Justice last week, concerning three cases that the European Commission had submitted to it in 1998 (see our bulletin of 5 June, p.13), appear to contain sufficient indications for a correct application of the provisions of the Treaty.. It is not only up to the Commission to draw the appropriate guidelines, but also companies themselves, administrations of Member states and the courts.
This issue has been through several phases, characterised by in pat different guidelines. From the 1980s, several national authorities reserved special powers for themselves in the management of undertakings they had privatised. The Commission had, in certain cases, considered that these special powers abusively impeded the free movement of capital or the right of establishment, while acknowledging certain exemptions (1997 communication) and had then taken several cases to Court. A first Court ruling, in May 2000, had confirmed, in general, the validity of the principles opted for by the Commission. However, the scale of some cases, notably in the field of energy, had led the Commission, last July, to further set out its stance, following in-depth debates within its body. Last autumn, the Court of justice's Advocate General had defended the "Golden Shares" and other special rights of control, basing himself on a fairly original legal reasoning, that is to say: given that Member states have the right to be owners of an undertaking, a fortiori they must have the right to retain special powers in undertakings of which they are no longer the sole owners, as "he who can most can least".
Principles and criteria. The three new Court rulings state that: a) in principle, privatised undertakings are subject to the normal rules of the common market regarding company law, the free movement of capital, etc.., and that States to other public authorities cannot hold special powers; b) however, exemptions are possible for reasons of security (defence sector) or for reasons of the general interest. These two principles, in compliance with the general provisions of the Treaty and already previously affirmed, are not surprising; what is important in the rulings lies in the definition of the criteria that can justify exemptions and in the modalities of these exemptions. Other rulings, to be passed down soon, will further clarify what is legal and what is not. But the three rulings already establish principles and criteria, that may be summarised as follows:
1) "Golden Shares" and other measures allocating special rights to public authorities are an illegal impediment to the free movement of capital and the right of establishment as they may dissuade investors from placing their capital on the undertakings concerned;
2) exemptions to this prohibition may be justified for reasons of the general interest. The Court recalls that, in its 1997 communication, the European Commission had acknowledged that Member states may "retain a certain influence" in previously public companies and that had been privatised, when these companies were acting in fields of services of a general interest or in strategic fields;
3) however, different criteria need to be respected. The first is that of proportionality. The measures of exemption must be proportional to the goal sought, in the sense that this goal may not be attained through less restrictive measures. It is precisely the non-proportionality of the restrictions that led the Commission to condemns the French "Golden Share" in Elf Aquitaine (see below);
4) other conditions demand that: i) the restrictions must not be discriminatory, i.e., they must apply in an identical manner to nationals and nationals of other Member states; ii) they must be based on objective criteria and known in advance by the companies concerned; iii) any undertaking affected by restrictions must have a right to appeal; iv) the reasons of a general interest justifying restrictions must not have a purely economic purpose (the Portuguese legislation was condemned because it was justified by the country's general financial interest, the …/..
updating and efficiency of means of production, etc) nor have the general character applicable to all privatised companies (Portuguese legislation stipulates that any holding of a certain size in privatised companies in general has to be authorised in advance).
The significance of the three rulings lies in the definition of criteria for legal derogations to the free circulation of capital, clarifying Treaty articles referring generically to public order and safety. The Court notes that countries can keep some influence in privatised formerly state-owned companies when such companies operate in areas of general or strategic interest, adding that the aim of guaranteeing security of supply in oil products in the event of crisis is a legitimate public interest. It had already argued this in the July 1984 Campus Oil ruling on the free circulation of goods and has now argued it for the free circulation of capital.
The Elf-Aquitaine ruling does not decry golden shares, only some forms of golden share. The Court says the aims of the French Elf Aquitaine system can justify derogations to the free circulation of capital but France went too far by giving the share owned by the state in Elf Aquitaine with rights including the prior approval by the economics ministry of any purchase of shares or the holding of voting rights above a certain level; the presence of a representative of the economics ministry and another for the energy ministry on the management board; the option of opposing the sale of certain assets. In the Court's view, this is a bit too much for a single share, even if is a golden share since the powers granted to the state by the golden share go beyond what is needed to ensure the security of supply of oil, and in any case the scope of derogations to the freedom of circulation for capital cannot be unilaterally decided by any of the Member States without control by the Community institutions. The basic criticism refers to the obligation to get authorisation from the economics ministry for owning more than a certain share of Elf-Aquitaine - investors do not know the criteria for granting authorisation since the minister's discretionary power goes so far that it eliminates legal security.
This implies that the existence of golden shares ("action spécifique" in the French version of the law) is not condemned in and of itself. If the rights it gives the state do not go beyond what is needed to assure security of supplies of oil, they are lawful.
The Belgian ruling sets out what is lawful. This is made even clearer by the ruling rejecting the Commission's appeal against Belgium, also concerning the security of supply (of natural gas this time, rather than oil), more specifically gas pipes. The Court said that the need to keep infrastructure for the supply of energy products is a task of public interest. The Commission accepted this but challenged whether the Belgian measures were necessary and proportionate. The Court argued that the Belgian system (a 1994 law) did not surpass what was necessary to ensure security of supply of natural gas because 1) the state's golden share did not impose any prior authorisation, but rather the option for the relevant minister to make an a posteriori objection to measures that damage national energy interests; 2) any objection has to be formally justified and is subject to effective legal scrutiny. This system therefore makes it possible, according to the Court, to guarantee the effective availability of pipelines based on objective criteria that are subject to legal scrutiny, for the large-scale transport and storage of gas in Belgium and gives the state the option to intervene to ensure that public service obligations are respected by SNTC and Distrigaz, while respecting legal security demands.
The above paragraph outlines in practice the criteria for golden shares in the energy industry to be considered lawful. The Belgian system could almost be taken as a model. The Court of Justice is hereby continuing the basic work it has been pursuing for several years by setting out how general interests can prevail in certain conditions over single market measures. It had already done this for the environment and the freedom of circulation of goods and is now extending the range to energy and the freedom of circulation of capital. Other rulings, whether in the pipeline or not, could clarify the situation in terms of the defence industry (Thales in France, BAE Systems and Rolls Royce in the UK), telecommunications (Telefonica in Spain, Telecom-Italia) and electricity (Endesa in Spain). The "asymmetrical" aspect of liberalisation has been left hanging. The Volkswagen case is rather different and has not been challenged by the Commission.
What the Court has said, and what it will say, could help the Commission in preparing the new takeover directive (which, of course, also raises other problems). (F.R.)