As part of the compliance with the Financial Assistance Program, the Portuguese Government passed Decree Law No. 106-A/2011, on the 8th phase of EDP's re-privatization and Decree Law No. 106-B/2011, on the 2nd phase of the privatization of REN, the energy grid company.
Both aim to lessen the weight of public debt in the economy, to strengthen the presence of investors in the Portuguese market and to diversify the sources of financing of domestic companies. The Portuguese Government believes that despite the sale of all shares in EDP and REN, the existing regulatory and supervision tools are sufficient to safeguard public interest in the energy sector.
The sales shall be conducted by Parpública and will refer to a percentage of the shares representing 21.35% of EDP's share capital and up to 51% of REN's share capital. Three distinct types of sales shall be used, each with different purposes:
(i) Direct sale to investors who will become reference shareholders to capture industrial investors, particularly, electricity or natural gas network operators, and financial investors with the perspective of stable long term investment. The criteria for selecting the investors include the price, the submission of a strategic project, the absence of conditioning factors and the compliance and financial capacity of buyers. If so determined, for a maximum period of 5 years, the shares acquired may not be sold, encumbered nor be subject to agreements on voting rights;
(ii) Direct sale to financial institutions to strengthen and diversify the ownership structure of the companies and to commit the financial institutions to carry the subsequent distribution of shares; and
(iii) Public offer in the domestic market with the objective of promoting the liquidity of the capital, allowing the acquisition of shares by the companies' workers.
The degree of preference given to these arrangements is not the same in both companies: In the case of EDP, operations will preferably be conducted through reference shareholders' direct sales and the other methods shall not be applied, unless necessary. In the case of REN, the three types of sales will be used.
Under the regulations now approved, it is up to the Council of Ministers to decide on (a) the total amount of shares to sell in each of the selling arrangements; (b) to approve the specifications, criteria and method of price determination; (c) the identification of financial institutions to whom the shares will be transmitted, where applicable; as well as (d) the amount of shares to be offered to the public and workers.
© 2011 Macedo Vitorino & Associados
In compliance with the bail-out programme agreed by the Portuguese State and the IMF/EU/BCE, in which it was agreed to set the general principles of out-of-court proceedings for restructuring of companies, the Council of Ministers approved, by way of resolution, the general principles of out-of-court proceedings for debtors' recovery on October 25, 2011.
This resolution establishes as general principles, among others, the following:
(a) Negotiation in order to obtain a settlement which allows the effective recovery of the debtor;
(b) Cooperation between the parties in order to grant the debtor a "standstill period", during which the debtor may obtain all relevant information and make any proposals in order to solve their financial situation;
(c) Creditors must refrain from introducing new judicial proceedings against the debtor and must suspend the pending lawsuits and the debtor must refrain from adopting measures which may harm creditors;
(d) The proposals for debtor recovery should be based on a realistic and consistent business plan, containing information regarding the steps to be adopted by the debtor in order to overcome their financial situation; and
(e) In case additional funding is granted to the debtor, the remaining credit should be guaranteed by the parties.
These principles constitute one of the measures of a reform, which is expected to be soon adopted, as to companies' restructuring proceedings.
These principles are included in a wider set of measures for the recovery of companies in economic and financial difficulty situation without the companies having to resort, at least initially, to insolvency proceedings.
It is therefore expected that the Portuguese Insolvency Code ("CIRE") is amended in order to introduce new rules for approval of restructuring plans negotiated out-of-court and the current conciliation proceeding with the IAPMEI be reviewed accordingly.
As adopted in other countries, such as the case of the UK schemes of arrangement, it is anticipated that these measures may promote effective out of court proceedings, which, in our opinion, might pass by convening with the creditors agreements, with the voting majority specified in the CIRE, and since approved by a court, with the same enforceability of the decisions taken in insolvency proceedings.
By this way, it would be opened the possibility of reducing the amounts of the debts and the share capital of companies in economic and financial difficulties by way of an alternative mechanism without having to resort to insolvency proceedings.
© 2011 Macedo Vitorino & Associados
The new regulations for the energy sector, approved by Portuguese Government, transpose into national law Directive No. 2009/72/EC and Directive No. 2009/73/EC laying down the common rules for the internal market in electricity and natural gas, respectively.
The two Directives are part of the so-called Third European Union Energy Package, whose main objectives are to increase competition, enhance the efficiency of the regulatory authorities and increase the investment to benefit of consumers of electricity and gas natural.
The set of measures now adopted change the organizational framework of the national electricity system of Decree-Law No. 78/2011 of 20 June, and the organizational framework for natural gas of Decree-Law No. 77/2011 of 20 June.
Firstly, the licensing requirement to commercialize natural gas and electricity is replaced by a registration at Direcção Geral de Energia e Geologia. As a consequence, it is expected the warranties which were associated with the license to be waived.
Secondly, in order to strengthen competition among operators in the energy market, the new energy regulation reinforces the discipline of separation of production and commercialization activities and operation of networks transport activity.
Towards this objective, the operator of the distribution network belonging to vertically integrated undertaking and serving a number of clients over 100,000 must now draw up a compliance program which sets out the measures to be taken to ensure that discriminatory and anticompetitive conduct is excluded.
Thirdly, the consumer's rights are enhanced, namely the change of supplier, that must now be effected within three weeks. Other important change is that consumers may allow access to their current supplier's consumption data by other suppliers, without any charge.
The new energy regulation also sets out the obligation on suppliers to provide information to consumers, for example, about their consumption, at any time, without any charge.
The directives and the new energy regulations agreed in the need to provide protection to vulnerable customers, mainly on the prices issues. However, neither the directive nor the new law established specific measures to ensure such protection.
Finally, the enlargement of the powers of regulatory authorities is made, mainly by competition control and protection of consumers.
1. Property taxation
The measures established in the MoU in this respect include measures applicable to personal income tax and to property taxation. In this regard, principal payments under loans granted for housing purchase will not be deductible as from January 1, 2012 and the tax deductibility of rents and mortgage interest payments under such loans will also be limited.
Property taxation should be gradually focused on Real Estate Tax (IMI) and not on Real Estate Transfer Tax (IMT).
Temporary exemptions of IMI in connection with owner occupied dwellings should be substantially reduced and the rates of IMI applicable to vacant or non rented property should be increased.
For purposes of bringing taxable value of property close to market value by the end of 2012, rules on property valuation should be reviewed by the end of the third quarter of 2011.
Residential properties should be subject to evaluation every three years while commercial properties should be evaluated on an annual basis.
2. Rental market
The New Urban Lease Act Law (NRAU) should be amended by the end of 2011 in order to (i) broaden the conditions for renegotiation of open-ended residential leases, (ii) limit the possibility of transmitting the lease contract to the first degree relatives, (iii) reduce the prior notice for termination of leases for landlords, (iv) provide for an extrajudicial eviction procedure for breach of contract, aiming at shortening the eviction time to three months, and (v) phasing out rent control mechanisms.
3. Licensing procedures for renovation works
In this respect, the MoU establishes that new legislation must be approved until the end of the third quarter of 2011 to, among others, (i) simplify administrative procedures for renovation works, safety requirements, authorisation to use and formalities for works that benefit and enhance property's quality and value, (ii) simplify the rules for temporary re-location of tenants of buildings being renovated, and (iii) allow landlords to terminate the lease contracts in case of major renovation works (affecting structure and stability of the building) with a maximum of 6 months prior notice.
4. Conclusion
Until now, Portuguese housing market has favoured the purchase of housing based on bank financing and construction of new buildings in detriment of rental contracts and renovation and conservation of the existing buildings, particularly in the cities. Although the exact terms of implementation of certain measures included in the MoU are not yet known, it appears that Portuguese housing market will be required to adjust its model to be increasingly focused on investment in existing buildings.
The tools to implement such adjustment are the changes to property taxation, the incentives to rental contracts and the simplification of licensing procedures for renovation works.
© 2011 Macedo Vitorino & Associados
Portugal agrees three-year bail-out programme
The Portuguese Government announced that the IMF, the ECB and the European Commission reached an agreement with Portugal regarding the bail-out programme for the next three years (2011-2014).
The draft MoU disclosed today details the general economic policy conditions for the granting of financial assistance to Portugal leaving open the amount of the bail-out facility, which is expected to be around €80,000 million.
The draft MoU includes the following measures, among others:
Tax measures. The MoU sets out targets for the reduction and limitation of tax allowances and benefits for income tax purposes, the movement of certain goods and services from the reduced and intermediate VAT rates to higher ones, the increase of taxes on property, cars and tobacco and the introduction of electricity excise taxes.
Financial Sector. The Bank of Portugal (BdP) will direct all banking groups to reach a core Tier 1 capital ratio of 9% by end-2011 and 10% at the latest by end-2012. In the event that banks cannot reach the targets on time, the Government may inject equity, by using resources provided under the programme (up to EUR 12,000 million).
SOEs. To reduce costs further than the 15% reduction in operational costs, the Government will review the scope of the services, apply tighter debt ceilings from 2012 onwards and prepare a comprehensive assessment of a tariff structure to reduce the levels of subsidisation.
Public-private partnerships. The Government will perform an assessment of at least the 20 most significant PPP contracts, which should review the possibility of renegotiating these contracts, and avoid engaging in new PPPs projects.
Privatisations. The privatisation programme will be reviewed until March 2012. During 2011, the Government will pursue a rapid divestment in public sector companies, EDP and REN, subject only to market conditions, and privatise TAP.
Labour market. In addition to the changes to the unemployment insurance benefits, the Government will implement a reform in the severance payments in open-ended contracts, which will be aligned with those of fixed-term contracts, and introduce adjustments to cases for fair individual dismissals.
Energy and gas markets. The draft MoU contemplates a full liberalisation or the markets by January 2013. For new contracts in renewables and co-generation, the feed-in tariff should be reduced. For existing contracts, the Government will assess the possibility of renegotiating the feed-in tariff.
Housing sector. The Government will broaden the conditions for renegotiating open-ended residential leases and provide for an extrajudicial eviction procedure for breach of contract.
Competition. The Government will eliminate the special rights of the State in private companies (golden shares) by July 2011.
© 2011 Macedo Vitorino & Associados
This information is provided for general purposes only and does not constitute professional advice. If you have any question on a matter of Portuguese law you should contact a lawyer licensed to practice law in Portugal. If you are a client of Macedo Vitorino & Associados please contact your usual contact partner or any of the lawyers listed in the contacts section.
In November 2010, the Court of Justice of the European Union has decided the "golden share" of the Portuguese State in Energias de Portugal SGPS SA ("EDP") contravenes the European Union ("EU") rules.
This ruling was not, however, novel, as the Court of Justice had already decided in a similar sense regarding the "golden share" of Portugal Telecom SGPS SA ("PT").
The "golden share" grants the Portuguese State voting rights on key matters on the managing and controlling of EDP, including mergers, divestitures or relevant changes in shareholders' powers.
Repeating the merits of the PT case, the Court of Justice held that the exercise of those special rights arising from the "golden share" by the Portuguese State constitutes an unjustified restraint on the free movement of capital and the right of establishment under the Treaty on Functioning of the EU.
According to the Court of Justice, the influence of the Portuguese State in the management and control of EDP may discourage direct investments from operators of another Member States, which are abstained from participating in the management and control of the company.
In 2008, the European Commission had decided in the same sense.
Further to the ruling of the Court of Justice, the European Commission has announced that it will ask the Portuguese Government on the status of this matter, including the measures adopted by the Portuguese State in order to comply with the EU rules, as stated in the case law of the Court of Justice.
The Portuguese State had an indicative deadline of two months from the publication of the ruling of the Court of Justice to make known the adopted measures, which did not occur or the European Commission has considered the proposed measures were not satisfactory taking into account the content of its latest announcement.
The Portuguese Government has already reacted to the announcement of the European Commission and forwarded the resolution of the current situation to the shareholders of EDP.
However, in case the Portuguese Government does not take the necessary measures to eliminate the "golden share" in EDP, the European Commission may decide to begin other infringement proceedings against the Portuguese State.
Given the fact that there is a previous ruling of the Court of Justice on this matter, it is likely that the time resolution of new proceedings could be faster.
In case the Portuguese Government reiterates not to accept the decision of the Court of Justice, it may be subject to pay copious fines for each day of failure to comply with the ruling of the Court of Justice.
© 2011 Macedo Vitorino & Associados
Ordinance No. 142/2011 of 6 April approves the National Natural Gas Transportation Regulation ("Rules"), amending the previous legislation, approved by Decree No. 390/94 of 17 June.
The Regulation establishes the technical and safety conditions to be met in the design, construction, operation, infrastructure maintenance and placement out of service of the National Natural Gas Transportation Network ("RNTGN"), with the aim of ensuring adequate flow of natural gas, interoperability with networks to which they relate and safety of people and property.
The RNTGN has application in:
(a) Pipeline transportation of natural gas in diameter equal or superior to 100 mm and whose operating pressures are higher than 20 bar; and
(b) Pressure regulating stations belonging to the national gas transmission network.
The gas transported must be non toxic and non corrosive, in compliance with ISO 13686, or a technically equivalent standard. Natural gas should be transported at a temperature compatible with the infrastructures of transport and can never exceed the temperature of 120ºC.
The quality management system of pipelines to transport natural gas must be based on the specifications of EN ISO 9000 or a technically equivalent standard.
A classification system for local implementation of the pipes takes into account: (i) the population density, (ii) the nature, extent and purpose of the buildings, constructions and works of art therein, (iii) the intensity of rail traffic, road transport and (iv) the future allocations provided in the various planning instruments.
As part of security measures and protection of pipelines, stand out, among others, the establishment of the control area of activities of third parties, reliance on the authorization of the RNTGN responsible technician to perform works ranging from the bondage of the pipeline, a minimum distance of 35 m from any inhabited building (75 m in case of buildings open to the public or that present particular risks) and comply with a minimum depth of 0.8 m.
Technical requirements are also set for the pressure regulation points, the pipes, the materials of the various components of the pipeline and the conditions of operation and maintenance, including mandatory periodic inspections ranging between six months to two years, according to the type of inspection and the area of the location of the infrastructure.
© 2011 Macedo Vitorino & Associados
1. Amount of share capital
Under the Portuguese Companies' Code, private limited liability companies (sociedades por quotas) are required to have a minimum share capital of €5,000 (five thousand euro). Each share (quota) must have a nominal amount of at least €100 (one hundred euro).
Pursuant to the provisions of Decree law no. 33/2011, of 7 March 2011, which shall enter into force on 6 April 2011, the amount of share capital of private limited liability companies, including single shareholder limited liability companies, may be established by the shareholders in the incorporation documents without any limitation, i.e. it will be equal to the sum of the shares (quotas) of the shareholders. In addition, the minimum nominal amount of each share (quota) is reduced to €1 (one euro).
These provisions shall, however, not apply to companies subject to specific regulations, such as holding companies, to companies which incorporation is subject to specific government authorisation nor to public limited liability companies (sociedades anónimas).
2. Subscription and payment
Also as of 6 April 2011, the share capital of private limited liability companies may be subscribed and paid up by the shareholders at the date of incorporation or until the end of the company's first financial year.
The financial year of a company shall, in principle, begin on 1 January and expire on 31 December of each year, unless the articles of association establish otherwise.
Each shareholder shall, nevertheless, be required to subscribe and pay within the above mentioned period at least an amount equal to the minimum nominal amount of the share (€1 (one euro)) and to state in the incorporation documents whether the such amount has been subscribed and paid up at the date of incorporation or will such payment occur until the end of the financial year. In this case, the shareholders will be required to state that they have already subscribed and paid up the above mentioned amount in the first shareholders' assembly taking place after the first financial year has expired.
It should be noted that in companies where the shares exceed the minimum nominal amount of €1 (one euro), shareholders may defer payment of the remainder of the share capital for a period of 5 years.
3. Conclusion
Upon the entering into force of these new regulations, which shall occur on 6 April 2011, it will be possible to incorporate a two shareholder private limited liability company with a share capital of €2 (two euro), which may be subscribed and paid up until the end of the financial year. The traditional perspective of the share capital as creditors' guarantee is changing and companies will probably seek to obtain reliable information on the counterpart's assets as well as additional security before entering into a contract with such a company.
© 2011 Macedo Vitorino & Associados
On October 28, 2010, the Council of Ministers has approved the accession of Portuguese State to the London Agreement relating to the European Patent Convention. The London Agreement establishes simplifying rules on the procedure for translation of European patents granted under the European Patent Convention dated 5 October 1973.
European patents granted by the European Patent Office (“EPO”) entitle their holders to the same rights as the rights of a national patent granted by local authorities. Notwithstanding this, a European patent must be validated in each State where it should be made effective.
In Portugal, the validation of European patents is held by the Portuguese Institute of Industrial Property (“INPI”). Currently, the completion of this validation process requires that the holder of patent submits a Portuguese translation of the descriptions, claims and abstracts of the European patent.
With the accession of Portuguese State to the London Agreement, the holder of the European patent will be only obliged to translate into Portuguese the claims of the patent. The remaining elements can be now submitted in English. These elements are mainly of technical nature, such as descriptions, abstracts and drawings, and represent between 70% and 90% of patent documentation.
This translation scheme exemption is not still extended to all patents granted by the EPO. The English patents granted in English are exempted from translation; however, this does not apply to the patents issued in German or French.
Furthermore, the European patents will continue to be fully translated into Portuguese to the extent they may be subject to legal proceedings in Portugal, which is explained by facilitating the understanding of the matters in dispute between the parties.
This translation scheme is mainly aimed at reducing the high costs of translation incurred by citizens and companies, thus increasing foreign investment in Portugal.
Nevertheless, some critics point out that this new scheme may undermine the protection of the Portuguese language.
The INPI and the European Patent Organization are therefore developing a software tool that enables an automatic and free of charge translation of the technical elements of the patents into Portuguese. This translation tool is expected to be available in 2011, providing consultation to all the elements of the patent in Portuguese.
Portuguese State has joined a group of 16 countries that are already signatories of the London Agreement, which was originally signed in 2000 by the EPO.
The Portuguese Government issued this week Resolution 79/2010 which approved the main terms and conditions of the eighth phase of the re-privatisation of EDP – Electricidade de Portugal, S.A. (“EDP”).
EDP is the Portuguese producer and distributor of electricity. It holds investments in the USA, Brasil, Spain, France, Belgium, Poland and Romania.
Presently, EDP is the third largest renewable energy operator in the Iberian market and the third largest player in wind energy world-wide. It was recently recognised as number one in the utilities sector of the Dow Jones Sustainability Indexes.
The re-privatisation of EDP started in June 1997, with the sale of 30% of EDP’s share capital. The others phases took place in May and June 1998, October 2000, October 2004, December 2005 and November 2007.
The new phase of EDP’s re-privatisation was included in the Portuguese Stability and Grow Programme with a view to reducing the public debt and the debt charges. The 2010 State Budget approved the re-privatisation programme of certain public companies and public owned shareholdings, including Galp Energia and EDP. The target is to obtain 1,200 million Euros, corresponding to 0.73 % of the gross domestic product.
Before EDP’s re-privatisation, the Portuguese Government launched the fifth phase of re-privatisation of Galp Energia, through the issuance of convertible bonds corresponding to 7% of Galp Energia’s share capital, worth 885 million Euros.
Decree-Law 105/2010, of 1 October 2010, approved the eighth phase of the re-privatisation of EDP. Under this Decree-Law, the re-privatisation of EDP will also be carried out through the issuance of convertible bonds by Parpública corresponding up to 10% of capital stock of EDP.
Resolution 79/2010, of 12 October, set out the re-privatisation of a maximum of 365 million shares of EDP. The convertible bonds will be distributed by a restrict group of national and international institutions, including, among others, Caixa Geral de Depósitos, Bank of America – Merryl Linch, BNP Paribas, Citigoup, Credit Suisse, Deutsche Bank, Goldman Sachs, HSBC, J.P. Morgan, Royal Bank of Scotland and UBS.
Each convertible bond will give its holder the rights to earn interest, the repayment of principal or the delivery of certain EDP’s shares. The maturity of the bonds will be 7 years. The reference price will be determined based on the average stock prices in the previous 5 days of the begining of the subscription period. These bonds may, at Parpública’s option be listed at Euronext or other markets.
If any of the shares that are being re-privatised are not used by Parpública to repay the bonds to the investors, Parpública must sell those shares in the national or international stock exchanges.
After this eight phase of re-privatisation, the Portuguese State will keep a shareholding of, approximately, 12.55% of EDP’s share capital.
© 2010 Macedo Vitorino & Associados