Regulators launch privatisation probe

Date: 25/06/1998

By Tim Jones

REGULATORS are poised to clamp down on what they believe to be systematic violations of EU single market laws in national privatisation programmes.

With state assets worth as much as 20 billion ecu due for sale this year alone as governments struggle to clean up their public finances, Internal Market Commissioner Mario Monti is bent on enforcing Union rules designed to guarantee unfettered investment opportunities throughout the EU's 15 member states.

Having sifted through governments' responses to a questionnaire on their privatisation programmes, European Commission staff have uncovered three distinct infringements of single market laws during state sell offs: the accrual of 'special powers' to administrations allowing them to influence or veto corporate decisions; curbs on foreign investment in real estate, sea-transport and fisheries; and tiered stock structures which prevent new private shareholders exercising full voting rights.

"All governments - north and south - have a nationalist reflex and, what's more, they copy each other," said one official. "With a lot of these restrictions, there is almost a contagion effect."

To deal with the more blatant rule violations, the Commission announced in December that it had launched inquiries 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.

Regulators have also sent warning letters to the Belgian government regarding its decision four years ago to sell off energy transmission and distribution companies Distrigaz and Société Nationale de Transport par Canalisations.

In both cases, the Belgian state was allotted a special share allowing it to appoint representatives to the companies' boards who could ask the government to annul decisions deemed contrary to the country's energy policy, and set limits to stockholdings above which private owners could lose their voting rights unless they were notified to the state.

The Belgian government must respond to the warning before the summer break.

In a speech to be delivered at a conference on privatisation today (25 June) Monti welcomes the 'improvement in efficiency' that the private sector can bring, but warns: "We must ensure that the modalities and rules of implementation do not violate the provisions of the treaty."

The Commission will investigate privatisations in most member states, but will focus on the Netherlands - because it has failed to respond to the questionnaire - as well as Finland, Germany and France.

In Germany, regulators will scrutinise laws dating back to the Fifties which allow the state to restrict foreign investment in exceptional circumstances.

They will also examine 'mechanisms' to prevent majority foreign ownership during the staged privatisation of Deutsche Telekom, which began two years ago with the sale of 9 billion ecu of stock.

Suspicions that the French authorities have rigged their privatisation programme to favour domestic firms will be probed. The state's recent rejection of a bid by US firm AIG for the ailing state-owned Groupe des Assurances Nationales in favour of French mutual insurer Groupama and Swiss Life, which has a significant presence in the domestic market, raised eyebrows in the insurance world.

The Commission is also seeking extra information from Finland where the government is pushing through an ambitious 1.5-billion-ecu programme of privatisations and where the chairman of the IVO-Neste holding company warned recently against losing domestic control of strategic Finnish firms.

In particular, so-called 'K-shares' with special voting rights in Gasum Oy, the natural gas joint venture between Neste and Russian energy giant RAO Gazprom formed in 1994, are under investigation.

Even in the UK, where European privatisation was pioneered and many formerly state-owned firms have been sold to foreigners, London's new 12-billion-ecu programme of sell-offs will be closely watched, especially the disposal of 49% of National Air Traffic Services.