In 2022, the Portuguese road infrastructure manager, Infraestruturas de Portugal (IP) announced plans to build a new high-speed rail line between Lisbon and Porto. 

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1. ENERGY EFFICIENCY

The European Green Deal has set the roadmap for reduction of greenhouse gas emissions by at least 55% by 2030. Renewable energies are inevitably susceptible to variations in availability, as the sun and wind are not programmable. Energy storage is therefore essential to meet European targets. 

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Since the 2008 financial crisis, the Portuguese banking sector has experienced a complete overhaul. Banco Espírito Santo (“BES”), one of Portugal’s oldest and largest banks, collapsed, along with other smaller banks, including BPN and BPP. Banks in general suffered heavy losses caused by troubled assets in their balance sheets and European pressure to increase solvability and capital ratios. As a result, the government owned Caixa Geral de Depósitos (“CGD”), MillenniumBcp and BPI resorted to government help to overcome their difficulties and meet the new requirements.

Between 2007 and 2018 the Portuguese government spent 23.8 billion euros in aids to the banking sector. Private shareholders of domestic banks also paid a steep price for the restructuring of the sector. Between 2008 and 2012, losses of Portuguese banks exceeded 14.8 billion euros and around 9.4 billion euros between 2012 and 2018. Stocks of the surviving banks fell between 60% and 90% since the financial crisis. Since then, CGD, MillenniumBcp, BPI and Novo Banco, which succeeded to BES, have redressed their business and started to generate cash for their shareholders.

The banking sector consolidated around the five largest banks. Only a few small banks survived. Spanish banks now have a very significant presence in the domestic market. Santander continued to grow its market share. In 2016, Bankinter acquired Barclays’ branch in Portugal. CaixaBank acquired control of BPI in 2017 and Abanca took over Deutsche Bank’s Portuguese operations in 2018.

Between 2015 and 2022, massive sales of non-performing assets have freed banks from bad loans and other assets that heavily burdened their balance sheets. The Portuguese banking sector overall improved significantly. The largest banks generate profits and have stronger balance sheets.

As a setback, Portuguese bank customers now pay higher commissions in a low-competition peripheral market. The size and nature of the Portuguese market and the still fragmented European market severely hinder competition. Also, a consequence of the ECB’s interest rises the cost of credit to homeowners and corporations is increasing. However, banks are not giving back any significant income to depositors while increasing their returns on corporate and private loans.

Against this backdrop, Portuguese banks face new challenges. Customers are looking for alternative electronic banking services and higher returns for their savings. This creates the ideal scenario for new technology-savvy entrants who are ready to take customers dissatisfied with traditional banks.

Companies and investors are also looking for alternatives and several investment funds, including alternative investment funds, are taking a bigger role in the financing of investment projects.

In this briefing, we give an overview of the Portuguese banking market and provide a highlight of the legal and regulatory framework.

1. Market Overview

In 2011, the sovereign debt crisis exposed the excessive indebtedness of the economy, which evidenced the over-indebtedness of individuals, companies and the public sector. Refraining from spending decelerated public investment, the financial assistance programme quieted markets and prepared the country to recover its banking sector, but it slowed down the economy and exposed severe failures in several banks.

After the fall of two smaller banks, BPN and BPP, in 2008, all four major domestic banks suffered from the fall of economic activity and their excessive exposure to public debt. As a result, between 2009 and 2022, the Portuguese Government was forced to inject over 13.9 billion euros into domestic banks.

In April 2011, the Portuguese government was forced to request financial assistance from the EU and the IMF.

As a condition to the international bailout, Portugal agreed to adopt measures to reduce public spending and other measures to straighten the economy. Among other measures, the bailout programme included specific measures to improve the banking sector's stability, strength and liquidity.

In the last decade, the Portuguese government intervened in all significant national banks active in the country. Only a foreign bank, Banco Santander, did not require public support.

CGD was recapitalised when it failed to reimburse the repayment of contingent convertibles (“CoCos”) issued in 2012, ultimately injecting over 5.500 million euros worth of public resources into CGD.

BES, one of the largest and most traditional financial institutions in Portugal, collapsed, making it a case study of the intervention of the regulator, Banco de Portugal (“BoP”), and one of the first resolutions under the European Bank Resolution Directive. The fallout of the Espírito Santo Group’s insolvency and BES resolution continue to make shockwaves and are now the object of several unresolved judicial actions.

BPI and BCP had significant capital injections of contingent capital, in the form of convertible bonds, to reinforce their Tier 1 ratio. Banif, a smaller bank, was subject to resolution and sold to Banco Santander.

In the last years, the sector saw the consolidation and transfers of Portuguese banks, which resulted in a more significant participation of Spanish financial institutions in the local market. CaixaBank acquired BPI. More recently, other Spanish banks entered the market, such as Abanca, which purchased Deutsche Bank’s Portuguese retail business, and Bankinter, which purchased Barclays’s business. 

Banco CTT, owned by Portuguese formerly state-owned Correios de Portugal, acquired 321 Crédito and became the first local project led by a Portuguese company launched in the last decade.

Since the implementation of the bailout programme, the banking sector has benefited from improvements in the economy, as the unemployment rate started to fall consistently since 2013, while the industrial business volume increased.

Interest rates on mortgages and consumer credits continued to slow down since 2011until 2021, when they started increasing as a result of the rise of Euribor.

Meanwhile, credit institutions have all undergone major deleveraging of portfolios through the disposal of non-performing loans (“NPLs”).

At their peak in 2015, NPLs represented 17,5% of the total credit against 3,6% in 2008. In the third quarter of 2022, Portugal’s bad credit represented 3,2% of the total credit. 

Simultaneously, as banks reach out to recover their health through the sale of non-performing assets, generally, they are confronted with the disruptive power of new technology and regulation within the provision of banking and financial services.

The reputational crisis of traditional industries, of which the banking sector is a part, along with an enlarged, diversified and more agile and customised offer of financial services through new or existent technology, will – and already is – reshaping the banking industry.

The Portuguese banking sector is not an exception to this: 64% of the Portuguese fintech ecosystem comprises companies or start-ups whose core business overlaps that of banks, such as lending and credit, alternative financing, wealth management, payment systems, money transfers, etc.

Today, the sector is driven by online solutions with reduced costs and speedy and agile services, and growing trust in the supporting technology. The market is yet to steer into a truly technological ecosystem where AI and multidisciplinary efforts will build around digital trust.

2. Regulatory approvals

2.1. Banking activities

The main rules on the banking activity are set out in Decree-Law 298/92, of 31 December 1992, which approved the Legal Framework of Credit Institutions and Financial Companies (“Banking Law”) and Regulation (EU) 575/2013 on prudential requirements for credit institutions and investment firms (“Capital Requirement Regulation” or “CRR”).

In Portugal, banking activities may only be carried out on a professional basis by:

• Credit institutions and financial companies with their head office in Portugal;
• Branches of credit institutions and financial companies having their head office abroad; and
• Credit institutions and financial companies with head offices in a Member State under the freedom to provide services.

Alternative investment funds (“AIF”) specialised in the granting of loans (the so-called “Loan Funds”) are also allowed to grant credit in Portugal.

2.2. Credit institutions

Credit institutions having their head office in Portugal must be incorporated as a public limited liability company (sociedade anónima) and have the following:

• For sole corporate purpose, the exercise of a banking activity;
• The required minimum share capital;
• Their primary and effective place of administration is located in Portugal;
• Sound corporate governance arrangements, including a clear organisational structure, with well-defined, transparent and coherent lines of responsibility;
• Internal procedures for identifying, managing, controlling and communicating the risks to which it is or may be exposed;
• Appropriate internal control mechanisms, including sound administrative and accounting procedures;
• Remuneration policies and practices that promote and are consistent with sound and prudent risk management;
• Members of the management and supervisory bodies whose suitability, professional qualifications, independence and availability ensure a sound and prudent management of the credit institution on an individual or collective basis.

The decision of the BoP must be notified within six months of receipt of the application or, if applicable, the additional information requested by the BoP, but in any event, no later than 12 months from the date of initial submission of the application to the BoP.

2.3. Branches

Credit institutions authorised in other Member States of the EU may establish a branch in Portugal.

The branch may carry out any of the operations listed in Appendix I to Directive 2013/36/EU of 26 June 2013 (“Banking Directive”), which the credit institution is authorised to perform in its home country.

It is a condition for the establishment of the branch that the BoP receives a communication from the home country's supervisory authority, including the:

• activities programme, indicating, inter alia, the type of operations to be carried out and the organisational structure of the branch, as well as certification that such operations are included in the authorisation of the credit institution;
• address of the branch in Portugal;
• identification of the branch’s managers;
• amount of the credit institution's own funds;
• solvency ratio of the credit institution;
• a detailed description of the deposit guarantee scheme in which the credit institution participates and which provides protection for the clients of the branch; and
• a detailed description of the investor compensation scheme in which the credit institution participates to ensure the protection of the investor clients of the branch.

Credit institutions authorised in other Member States of the EU may also establish a branch in Portugal. However, establishing the branch is subject to prior authorisation of the BoP, and the credit institutions must comply with the capital requirements set out for Portuguese resident credit institutions.

2.4. Freedom to provide services

Credit institutions authorised in another Member State of the EU may also perform banking activities in Portuguese territory even if they do not have a branch in Portugal.

The activity in the Portuguese territory of credit institutions with a head office abroad must comply with Portuguese law, namely the rules governing transactions with foreign exchange transactions.

It is a condition for the beginning of the provision of services in Portugal that the credit institution notifies the competent authority of its home Member State and the latter sends this communication to the BoP.

The BoP may determine that the institution clarifies publicly its status, characteristics, main elements of activity and financial situation.

2.5. Loan funds

The Loan Funds were introduced in Portugal in September 2019.

Loan Funds are a specific type of AIF that is authorised to grant loans and acquire performing and non-performing loans held by financial institutions.

Loan Funds must be authorised by the Portuguese Securities Commission (“CMVM”) and, therefore, are not subject to the authorisation of the Bank of Portugal.

The Loan Fund assets may consist of the following:

• loans granted or acquired;
• liquidity up to 20% of the total assets;
• debt securities issued by eligible borrowers up to 20% of the total assets; and
• other assets that arise from the satisfaction of credits or that are necessary to maximise their satisfaction.

2.6. Acquisition of qualifying shareholdings

Any investor who intends to own, directly or indirectly, a qualifying holding in a credit institution must inform the BoP of such intention in advance.

Any increases of qualifying holdings must also be previously communicated to the BoP, whenever the increased holding may reach or exceed 10%, 20%, one-third or 50% of the share capital or the voting rights or when the credit institution becomes a subsidiary of the acquiring entity.

The BoP may oppose the proposed acquisition if the proposed acquirer does not fulfil the conditions to ensure a sound and prudent management of the credit institution or if the proposed acquirer has provided incomplete information. For this assessment, the BoP will consider the following criteria:

• The suitability of the proposed acquirer;
• The reputation, professional qualification, independence and availability of the members of the management body of the credit institution to be appointed as a result of the proposed acquisition;
• The financial soundness of the proposed acquirer;
• Whether the credit institution will be able to comply and continue to comply with the applicable prudential requirements;
• Whether there are reasonable grounds to suspect that, in connection with the proposed acquisition, money laundering or terrorist financing is being or has been committed or attempted, or the proposed acquisition could increase the risk thereof.

2.7. Suitability of board members

The suitability of the board members of credit institutions will be subject to an evaluation throughout their term in office.

In particular, the board members must have the capacity to ensure, at all times, the sound and prudent management of the credit institutions to safeguard the financial system and the interests of their clients, depositors, investors and other creditors.

In addition to the self-assessment that credit institutions must carry out, the suitability of the board members is also assessed by the BoP as part of the authorisation process in relation to the incorporation of credit institutions or the acquisition of qualifying holdings that involve changes to the board of the credit institution.

In addition, whenever new board members are appointed, credit institutions must also request the prior authorisation of the BoP.

The board members must comply with the relevant reputation, professional qualification, independence and availability requirements:

• Reputation. Board members must not have been involved in circumstances that affect their reputation (e.g. insolvency, criminal proceedings).
• Professional qualification. Board members must possess the necessary skills and qualifications for performing their duties and appropriate professional experience taking into account the nature, complexity and size of the credit institution, as well as the risks associated with the activity carried out by it.
• Independence. Board members may not be unduly influenced by other persons or entities and must be able to perform their duties impartially.
• Availability. Board members of significant credit institutions are prohibited from accumulating more than one executive position with two non-executive executives or four non-executive positions unless otherwise provided by law or authorised by the BoP.

The suitability assessment will also apply to members of supervisory bodies and persons that will assume positions that may influence the credit institution's management, such as those responsible for the compliance, internal audit, control and risk management functions.

3. Rules of Conduct

Credit institutions must ensure high levels of technical compliance in all activities and ensure a business organisation with the human and material resources required to ensure appropriate quality and efficiency conditions.

In their relations with customers and other credit institutions, the management board and the staff of credit institutions must act with diligence, neutrality, loyalty, discretion and scrupulous regarding the interests entrusted to them.

3.1. Advertising

BoP regulates the information and transparency duties that credit institutions must comply with in advertising, regardless of the means used.

Reference to the deposit guarantee scheme or the investor compensation scheme in advertising must be factual and may not contain any consideration nor make comparisons with deposit guarantee schemes or investor compensation instruments provided by other institutions.

Credit institutions authorised in other EU Member States may advertise their services in Portugal under the same terms and conditions as institutions having their head office in Portugal.

3.2. Retail marketing

Credit institutions must inform their customers of the remuneration they offer for the funds received, the features of the products offered, charges for services provided, and other costs to be borne by customers.

In particular, institutions authorised to grant consumer credit must provide their customers, before execution of the loan contracts, with adequate information, in printed or other durable formats, on the conditions of the credit and total cost, as well as on obligations and risks associated with default. Furthermore, these institutions must ensure that credit intermediation companies provide the same information.

Credit institutions must adopt codes of conduct and inform customers about their existence, at least on their websites. Said codes must include the principles and rules of conduct governing the various aspects of their relationship with customers, including the mechanisms and internal procedures adopted for assessing complaints.

3.3. Remuneration

To prevent potential damage to customers and minimise the risk of conflicts of interest, credit institutions must adopt specific remuneration and assessment policies for the staff with direct or indirect contact with customers in the retail marketing of financial products.

In particular, these policies must ensure that the employees dealing with retail customers will always act in the customer's best interest and may not be remunerated or evaluated in a way that may constitute an incentive for the retail marketing of specific financial products or instruments.

4. Prudential supervision

4.1. Share Capital

The minimum share capital of banks is €17,500,000, but the minimum share capital of other credit institutions may vary from €100.000 to €5.000.000.

4.2. Own funds

Credit institutions’ own funds may not fall below the minimum share capital amount.

Credit institutions that were already in existence on 1 January 1993, the amount of own funds of which do not attain the amount of initial capital required, may continue to conduct their activities. Still, the amount of own funds of those institutions may not fall below the highest level reached with effect from 22 December 1989.

The credit institutions’ own funds include the base own funds plus the complementary own funds less the amount corresponding to capital allocated to securitisation.

4.3. Reserves

Part of the net profits of a credit institution for each fiscal year, which cannot be less than 10%, must be allocated to a legal reserve, up to an amount equal to the share capital or the sum of its established free reserves or the carry forward results, if higher.

Credit institutions must also create special reserves to strengthen their shareholders' equity and to cover losses.

4.4. Shareholdings

Credit institutions may not own, directly or indirectly, for more than three years a shareholding in an undertaking that corresponds to more than 25% of the voting rights of such undertaking. The limit is five years for indirect holdings owned through venture capital companies and holding companies.

These limits will not apply to shareholdings in other credit institutions, financial companies, financial institutions, ancillary services companies, credit securitisation companies, insurance companies, subsidiaries of insurance companies held according to the law applicable to the latter, brokers and insurance intermediaries, pension fund management companies, venture capital companies and holding companies which only have equity holdings in the companies referred to above, as well as credit institutions’ holdings in real estate investment funds for housing rental and real estate investment companies.

4.5. Credit granted to qualifying shareholders.

Credit institutions may not grant credit, including the provision of guarantees, to a person who owns, directly or indirectly, a qualifying shareholding in a credit institution or to companies directly or indirectly controlled by such entity or belonging to the same group over the 10% of the institution’s own funds.

The total amount of credit granted to all qualifying shareholders shall not exceed, at any time, 30% of the credit institution’s own funds.

This shall not apply to the granting of credit of which the beneficiaries are credit institutions, financial companies or holding companies which are included in the supervision perimeter on a consolidated basis to which the credit institution concerned is subject, nor to pension fund management companies, insurance undertakings, brokers and other insurance mediators that control or are controlled by any entity included in the same perimeter.

4.6. Acquisition of real estate

Credit institutions may not, except with the prior authorisation of the BoP, acquire real estate assets other than those required for their setting up and operation or in connection with the performance of their activity.

4.7. Governance

The management and supervisory bodies of the credit institutions are responsible, within the scope of their respective functions, for the design and application of governance models, which must ensure the effective and prudent management of the institutions, including the separation of functions within the organisation to prevent conflicts of interest.

When designing the governance model, it is up to the management and supervisory bodies, within the scope of their respective functions, to:

• Take responsibility for the credit institution, approve and supervise the implementation of strategic objectives, risk strategy and government;
• Ensure the integrity of the accounting and financial information systems, including financial and operational control and compliance with legislation applicable to the credit institution;
• Supervise the disclosure and reporting duties to the BoP;
• Monitor and control the activity of the top management.

The management and supervisory bodies of credit institutions are also responsible for defining, approving and controlling the governance models relating to, among others:

• Product and service policies;
• The organisation of the credit institution for the design and sale of deposits and credit products, including qualifications, technical capacity and knowledge of its employees, resources and governance and monitoring procedures, taking into account the nature, scale and complexity of its activities; and
• The remuneration policy of employees who have direct contact with customers in the sale of deposits and credit products, as well as the employees who, directly or indirectly, are involved in the management or supervision of these people.

5. Ratios

5.1. Capital requirements

According to the Capital Requirement Regulation, which closely follows Basel III standards, as a rule, credit institutions must satisfy at all times the following own fund requirements:

• Common Equity Tier 1 capital ratio of 4,5 %;
• Tier 1 capital ratio of 6%; and
• Total capital ratio of 8%.

These ratios compare the relevant own fund items with the risk-weighted assets (“RWA”) in accordance with the CRR.

The Common Equity Tier 1 (“CET1”) is a component of Tier 1 capital and includes shares, other capital instruments that rank below all other claims in the event of insolvency, share premium accounts, retained earnings, other reserves and funds for general banking risk.

Tier 1 capital includes, in addition to CET1, the Additional Tier 1 (“AT1”), which consists of capital instruments ranking below Tier 2 instruments in the event of insolvency and the related share premium accounts.

Tier 2 (“T2”) includes, among others, subordinated instruments and related share premium accounts ranking below CET1.

In addition to the minimum capital requirements above (the so-called “Pillar 1” requirements), credit institutions must also comply with the Pillar 2 requirement (“P2R”), which covers risks that are underestimated or not covered by the Pillar 1 requirements. The P2R results from the Supervisory Review and Evaluation Process (“SREP”) carried out by the European Central Bank.

The capital demand resulting from the SREP also includes the Pillar 2 Guidance (“P2G”), which indicates the adequate level of capital to be maintained to provide a sufficient buffer to withstand stressed situations. However, unlike the P2R, the P2G is not legally binding.

Below is an overview of the minimum capital requirements (Pillar 1 and Pillar 2 requirements): 

5.2. Capital buffers

On top of the 4.5% CET1 ratio, credit institutions must also hold the following capital buffers:

• Capital conservation buffer (“CCoB”) of up to 2.5% of RWA.
• Global Systemically Important Institutions (“G-SIIs”) capital buffer with no upper limit. Presently, no G-SIIs are carrying out banking activity in Portugal.
• Other Systemically Important Institutions (“O-SIIs”) capital buffer of up to 3%. In Portugal, this buffer applies to certain institutions and ranges between 0.188% and 0.75%.
• Countercyclical capital buffer (“CCyB”) between 0% and 2.5% of RWA. This buffer requires banks to accumulate capital when cyclical systemic risk is increased to improve their resilience during stress periods when losses materialise.
• Systemic risk buffer (“SyRB”) in intervals of 0.5% of all or some of the exposures, subject to a cap of 5%, which applies to the sum of G-SII/O-SII and SyRB buffers. This buffer is intended to prevent and reduce systemic risks not covered by other instruments.

If the institution breaches any of these buffers, automatic safeguard measures will apply to limit the amount of dividend and bonus payments until compliance is restored.

5.3. Other ratios

In addition to capital ratios and buffers, credit institutions must also meet a Liquidity Coverage Ratio (“LCR”) of at least 100% as required by the LCR Delegated Regulation.

Banks should also have sufficient capacity on their balance sheet to absorb losses (loss-absorbing capacity) and, in case of resolution, to ensure recapitalisation. As of January 2022, credit institutions will also have to comply with the Minimum Requirements for own funds and Eligible Liabilities (“MREL”).

As of 28 June 2021, the following ratios will have to be met:

• Leverage Ratio (“LR”) of 3%; and
• Net Stable Funding Ratio (“NSFR”) of at least 100%.
  

The LR measures a bank's core capital to its total assets to determine how leveraged a bank is in relation to its consolidated assets.

The NSFR is aimed at forcing banks to finance long-term assets with long-term money to avoid the liquidity failures seen during the 2007/08 global financial crisis.

6. Supervisory measures

The BoP reviews the strategies, policies, procedures and systems implemented by credit institutions to comply with the banking regulations and assesses:

• the risks to which credit institutions are or may be exposed;
• the exposures to the financial system that a credit institution faces, taking into account the identification and quantification of systemic risk under Regulation (EU) 1093/2010 of the European Parliament and of the Council of 24 November 2010 or, as the case may be, the recommendations of the European Systemic Risk Board; and
• the risks revealed by stress tests, considering the nature, level and complexity of the credit institutions' activities.

In particular, the BoP must determine whether the strategies, policies, procedures and systems implemented by the credit institutions and the own funds and liquidity they hold guarantee the sound management and cover their risks.

The BoP determines, in accordance with the principle of proportionality, the frequency and intensity of the assessment, considering the size, systemic importance, nature, level and complexity of the activities of the credit institution in question.

6.1. Corrective measures

The BoP may require credit institutions that do not comply with the banking regulations or that are at risk of breaching such regulations within one year, to adopt immediately the measures or actions necessary to remedy or prevent such breach, such as:

• Holding own funds over the minimum requirements;
• Strengthening of the strategies, policies, procedures and systems put in place for corporate governance, internal control and self-assessment of risks;
• Applying specific provisioning or asset treatment policy for capital requirements purposes;
• Restricting or limiting the activities, operations or branches or the divestment of activities that present excessive risks to their soundness;
• Limiting the variable remuneration as a percentage of net profits where such remuneration is not consistent with maintaining a sound capital base;
• Limiting or prohibiting interest or dividend payments to shareholders or holders of AT1 instruments;
• Imposing additional or more frequent reporting, including on the capital and liquidity position;
• Imposing specific liquidity requirements, including restrictions on maturity mismatches between assets and liabilities;

The application of measures is subject to adequacy and proportionality principles and should take into account the risk or degree of non-compliance and the seriousness of the consequences on the financial soundness of the institution concerned, interests of depositors or the stability of the financial system.

The BoP may also determine the application of more specific measures, within a period that it deems appropriate, including, without limitation:

• Preparation and presentation of an action programme that identifies and proposes scheduled solutions to ensure compliance;
• Submission of a restructuring plan by the credit institution;
• Appointment of a supervisory board or a single auditor;
• Restrictions on granting of credit and the application of funds in certain types of assets, in particular in respect of transactions carried out with subsidiaries, their parent undertakings or subsidiaries thereof, as well as with entities domiciled in offshore jurisdictions;
• Restrictions on deposits, their types and remuneration;
• Approval of certain transactions by BoP;
• Presentation of a plan for the negotiation of debt restructuring with its creditors;
• Carrying out an audit of all or part of the activity of the credit institution, by an independent entity appointed by BoP, at the institution's expense;
• Changes in the functional structures of the credit institution, namely by eliminating or changing top management positions or by terminating the assignment to that position of the respective holders;
• Changes to the management strategy of the credit institution;
• Carrying out on-site inspections and preparing for potential resolution of the credit institution.

6.2. Resolution measures

If the corrective measures applied are not sufficient to ensure the recovery of the credit institution the BoP may, as an alternative:

• Suspend or dismiss members of the management body and appoint new members;
• Apply a resolution measure; and
• Revoke the institution’s authorisation.

BoP may apply the following resolution measures:

• Partial or total transfer of the business;
• Partial or total transfer of the business to a bridge institution;
• Segregation and partial or total transfer of the business to an asset management vehicle;
• Internal recapitalization.

When implementing a resolution measure, the BoP must:

• Ensure the continuity of the provision of financial services essential to the economy;
• Prevent serious consequences on the financial stability;
• Safeguard the taxpayers’ interests and minimize recourse to extraordinary public financial support;
• Protect depositors whose deposits are guaranteed by the Deposit Guarantee Fund and investors whose claims are covered by the Investor Compensation Scheme;
• Protect the funds and assets held by credit institutions in the name and on behalf of their clients and the provision of related investment services.

The BoP will determine the resolution measures that best achieve these purposes on a case-by-case basis.

The BoP must also ensure that:

• Shareholders will bear the losses of the institution;
• Creditors will bear the losses on equitable terms, in accordance with the ranking of their claims;
• No shareholder or creditor will bear a loss exceeding that which it would have incurred had the credit institution went into liquidation (“no worst off” rule); and
• Depositors will not bear a loss on deposits guaranteed by the Deposit Guarantee Fund.

6.3. Sanctions

Any person who pursues an activity consisting of receiving deposits or other repayable funds from the public, on his account or on behalf of others, without the necessary authorisation shall be punished by imprisonment of up to five years.

Anyone refusing to comply with the legitimate orders or warrants of BoP, issued within the scope of their functions, or creating, in any way, obstacles to their execution, shall be liable to the penalty provided for the crime of qualified disobedience if BoP or an official has issued a warning of such commission.

Some offences are punishable by a fine ranging from €3,000 to €1,500,000 (or €1,000 to €500,000, in case the offence is committed by a natural person), such as:

• the exercise of an activity in breach of the rules on registration with the BoP;
• the infringement of the rules on the subscription or paying-up of share capital;
• non-compliance in relation to the prudential limits determined by law, the Ministry of Finance or the BoP;
• failure to comply with accounting rules and procedures determined by law or the BoP; and
• the omission of information and communications due to Banco de Portugal, within the established deadlines, and the provision of incomplete information.

Other severe offences are punishable by a fine of € 10,000 to € 5,000,000 (or € 4,000 to €5,000,000, in case the offence is committed by a natural person), namely, and among others:

• the unauthorised practice by any individual or entity of transactions reserved for credit institutions or financial companies;
• the fraudulent payment of the capital;
• falsifying accounts and the non-existence of organised accounting, as well as non-compliance with other applicable accounting rules determined by law or BoP;
• breach of rules on credit granted to holders of qualifying holdings;
• wilful acts of ruinous management, to the detriment of depositors, investors and other creditors, practised by members of the corporate bodies;
• failure to comply with the obligations to contribute to the Deposit Guarantee Fund or the Resolution Fund;
• the acquisition of a qualifying holding despite the opposition of the competent authority;
• failure to comply with the capital adequacy ratios;
• failure to comply with the limits to large exposures.

Voir pdf

With a considerable delay, in August 2022, Law 16/2022, of 16 August 2022, (“Electronic Communications Law” - "ECL") transposed into Portuguese law the European Electronic Communications Code (“European Code” - “EECC”).

Despite the absence of changes in critical elements, the ECL brings in some crucial innovations regarding (i) consumer rights, (ii) sanctioning framework, and (iii) privacy in electronic communications.

Compared with 2005 electronic communications law (Law 5/2004, of 10 February), the ECL has a more extensive scope due to a broader definition of “electronic communications service”. Under the new definition, in addition to the individually addressed signal services delivered through electronic communications networks, "electronic communications services" now include other services not dependent on numbers, such as internet access services, machine-to-machine communications and the so-called over-the-top services (“OTT”).

The rules entered into force 90 days after the ECL enactment (14 November 2022), with the following exceptions:

• Rules covering the charges required in the event of early termination of the agreement on the consumer's initiative (see articles 136/4 and 136/5 of the ECL) will enter into force only 60 days after its publication, i.e., more precisely, on 13 January 2023;
• Rules on emergency communications and a single European emergency number which shall take effect from the moment the access to an emergency service is opened to the public by the competent national authorities; and
• Rules on network and service security, including additional requirements and assistance and cooperation arrangements with the National Computer Security Incident Response Team (Equipa de Resposta a Incidentes de Segurança Informática Nacional), which came into force immediately with the publication of the ECL.

It is worth mentioning that, back in 2004, the Portuguese legislators had already unified five EU Directives into a single piece of legislation, creating a structurally cohesive framework that was broadly maintained until 2022. Even so, by mid-2021, in addition to the 2004 Electronic Communications Law, the Portuguese communications’ regulatory framework consisted also of 46 other diplomas: 23 laws and 16 administrative regulations.

Therefore, it is not a surprise that, despite substantive changes, particularly regarding consumers and the sanctioning framework with a material impact on the operators’ financial and operational balance, the ECL has generally preserved the structure of the preceding legislation.

1. ANACOM AND OTHER COMPETENT AUTHORITIES

The Portuguese Communication Authority (Autoridade Nacional de Comunicações - "ANACOM") is Portugal’s National Regulatory Authority (Autoridade Reguladora Nacional - "NRA") for the communications sector.

The definition of “communications”, which serves to set ANACOM’s scope, includes electronic and postal communications. The ECL clarified ANACOM’s role in areas where its jurisdiction was undefined and extended its role to new market sectors.

As an example, the ECL's expanded regulatory authority now covers Over-The-Top (OTT) services. While these services operate exclusively at the application level of data transmission networks, the ECL classifies OTT as network services for legal and market analysis purposes, including what concerns end-users’ rights.

The ECL assigns ANACOM a broad range of regulatory, supervisory, control, and enforcement responsibilities for the entire communications sector. Specifically, ANACOM is responsible for the following:

• Promoting the competition in the electronic communications networks and services supply;
• Ensuring access to networks, infrastructures, facilities, and services;
• Protecting the rights and interests of consumers and other end-users; and
• Ensuring access to the universal electronic and postal communications service, including by enforcing universal service obligations.

Among other changes, the ECL grants ANACOM additional powers and responsibilities, particularly around spectrum management. ANACOM now has the authority to promote shared use of the radio spectrum, where multiple operators can access the same frequency bands through the allocation of rights of use for frequencies (in Portuguese, “Direitos de Utilização de Frequências” or “DUF”).

Additionally, the ECL clarifies that regulations for competitive or comparative selection procedures for radio spectrum rights of use will be approved by the government official in charge of the communications sector.

The ECL is aligned with the European Electronic Communications Code in including the participation of "other competent authorities" in the communications sector. These entities, such as the National Authority for Emergency and Civil Protection (Autoridade Nacional de Emergência e Proteção Civil – “ANEPC”), are legally granted specific powers, particularly when it comes to end-users rights.

For this reason, the ECL mandates ANACOM to cooperate with "other relevant entities" in organising public consultations and sharing information on matters of joint interest related to emergency communications.

2. GENERAL AUTHORISATION, FREQUENCIES, NUMBERS AND SECURITY

2.1. GENERAL AUTHORISATION FRAMEWORK

The provision of electronic communications networks and services is free; companies are free to offer electronic communications services without the need for prior authorisation from the regulator, except for the allocation of rights of use for elements such as frequency bands (DUFs) and numbering rights.

Companies that wish to provide public electronic communications networks and publicly available electronic communications services are required to notify ANACOM before starting operations. This notification must include the following:

• A statement of the applicant’s intention to begin operations;
• Identification details of the applicant, as well as its website associated with the provision of public electronic communications networks and publicly available electronic communications services;
• Contact information for communications and notices, including a mandatory email address;
• A brief overview of the planned network and services; and
• The expected service launch date.

It is worth mentioning that companies not subject to the general authorisation regime under the ECL are not required to fulfil this prior notification to ANACOM requirement before launching their operations. Similarly, this requirement does not apply to providers of electronic communications services not intended for public access.

Through specific regulations, ANACOM may also exempt from this requirement companies providing specific public electronic communications networks and publicly available electronic communications services.

2.2. GENERAL AND SPECIFIC CONDITIONS

Companies providing electronic communications networks and services will continue to be bound by several general conditions established in the previous law. These include:

• Access obligations;
• Obligations related to the processing of personal data and the protection of privacy in the electronic communications sector;
• Obligations to install and make lawful interception systems available to national authorities and to provide decryption means when such facilities are offered;
• Conditions of use of the radium spectrum for electronic communications services; and
• Conditions of use to ensure communications between emergency services, competent authorities, and civil protection agents with the public in general.

Entities not subject to the general authorisation regime are not subject to these general conditions.

In addition to these, companies providing electronic communications networks and services may be subject to specific conditions, particularly in relation to access and interconnection, retail market controls, and universal service.

Finally, it is also important to note that companies offering independent interpersonal communications services may, in certain cases, be subject to access and interconnection obligations under the changes introduced by the ECL.

2.3. OPERATOR’S RIGHTS

The ECL grants rights to companies providing electronic communications networks or services, whether intended for public access or not, including the right to request the establishment of rights of way and the right to use the radio frequency spectrum to deploy their networks and services.

Companies offering public networks or services have additional rights such as the right to apply as universal service providers or to deploy their coverage in all areas of the country.

These rights may be modified by legislation, regulatory or administrative statutes, provided these are objectively justified and proportional, and must be approved by the rights holder, and are subject to a public consultation procedure, which allows interested parties to offer their view, unless the changes are considered insignificant or do not affect the fundamental nature of the rights of use.

The holders of DUF as well as numbering resources have a general guarantee of non-restriction and irrevocability of these rights until the end of their validity period. However, the law sets out criteria by which these rights may be restricted or revoked in advance by the NRA. Such cases include:

• Permission given by the holder;
• Justified circumstances to ensure the effective and efficient use of numbering resources or radium spectrum; and the application of technical implementing measures adopted under article 4 of the Radium Spectrum Decision.
  

Restriction or revocation of rights without the consent of the holder or in unjustified cases must follow a legal procedure that respect the principles of proportionality and non-discrimination.

In case of restriction or revocation, holders are entitled to compensation for any unique and abnormal charges or damages suffered, which will be calculated by ANACOM under the State and other public entities' extra-contractual liability rules.

Summarising, the ECL does not bring significant innovations in this area, but it clarifies that the rules apply to Over-The-Top (OTT) services and companies that wish to offer electronic communications services not accessible to the public.

2.4. THE RADIO SPECTRUM

The radio frequency spectrum, through which electromagnetic waves with frequencies between 3kHz and 3000GHz may be transmitted, constitutes a public resource of great economic and social importance for the country. This is evident not only in the amounts paid for rights to use it but also in the intense public debate surrounding issues related to it.

ANACOM is responsible for the management of the spectrum and must promote its efficient use pursuant to the principle of technological and service neutrality. The first of these principles states that any forms of technology may be used in the frequency bands allocated to electronic communications services, and the second that any type of electronic communications services may be offered through the available frequency bands.

The ECL did not make any fundamental changes to ANACOM’s role, which continues to hold most of the powers it previously had, such as the power to assign, modify, or renew rights of use, and even the power to authorise their transfer or lease.

Following the 5G DUF auction debacle, the ECL introduced two seemingly contradictory changes on future frequency awarding procedures. On the one hand, new powers are granted to ANACOM, as regarding the protection of competitive usage of frequencies. At the same time, ANACOM was stripped of the ability to decide on the selection frequency allocation procedures, which the Government must directly approve.

From a legal perspective, the regulator is responsible for establishing the general conditions for authorisation and determining the most appropriate technical requirements for the use of the radio spectrum.

The ECL reiterates that ANACOM's responsibilities for granting rights of use for frequencies of electronic communications networks or services. These rights are always subject limited in time. For example, rights of use for the spectrum for wireless broadband electronic communications services are granted for 15 years, subject to possible renewal.

Like the previous regime, ANACOM is also responsible for defining conditions associated with the rights of use of the spectrum, which, if breached, allows the regulator to revoke the rights of use or impose other measures. These conditions must be proportional, transparent, and non-discriminatory, such as setting maximum periods of rights of use.

The ECL innovates by introducing the possibility of shared use of the radio spectrum.

The renewal of rights of use is possible, but the renewal rules have been significantly changed under by the ECL:

• Under the previous law, the renewal of rights of use for the radio frequency spectrum was solely dependent on the initiative of the holder; and
• Under the ECL, ANACOM may proactively determine the need for the renewal for the radio frequency spectrum.

Holders of rights of use for the radio frequency spectrum may also apply for renewal to the regulator on their own initiative, at least 18 months and no more than five years before the expiration date. It is worth noting that the previous law only allowed for a minimum of one year's notice. In any case, the regulator must respond to renewal requests within a maximum period of six consecutive months, starting from the date of receipt.

In the case of rights of use whose number is limited, interested parties must be given the opportunity to provide their opinions on the renewal during a public consultation procedure.

Since rights of use are licensed to operators, they are subject to periodic payment of fees, which, except in exceptional cases, are mainly intended to cover the costs of radio supervision.

Finally, it is worth mentioning that the National Frequency Allocation Framework (Quadro Nacional de Atribuição de Frequências - "QNAF", which may be accessed through this link) is the instrument for the technical management of the radium spectrum, which defines the conditions of use according to its purpose.

2.4.1. TRANSFER AND LEASE OF RIGHTS OF USE

The ECL allows the transfer or leasing of rights of use for the radium spectrum.

As a rule, if the holder of the right wishes to transfer or lease it, they can do so through a request to the regulator. The regulator must then decide within 45 business days.

However, in some cases, the transfer or leasing of rights of use is not permitted. These cases include, for example, rights that have been allocated free of charge or for the provision of radio program services and the distribution of television and radio program services, as part of specific procedures for meeting public interest objectives.

2.4.2. COMPETITION

Under the ECL, the NRA must promote effective competition in the European Union internal market when allocating, modifying, or renewing rights of use for frequencies, by avoiding any distortion of competition to the extent possible. In this context, ANACOM, as the NRA, has been given strengthened powers to adopt or propose remedies to other competent authorities to prevent competition distortions. These measures may include, among others:

• Restricting the number of spectrum bands for which rights of use are granted or attaching conditions to these rights;
• Setting aside parts of a spectrum band or group of bands for allocation to new market entrants; and
• Refusing to grant new rights of use or authorize new uses of spectrum in specific bands, and attaching conditions to their allocation, transmission or lease, to prevent competition distortion.
• In taking such measures, the regulator should base its decisions on an objective and prospective assessment of the competitive conditions in the market and the necessity of such actions.

2.5. NUMBERING RESOURCES

The ECL establishes ANACOM as the entity responsible for managing numbering resources in Portugal.

The “numbering resources”, that is the structured set of codes used by electronic communications networks to route signals, are part of the National Numbering Plan (Plano Nacional de Numeração – “PNN”, accessible through this link), or an international numbering plan. ANACOM has the power to administer and assign these numbers, which can identify networks, network elements, end-users, services or applications using these services and networks.

The ECL states that ANACOM is responsible for ensuring that numbering resources are available for the provision of public electronic communications networks and publicly available electronic communications services.

Companies must submit a specific and justified request to ANACOM to be allocated the rights to use these resources.

ANACOM uses the National Numbering Plan as the technical tool to manage the allocation of these numbers, which also includes the criteria for each number range.

2.6. SECURITY AND EMERGENCY

The ECL not only outlines general responsibilities for the coordination of electronic communication networks and services during crisis, war, serious accidents or disasters, and threats to internal security, but also emphasizes two specific regulations:

• First, companies offering mobile interpersonal communication services based on numbers must provide free public warnings in the event of imminent or ongoing emergencies, accidents, or disasters; and
• Second, all end-users of communication services have the right to access the European emergency number 112, free of charge, to make emergency calls.

3. MARKET ANALYSIS AND REGULATORY CONTROLS

3.1. GENERAL PROVISIONS

According to the ECL, the market analysis and the imposition of specific undertakings must comply with the principle of full justification, meaning that decisions must be based on legal requirements and follow a prior public consultation procedure.

The definition of relevant products and geographic markets in the telecommunications sector and the determination of which companies have significant market power are ANACOM’s responsibilities.

3.2. MARKET ANALYSIS

The ECL assigns ANACOM the responsibility of defining and analysing the relevant product and service markets in the electronic communications sector, considering the level of infrastructure competition in those areas.

Based on this analysis, ANACOM may determine that it is necessary to impose specific obligations when:

• There are barriers to market entry;
• The market structure does not allow for effective competition; and
• Competition Law alone is not sufficient to address specific shortcomings.

This analysis can be conducted not only for national and transnational telecom markets, in cooperation with European authorities.

3.3. OBLIGATIONS ON OPERATORS WITH SIGNIFICANT MARKET POWER

The ECL maintains the traditional definition of significant market power is a strong economic position allowing a company to act independently of its competitors, customers and end-users.

Like the previous law, the ECL allows the regulator to impose certain obligations on companies that have significant market power. These obligations may include the following:

• The requirement to meet reasonable requests for access to and use of infrastructure, such as civil engineering assets owned by the company;
• In the absence of effective competition, the regulator may impose cost-oriented pricing and cost accounting system obligations for specific types of interconnections and access. However, the ECL now has stricter conditions for applying these obligations. ANACOM must consider the benefits of having predictable and stable wholesale prices that encourage efficient market entry and incentives for companies to develop new and more advanced networks, particularly in areas of low population density; and
• The ECL aligns with the European Electronic Communications Code by recognizing that establishing a wholesale market can positively affect retail market competition, reducing competitive risks.

As a result, wholesale companies will be subject to a more favourable regulatory regime. They may only be required to comply with non-discrimination obligations, access and use of specific network elements and associated facilities, or obligations related to fair, equitable, and reasonable pricing. However, the applicability of this rule is dependent on the company meeting strict cumulative requirements. This may make it difficult for some companies to qualify.

Companies with significant market power are now subject to specific obligations regarding infrastructure migration. For example, to address the potential competitive consequences of migration from old copper networks to next-generation networks, legislation requires these companies to provide prior notification when they plan to deactivate or replace their infrastructure, in whole or in part.

Access obligations do not only apply to companies with significant market power. To ensure some level of economic efficiency, the regulator has the power to impose required access obligations on operators or owners of cabling and associated facilities inside buildings, or up to the first point of distribution outside the building, regardless of whether they are companies with significant market power. This will help to strengthen symmetric regulation, which applies to all operators.

3.4. ACCESS AND INTERCONNECTION

3.4.1. INTERCONNECTION

Companies providing electronic communications networks and services are free to negotiate and enter into interconnection agreements.

ANACOM has the authority to impose access and interconnection obligations on companies with or without significant market power, as long as they are objective, proportionate, transparent, and non-discriminatory. The regulator may impose, for example, access and interconnection obligations on companies that, due to their general authorisation status, control access to end-users.

3.4.2. REGULATORY OBLIGATIONS

The new law closely follows the EECC and maintains the regulatory obligations established by the previous legislation. However, the ECL also introduced new regulatory obligations that are more stringent and complex.

One example of this is the new law's emphasis on symmetric regulatory obligations’ measurement. This includes access obligations, such as access to cabling up to the first distribution point, and the power to impose access to civil engineering assets and national roaming. These new provisions are meant to provide more regulatory oversight and ensure fair competition in the market. However, the requirements for these regulatory obligations have become more stringent and have made these rules more complex to implement.

While these new rules may have been introduced to improve user protections, they may raise concerns regarding their implementation complexity.

3.4.3. NATIONAL ROAMING OBLIGATIONS

Following the EECC, the ECL introduces the concept of national roaming. This is viewed as an important regulatory mechanism to overcome physical or economic barriers in the provision of services and networks requiring on access through rights of use for radio spectrum frequencies (namely, mobile network providers) for end-users.

When access and sharing of passive infrastructure are not sufficient to ensure adequate coverage, the regulator may impose obligations for active infrastructure sharing or the obligation to conclude national roaming agreements. However, these obligations may only be imposed if certain requirements are met, such as the existence of insurmountable physical or economic hurdles that result in poor or non-existent access to end-users, such as building limitations in protected areas.

The recourse to this mechanism will only be justified when there is an insufficiency of access and sharing of passive infrastructure.

3.4.4. INTERNATIONAL ROAMING

International roaming is a service offered by early 2G mobile networks that allow customers of one operator to use their mobile devices on the networks of third-party operators in different countries. This service is essential and enables users to make and receive voice calls, send, and receive text and multimedia messages, or access the internet through their equipment. It is one of the most important factors that contributed to the global popularity of mobile services over GSM networks.

However, roaming costs traditionally are higher than those of the home network, as third-party operators are free to set their own fees for visiting users. Although in the European Economic Area, these costs have been decreasing due regulatory pressure, since to the implementation of the EU’s "Roam Like at Home" concept in 2017, international roaming users in the Union are charged the same tariffs as in their home network.

It's worth noting that international roaming is not regulated by the ECL, but by European regulations, specifically by Regulation (EU) 2022/612 of the European Parliament and the Council of 6 April 2022.

3.5. REGULATORY CONTROLS IN RETAIL MARKETS

The imposition of specific obligations appropriate to retail markets by ANACOM depends on:

• Absence of effective competition; and
• The imposition of further obligations would not meet the general aims of regulation.

The law aims to prevent excessive pricing by operators and that they discriminate end-users.

4. USERS' RIGHTS, UNIVERSAL SERVICE AND ADDITIONAL MANDATORY SERVICES

4.1. END-USERS’ RIGHTS

Companies, including OTTs, offering networks or services are now, in their entirety, subject to the rules of end-user’s rights outlined in the ECL.

As an exception are the micro-entities number-independent one-to-one communications services, which although exempt from these regulations, must nonetheless inform end-users of this subject.

According to the ECL, in addition to end-users who are consumers, the rights apply to micro-entities, small enterprises, or non-profit organisations, if they have not waived their application.

Under the ECL all end-user is entitled to:

• Have written information about the terms and conditions of access and use of services;
• Be informed, at least 15 days in advance, of the operator intention to cease the provision of a specific service;
• Have information about expected and provided service levels;
• Receiving itemised billing, detailing, among other things, information about costs and the end of the minimum contractual period;
• Increase protection in cases of express non-authorisation/contract;
• Have access to pricing and other conditions tools;
• Have an immediate and proportional reduction in the monthly fees in cases of failings in the quality of service, without prejudice to other compensation that may be due;
• Continuous access to the contracted services, and information about the suspension of the service; and
• Number portability.

Broadly speaking, the protection of end-users became a core aspect of the ECL. Paradoxically, in its attempt to empower users, the ECL seem to have taken a step too far while, at the same time, failing to provide adequate guidance, thus creating an unwelcomed and unexpected sense of uncertainty. As an example, under the ECL, operators are banned from unjustifiably discriminate against customers on the ground of nationality and place of residence; however, no guidelines on what may be construed as justifiable discrimination were provided. This is a sensitive matter that may lead to future litigation.

The ECL seeks to empower end-users by ensuring fair treatment in the market. The protection of end-users is a core aspect of the ECL. As part of the framework, these non-discrimination rules ensure that consumers have equal access to services and that companies cannot discriminate against users based on their nationality or domicile.

4.2. AGREEMENT INFORMATION REQUIREMENTS

The ECL strengthens the framework for the disclosure of pre-contractual information. Under the ECL, public communication providers and operators, except machine-to-machine service providers, are now required to make available to the consumer, before entry into an agreement, information (under the Consumer Protection Act) concerning its key aspects. Among other things, operators are required to disclose information on:

• The main characteristics of the goods or services;
• The identity of the provider, including, company name, postal address and telephone number and other contact information;
• The total price of the services, including the fixed fees and applicable taxes, additional set-up charges, and other relevant charges, including those relating to maintenance; and
• The price calculation method, in cases where, due to the nature of the service, the price cannot be calculated before the conclusion of the agreement.

The ECL also formalizes the obligation to adopt and make available the agreement summary template, making it considerably more detailed.

4.3. CONTROL MECHANISMS FOR CONTRACTING AND INVOICING

According to the ECL, the billing for publicly available electronic communications services must be done monthly, and the invoices for these services must be sent free of charge to the end user and include the following information:

• The services provided and the corresponding prices;
• The remaining term to complete the minimum contractual term obligations; and, when applicable,
• The social tariff for providing broadband Internet access services and its application to consumers with low incomes or special social needs.

4.4. DURATION OF THE AGREEMENT

Due to the prevalence of bundled services (triple, quadruple and quintuple play, with implied discounts) particularly in the residential fixed-line market segments, local operators tend to waive set-up fees and replace them with minimum contract periods, which, if infringed, will give rise to steep early termination fees. Therefore, it is no wonder that minimum contract periods, is probably the most debated issue in consumer law.

However, the ECL still emphasised its continuity when it comes to minimum contract period and early termination charges, opting to make surgical changes such as clauses by introducing the concepts of initial and follow-up minimum contract period and capping them.

Therefore, operators offering publicly available communication services, are required to offer services without any customer lock in period, and the minimum contract period was limited to 24 months.

Furthermore, the subscription to supplementary services or terminal equipment by the consumer, may not be used to extend the initial contractual loyalty period, except when the consumer agrees to it at the time of subscription.

4.5. TERMINATION OF THE AGREEMENT

Regarding contract termination, in its quest to protect consumers, the ECL introduced some significant deviations to general principles of law, particularly, on contract default and liability. While these are naturally restricted to specific contracts, they are nevertheless of interest.

According to the ECL, suspension of services to defaulting non-consumer end-users is allowed but subject to notice. It should be noted that in any case cutting off access to emergency services is not permitted.

For defaulting consumer end-users, a notice must be served for a grace period of at least 30 days comes into effect, after this period elapses, the operator is allowed to suspend the service for an additional 30 days. Once this second period elapses, and provided that certain notification requirements are met, the contract will be automatically terminated without further notice.

On the other hand, in cases of services unavailable for longer than 24 hours, the ECL imposes a proportional reduction of the bill regardless of any consumer's request. If the service remains unavailable for over 15 days, the end-user has the right to terminate the agreement without any cost.

Also in this case, the ECL established other specific causes for breach of agreement in addition to those previously mentioned.

One example of these new provisions is the fact that the ECL considers the existence of “significant discrepancy between the actual performance of the services and the performance indicated in the agreement” may serve as the basis for the end-user's demanding corrective measures, which are not defined, notwithstanding, its right to terminate the agreement without any penalty. Again, it will be interesting to see how the courts will apply these arguably vague concepts.

As mentioned above, the ECL introduced specific changes on the admissibility of minimum contract periods, along with the mentioned restrictions; the law has also restricted the early termination charges in case these lock-in periods are not complied with by the customer.

The ECL considers that a customer may be able to terminate its agreement with an operator without incurring any early termination charges if the consumer:

• Changes their address, the company cannot demand additional charges if it cannot provide the contracted service or equivalent service in terms of characteristics and price at the new address; The consumer changes its permanent address and, cumulatively, the address is the primary location of the services provided by the operator, and the operator is unable to provide the same or an equivalent service at the new dwelling;
• Loses their disposable monthly income due to unemployment through no fault of their own;
• Is permanently or temporarily incapacitated for work or loses monthly income due to a long-term illness;
• Migrates to a third country. For this purpose, emigration is defined as the unforeseeable move of the contract holder's permanent residence out of the national territory; or
• Is absence from its residence due to imprisonment or by being dependent on the care provided by a third person.

Although the ECL sets these causes of breach of contract to protect particular cases in, what undoubtedly the legislator thought to be fair cases, the overuse of vague concepts such as “unforeseeable move (…) out of the national territory” or “loss of income due to illness” will not contribute to a peaceful application of the law soon.

4.6. UNIVERSAL SERVICE

The ECL has set these causes of breach of agreement with practical consequences to reinforce the protection of end-users and make the termination process fairer.

According to the ECL, universal service is a minimum set of services that must be available to all consumers at an affordable price in the national territory, considering specific national conditions. The aim is to prevent social exclusion resulting from lack of access and enable citizens to participate in social and economic life.

Universal service should ensure the availability of the following:

• An adequate broadband internet access service at a fixed location;
• Voice communications services, including the underlying connection, at a fixed location; and
• Specific measures for consumers with disabilities to ensure equivalent access to services available to other users.

The ECL brings about some important changes to universal service, particularly promoting social regulation mainly through the so-called "social internet tariff".

4.7. ADDITIONAL MANDATORY SERVICES

According to the ECL, the government may make additional services available to the public within the national territory beyond those included in the universal service obligations. However, in those cases, a compensation mechanism involving specific companies should not be imposed.

5. TRANSPORT OBLIGATIONS AND EQUIPMENT

ANACOM may, for public interest reasons, impose signal transportation obligations on companies in the television and radio program services market and provide adequate compensation in return.

To comply with the ECL, digital television equipment used by consumers must be able to decode digital television signals and reproduce signals that have been broadcast without encryption, and providers must also facilitate the interoperability of equipment to encourage reuse.

Lastly, any activity involving illegal devices, including the manufacturing, importing, distributing, selling, renting, installing, maintaining, promoting, acquiring, and using such devices, is considered a severe administrative infraction.

An illegal device is any equipment or software designed or adapted to allow unauthorised access to protected services in an intelligible form without the service provider's consent.

6. FEES, SUPERVISION AND CONTROL

6.1. RATES

Operators who offer communication networks and services under the general authorisation framework are subject to an annual fee. This fee is based on the administrative costs of managing, controlling, and enforcing the general authorisation framework, as well as the rights of use and specific conditions.

Additionally, operators are also responsible for paying fees related to the following:

• The allocation and renewal of frequency rights;
• The allocation, reservation, and renewal of numbering resource rights; and
• The allocation of rights of way.

6.2. SUPERVISION AND CONTROL

6.2.1. DISCLOSURE OF INFORMATION

To effectively carry out its responsibilities, ANACOM has the right to access and to require information from operators as it sees necessary, if it is deemed objectively justified, non-discriminatory and reasonable.

Specifically, companies must provide financial information as any additional information that ANACOM or other competent authorities may request, if counted as necessary and objectively justified, to ensure compliance with administrative charges, authorisation, and other specific obligations imposed on these companies. In general, operators must provide financial and technical information to guarantee compliance with administrative charges, authorisation and other specific obligations arising of the services operators are registered to provide.

6.2.2. CONTROL

As a regulator, ANACOM is responsible for supervising compliance with the ECL, the Portuguese Food and Economic Security Authority (Autoridade de Segurança Alimentar e Económica – “ASAE”) and the Portuguese Tax Authorities (Autoridade Tributária e Aduaneira). As a regulator, ANACOM is responsible for overseeing the electronic communications sector overall.

However, under the ECL and other applicable statutes, judicial courts, central Government agencies, such as the national cybersecurity agency (Centro Nacional de Cibersegurança – “CNCS”) and other authorities and agencies also have some degree of jurisdiction over the sector. Among them, there are the above-mentioned ANEPC (the emergency and civil protection agency), the Food and Economic Security Authority (Autoridade de Segurança Alimentar e Económica – “ASAE”), the Competition Authority (Autoridade da Concorrência – “AdC”), the Tax and Customs Authority (Autoridade Tributária e Aduaneira – “AT”) and the municipalities.

6.2.3. NEW SANCTIONING FRAMEWORK

The ECL has significantly expanded its sanctioning framework. It includes more than 120 administrative infractions, of which almost 97% are considered severe or very serious and can result in fines of up to one million or five million euros.

Figure 1 - Distribution of administrative offences foreseen in the ECL according to their seriousness.

Regarding compliance with the end-consumers rules, more than 40 applicable sanctions represent more than a third of the total number of the ECL’s administrative infractions.

Figure 2 - Distribution of sanctioning rules according to the subject (as a % of the total number of administrative offences provided for in the ECL).

Under the ECL, issuing guidelines, recommendations, or instructions to employees, agents, or business partners prone to result in a violation of rules or ANACOM's instructions is considered a severe administrative infraction.

As opposed to the initial version of the bill presented by the government in May 2022, the ECL does not provide for individual liability for members of management bodies and company directors.

Along with a long list of violations for which operators are liable, under the ECL, a severe or very serious administrative offence is committed whenever an operator issues its employees, agents, or business partners guidelines, recommendations, or instructions that are likely to result in a violation of rules or ANACOM's instructions.

It should be noted that this type of provision is uncommon in this context in Portuguese law. However, it should be noted that this provision seems to be a compromise in relation to the initial version of the bill submitted to Parliament, where the personal liability of company directors and senior staff of the operators was proposed. Considering the broad and ambiguous wording of these sanctioning provisions, it will be interesting to see how they will be applied.

7. OPEN INTERNET PRINCIPLE

The open internet principle guarantees that citizens of the European Union have unrestricted access to online content and services, regardless of location or time, without any form of discrimination or interference from internet service providers.

This is reflected in Portuguese law through the ECL, which states that any actions taken to maintain the quality of internet access must comply with Regulation (EU) 2015/2120 of the European Parliament and of the Council, of 25 November 2015.

The principle of an open internet is crucial today, where information is readily available through the internet. This principle is essential to guarantee that individuals and companies have unrestricted access to online content and services.

For example, internet service providers are prohibited to block or slow down their competitors’ content, applications, or services, except in limited cases, such as network security and integrity. Under this principle, e.g., internet providers must prevent unjustifiable blocking or slowing down content, applications, or services, except in limited cases, such as to maintain network security and integrity. Similarly, service providers are inhibited from prioritising traffic on their networks based on payment from a particular source. At the same time, they are required to provide equal access to online content and services without interference from the interests of internet service providers.

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Despite this growth, the wind energy potential in Portugal is far from exhausted, and offshore wind energy has the possibility to contribute to the National Energy and Climate Plan (PNEC2030) and to the Carbon Neutrality Roadmap (2020-2050).

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The transition to an emission-neutral and environmentally sustainable economy is underway. The European "Green Deal", with the Portuguese PNEC, the European taxonomy, and green finance marks the beginning of a new approach to financial investments.

The environmental crisis represents one of humanity's greatest challenges today.

According to McKinsey to prevent a rise of more than 1.5°C, no more than 400 gigatons can be emitted, which means cutting present emissions levels by two-thirds over the course of the decade.

The first attempt to codify the environmental obligations of States at a global level was the Kyoto Protocol signed in 1997 and, more recently, the Paris Agreement of 2015 and the Glasgow Climate Pact of 2021.

At the European Union level, a set of sustainability policies, called the "Green New Deal", was approved in 2019, with the aim of transforming Europe’s economy, and setting the following objectives:

(1)  Neutral greenhouse gas emissions by 2050; and

(2)  Reduction of greenhouse gas emissions by at least 55% (compared to 1990) by 2030.

The Taxonomy Regulation, approved in 2020, establishes a European Union classification system in order to determine whether an economic activity is environmentally sustainable.

Portugal has joined the European Union’s and the World’s efforts to promote environmental sustainability since the beginning of the millennium, with aggressive investments in renewable energy, such as wind and hydroelectric power, and, more recently, in solar energy.

On 10 July 2019, Portugal approved the National Energy and Climate Plan (PNEC) which sets out Portugal’s agenda for the next decade in the environmental field and the country’s environmental goals to be achieved by 2030, of which we highlight:

(1) To reduce greenhouse gas emissions by 45% to 55%, in comparison with 2005 emissions;

(2) To increase to 47% the value of energy from renewable sources in the gross final consumption of energy; and

(3) To reduce primary energy consumption by 35% compared to 2005.

These goals can only be achieved through the development of renewable energy projects. The investments are large; therefore, sponsors should plan and use financing strategies appropriate to the projects they develop.

The "Green New Deal" highlighted the need to act in the field of financing green projects and announced the development of a renewed strategy in this area. To this end, a new European directive is under development that will standardize the issuing and negotiation of financing instruments for sustainable projects in Europe.

The issuance of so-called "green bonds" has become one of the new and most important financing instruments for sustainable projects. In this briefing, we describe what green bonds are, how they work and how they may be issued.

This briefing also describes the criteria used for qualifying bonds as "green" and also the process for issuing bonds under Portuguese law.

1. Looking for "Green" Investments

The case for a “green” revolution has been made in the economic press and general press since the beginning of the millennium, but “green” investments are only now beginning to make significant strides.

Global investors are beginning to demand that public and private companies and organizations make clear, precise, and measurable environmental commitments that can be verified and audited by the market. This movement extends to all types of financial assets: equities, government bonds, exchange-traded funds (ETFs), or hedge funds.

According to recent data from Bloomberg Intelligence, ETFs linked to ESG policies (an acronym for "Environmental, Social, Governance") cumulative assets accounted for more than $360 billion in 2021, almost 4% of global ETF assets.

Sustainable bonds accounted for 10% of overall global debt market activity, which exceeds the 6.6% of 2020 by large.

According to the 2021 Global ETF Investor Survey by US bank Brown Brothers Harriman, 82% of global investors plan to increase investment in ETFs linked to ESG policies, and over the next five years, nearly 56% of ETF investors plan to allocate at least 11% of their investments to funds that follow sustainable policies.

By 2021, a total of USD 500 billion was invested in green bonds, issued by companies, financial institutions, and governments to finance environmentally sustainable projects, reaching a new record high.

The global value of green bonds reached $488.8 billion, almost doubling 2020 levels. In several issues, green bonds have increased by 54% compared to 2020.

Europe accounted for 54% of the sustainable bond market, compared to 22% in America and 18% in the Asia Pacific region.

In 2020, European Union was the global leader in green bonds, responsible for 48 % of global issuances and 51 % of the global volume of green bonds being issued in the European Union.

2. What are green bonds?

As the name suggests, 'green bonds' are first and foremost bonds, i.e. financial instruments representing debt issued by a public or private entity, whose special feature, compared with other bonds, is that the bond proceeds are used exclusively for 'green' projects, i.e. projects that meet certain environmental objectives.

The first issue of green bonds was made in 2007, by the European Investment Bank, and served to finance, through loans, several projects developed by other entities. In the following years, other financial institutions, such as the World Bank, issued debt to finance environmental projects.

Since 2014, developers - usually private entities - have taken the initiative to directly issue green bonds in search of financial investors with an interest in this type of investment, and there are now numerous financial investors specializing in environmentally sustainable industries.

In general, a few types of green finance can be identified:

• Bonds with recourse to the issuer: the same credit rating applies as for other bonds of the issuer;
• Municipal or guaranteed bonds: the issuers' revenues arising from fees, taxes, etc. (e.g. on electricity) are pledged as collateral;
• Project bonds: the resource is limited to the project's assets and balance sheet;
• Securitised bonds: the resource is limited to a group of projects that have been pooled;
• Covered bonds: with recourse to the issuer and, if the issuer cannot repay the bonds, to the portfolio provided as collateral;
• Loans: with full recourse to the borrower(s) in the case of unsecured loans and to security interests in the case of secured loans;
• Other debt instruments: Convertible bonds, Schuldschein, Commercial paper, Sukuk, Debentures.

3. The ICMA “Green Bond Principles”

In the absence of specific legal rules for green bonds, the contribution of the International Capital Markets Association (ICMA) has been of particular importance in defining the green bond principles, which cover the following aspects:

• Use of proceeds;
• Project evaluation and selection;
• Management of proceeds; and
• Reporting.

First, the ICMA Principles state that funds should be used to finance "Green Projects" defined as projects that provide clear environmental benefits.

For ICMA, the eligible green projects categories include:

• Renewable energy, including production, transmission, appliances, and products;
• Energy efficiency, including new and renovated buildings, energy storage, district heating, smart grids, appliances, and products;
• Pollution prevention and control, including air emission reduction, greenhouse gas control, soil remediation, waste prevention, waste reduction, waste recycling, and energy-efficient waste;
• Environmentally sustainable management of living natural resources and land use, including environmentally sustainable agriculture; environmentally sustainable animal husbandry; climate-smart farm inputs, such as biological crop protection or drip irrigation; environmentally sustainable fisheries and aquaculture; environmentally sustainable forestry, including afforestation or reforestation, and the preservation or restoration of natural landscapes;
• Conservation of terrestrial and aquatic biodiversity (including protection of coastal, marine, and hydrographic environments);
• Clean transport, including electric, hybrid, public, rail, and multimodal transport, infrastructure for clean energy vehicles, and reduction of pollutant emissions;
• Sustainable water and wastewater management;
• Climate change adaptation, including information support systems such as climate observation and early warning systems;
• Eco-efficient and/or circular products, technologies, and adapted processes (such as development and introduction of environmentally sustainable, eco-labelled, or environmentally certified products, resource-efficient packaging, and distribution); and
• Green buildings that meet regional, national, or internationally recognized standards or certifications.

Second, it is recommended that the green bond issuer communicates to investors:

• the goals of environmental sustainability;
• the process that led the issuer to integrate the project into the categories of eligible Green Projects;
• the related eligibility criteria, including, where applicable, exclusion criteria, or any other process applied to identify and manage potentially material environmental and social risks associated with projects, notably by providing information on the internal objectives, strategy, and processes that make the project environmentally sustainable, which can and should include, where possible, the indication of green standards and/or certifications awarded to projects and make use of audits or certification by external and independent entities.

Compliance with this principle involves the technical assessment and provision to investors of information on the environmental sustainability goals that the green project will, in the specific case, promote.

Third, bond proceeds should be credited to sub-accounts or accounts controlled by a formal internal process to ensure that the proceeds are utilized in eligible green projects and can be audited by the issuer and external auditors.

Finally, and for reasons of transparency, the ICMA Principles establish that issuers should disclose and keep available information about the allocation of the proceeds, projects, and their impact, on an annual basis or whenever there is a material change, including qualitative and, where possible, quantitative performance indicators, to allow greater investor scrutiny of the use of funding and its management.

4. The EU Taxonomy Regulation

In 2020, the European Parliament approved Regulation (EU) 2020/852 ("Taxonomy Regulation"), which aims to promote sustainable investments and to create a secure, precise, and rigorous classification of eligible project types and the objectives of sustainable projects.

The Taxonomy Regulation defines as environmentally sustainable the economic activities that:

• Contribute substantially to one or more environmental objectives, i.e. (i) climate change mitigation, (ii) adaptation to climate change, (iii) sustainable use, (iv) protection of water and marine resources, (v) transition to a circular economy, (vi) prevention and control of pollution and (v) protection and restoration of biodiversity and ecosystems;
• Not significantly impair any of the environmental objectives listed in Article 17 of the Taxonomy Regulation;
• Are developed by certain minimum safeguards; and
• Satisfy the technical assessment criteria set by the Commission in Delegated Regulation (EU) 2021/2139.

The requirements set by the Taxonomy Regulation provide the basis for the concrete definition of the commitments that should be at the heart of green financing.

The Taxonomy Regulation requires projects to comply with the following requirements:

• Identify the most relevant potential contributions to the environmental objective and the minimum requirements that must be met to avoid significant harm to any relevant environmental objectives;
• Be quantifiable or, when this is not possible, use sustainability indicators;
• Be based on conclusive scientific evidence and the precautionary principle;
• Take life-cycle considerations into account by considering the environmental impact of the economic activity and the environmental impact of products and services resulting from that activity, the nature and scale of the economic activity, and the potential market impact of the transition to a more sustainable economy; and
• Covering all relevant economic activities in a specific sector and ensuring that these activities are treated equally.

5. The Future Green Bond Regulation

In July 2021, the European Commission published a proposal for a Regulation on European Green Bonds (Green Bond Regulation).

The proposed Green Bonds Regulation foresees the creation of a standard for the issuance of European green bonds, available to all issuers, with the following features:

• Inclusive and voluntary. European Green Bonds can be issued by any type of issuer, listed or unlisted, public or private, including the Member States voluntarily. The issue of green bonds complying with different standards is not prohibited, the only consequence being that such bonds may not be designated as European Green Bonds.
• Alignment with Taxonomy regulation. European Green Bonds will require issuers to allocate 100% of the bond proceeds to activities that are compliant with the Taxonomy Regulation requirements.
• Long-termrm projects. The proceeds of European Green Bonds can be used to fund long-term projects, up to 10 years, which involve an economic activity compliant with the Taxonomy Regulation.

Although the green bond regulation has not yet been approved it can already be used in the preparation of green bond issues.

The proposed Green Bond Regulation sets out the following requirements for the classification of bonds as "European Green Bond":

• The proceeds of the bonds should be applied in activities that comply with the Taxonomy Regulation (Regulation (EU) 2020/852)
• Before issuing, issuers must complete a factsheet following the model attached to the Regulation, obtain external certification, and publish both documents;
• Issuers must prepare an annual report on the allocation of the proceeds until they are fully used and a report on the environmental impact of the use of the proceeds at least once during the lifetime of the bonds; and
• Issuers should obtain a post-issuance verification of the report regarding the allocation of bond proceeds by an external entity.

6. Advantages of Green Bonds

6.1. Signaling

An advantage associated with the use of this type of instrument is the information transmitted to the market and investors.

In general, all investors today seek to understand whether the companies in which they invest are committed to pursuing environmental and social responsibility goals. Understanding these matters is now socially and economically very relevant because the future of the planet depends on them and the "environmental emergency" is now an unavoidable reality.

For this reason, it is now standard practice for listed companies to inform investors and other stakeholders of their environmental and social responsibility commitments.

By issuing green bonds, companies give a clear and credible signal to the market of their environmental responsibility.

6.2. Access to the "green money" market

Related to environmental responsibility is also access to the "green money" market, i.e., to a growing range of investors specialized in sustainable projects.

In practice, this means that companies committed to environmental goals will have access to investors that other companies do not have.

The actual size of the "green money" market is not yet exactly quantified, but it is already clear that a growing number of investors are fully committed to, or at least seeking to allocate a significant portion of their investments to, environmentally sustainable projects and companies.

This justifies the exponential growth of green bond issues, as well as the guarantee of origin certificates for renewable energy production.

It is estimated that green or socially relevant projects have attracted investment to the tune of €30 billion, particularly in Europe, where half of that amount has been concentrated.

6.3. More favorable financing conditions

Finally, there is a general perception that investors are willing to pay a premium when it comes to green products.

There are some studies to this effect. However, it seems too early to say with certainty that the same is true for bonds, i.e. that compared to other types of bonds, green bond issuers benefit from more favourable financial conditions.

The reasons for our uncertainty are that not enough green bonds have been issued to date.

7. The Issuance of Green Bonds

7.1. General framework for the issue of bonds

As stated above, bonds are designated green bonds because they are issued to finance projects or entities that comply with a set of environmental responsibility rules. For everything else, green bonds follow the general bond regime outlined in the Portuguese Companies Code.

It should be noted that bonds can only be issued by companies registered for more than one year, unless, in the case of private companies, they are the result of the merger or division of companies of which at least one has been registered for more than one year or the bonds are guaranteed by a credit institution, the State or a similar public entity.

The law also requires that investors are provided with financial information on the issuer, reported to a date not exceeding three months before the issue, audited by an independent auditor registered with the Portuguese Securities Market Commission (CMVM), and prepared by the applicable accounting standards.

7.2. Limits on issuance

The issuance of bonds depends on the issuer showing, after the issue, a financial autonomy ratio equal to or greater than 35%.

Compliance with the financial autonomy ratio must be confirmed by the opinion of the supervisory board, the sole supervisor, or the statutory auditor.

This limit will not apply to companies whose shares have been admitted to trading on a regulated market or companies with a rating assigned by a rating company registered with the CMVM.

This limit will not apply either to (i) bonds secured by special security interests in favour of bondholders, (ii) bonds with a unit par value of EUR 100,000 or more, or where subscription is carried out exclusively in minimum lots of EUR 100,000 or more, and (iii) bonds fully subscribed by qualified investors within the meaning of the Portuguese Securities Code, provided that the bonds issued are not subsequently placed, directly or indirectly, with non-qualified investors.

7.3. Approval and registration of the issue

The issue of bonds must be approved by the shareholders unless the articles of association authorize it to be approved by the board of directors, and no resolution to issue bonds may be taken until a previous issue has been subscribed to and carried out.

Shareholders may authorize a bond issue approved by them to be made in series, to be specified by them, or by the board of directors.

The issuance of bonds and the issue of each of its series, when made through a private offering, are subject to commercial registration, except if their admission to trading on a regulated market has occurred within the time limit for requesting registration.

7.4. Placement of bonds

Bond issues may be placed through:

• a public offer; or
• a private offer.

The offer is considered a public offer when it is preceded by the disclosure of a prospectus or another document required under EU law.

Under Regulation (EU) 2017/1129 (the “Prospectus Regulation”), as a rule, a prospectus is required when the securities are offered to the public or admitted to trading on a regulated market. However, the Prospectus Regulation exempts certain offers from this requirement, such as:

• Offers addressed solely to qualified investors;
• Offers addressed to fewer than 150 natural or legal persons per Member State, other than qualified investors;
• Offers of securities whose denomination per unit amounts to at least EUR 100,000; and
• Offers addressed to investors who acquire securities for a total consideration of at least EUR 100,000 per investor, for each separate offer.

In case of offers where a prospectus is required, the steps are as follows:

(1) Submission of prospectus approval request to the CMVM;

(2) Approval by the CMVM of the draft prospectus within 10 business days of submission (or 20 business days when the issuer does not have any securities admitted to trading on a regulated market and has not previously offered securities to the public); and

(3) Publication of the prospectus.

As of 2022, public offers where a prospectus is required have the right (but not the obligation) to engage a financial intermediary to provide assistance and placement services.

In private offers, a prospectus is not required and the issuer will enter into a subscription agreement with the investor(s) to regulate the terms and conditions of the subscription of the bonds.

7.5. Rights of bondholders

7.5.1. Remuneration of bonds

The subscription of bonds gives their holders a claim on the issuer.

Bonds may confer bondholders the right to (i) a fixed interest rate, additional interest, or a redemption premium, either fixed or dependent on the profits made by the company, (ii) a variable and dependent interest and redemption plan based on profits, to be convertible into shares, whether ordinary or preferred, with or without voting rights, or into other securities, or (iii) subscribe for one or more shares, whether ordinary or preferred, with or without voting rights.

The supplementary interest or repayment premium referred to above may be established as a fixed percentage of the profit of each financial year, regardless of the amount of the latter and of any fluctuations during the life of the loan, or as from a certain minimum limit to be established in the issue.

The additional interest or redemption premium may also be established based on a variable percentage based on the volume of profits produced each year or on profits to be considered more than the minimum threshold stipulated in the issue.

There may also be an allocation of profits to shareholders and bondholders in proportion to the nominal value of existing securities.

Where the terms of the issue provide for the distribution of supplementary interest or redemption premiums in the year of the issue, the amount thereof is calculated using the criteria established in the issue.

They may also be subordinated, that is to say, they may be reimbursable after the satisfaction of the common creditors, provided that this is expressly stated in the terms of issue and the documents, registers, and entries relating thereto, or they may offer special security over certain assets or income belonging to the issuer or a third party, provided that such special security is expressly stated in the terms of issue and the documents, registers, and entries relating thereto.

7.5.2. Bondholders' meeting

The bondholders may meet in a bondholders' meeting, convened by the common representative of the bondholders or, while he/she is not elected or while he/she refuses to convene it, by the chairman of the board of the general meeting of shareholders, or judicially when they refuse, provided that bondholders holding at least 5% of the nominal value of the bonds so request.

The bondholders' meeting deliberates on all matters assigned to it by law or that are of common interest to the bondholders, and in particular on:

• appointment, remuneration, and removal of the common representative of the bondholders;
• modification of the conditions of the bondholders' claims;
• proposals for rescue or insolvency plans;
• claims by bondholders in enforcement actions, except in cases of urgency;
• establishment of a fund for the expenditure necessary to protect the common interests and the rendering of the respective accounts;
• authorization of the common representative to bring legal proceedings.

The resolutions passed by the meeting are binding on absent or dissenting bondholders, which is particularly relevant when the meeting approves company recovery or insolvency plans that may result in a reduction in the value of the credits held by the bonds.

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Our Partner João Macedo Vitorino will be a speaker at the 4th edition of the Solarplaza Summit Portugal, on October 13, 2022, at 14h40. He will talk about "The opportunity of self-consumption" in Portugal. If you want to participate, book your ticket here.  

The event will take place at the Altis Grand Hotel, in Lisbon. 

Transition

In Portugal, electricity self-consumption is ruled by Decree-Law 15/2022. Self-consumption promotes electricity decentralized production from renewable sources. 

Energy self-consumption is the production of renewable energy by a final consumer through one or more production unit(s) for self-consumption (UPAC – unidade de produção para autoconsumo) in a facility owned by that individual that can store or sell in-house produced electricity of a renewable source.

Self-consumption can be:  

According to DGEG data: between 2016 and 2021, decentralized installed power increased by 66% and photovoltaic UPAC increased by around 90%. The use of UPAC from non-solar sources was almost non-existent.

Prior control

Both individual and collective self-consumption is subject to a prior control procedure which, depending on the installed capacity of UPAC, can be:

The distribution of spare RESP injection capacity determines if a Production License can be awarded or not. The license award depends on the payment of a security deposit obtained through (i) a general access request (when there is available capacity), (ii) a request-agreement between the interested party and RESP’s operator (the interested party should cover the financial costs of construction or improvement of the grid necessary for the reception of the energy produced by UPAC), or (iii) a competitive procedure.

Spare RESP injection capacity is not necessary where there is:

Until April 19, 2024, the award of an Operation License or Operation Certificate is not necessary whenever the network operator verifies the existence of favorable conditions for connection. The exemption must be requested three years after that verification.

Energy sharing and trade

Energy sharing

EGAC must inform network operators about the desired sharing method of collective self-consumption, for distributing UPAC production between self-consumers. If EGAC stays silent, the network operator shares proportionally each installation based on measured consumption.

Energy sharing can be based on:

Electro-intensive self-consumption

The Electro-intensive Customer Statute (Estatuto do Cliente Eletrointensivo - ECE) was ruled by Ministerial Order no. 112/2022, establishing obligations and support measures for consumption facilities that stand by this statute through a standard form contract to benefit from:

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New Features

The National Electricity System (Sistema Elétrico Nacional - SEN), brought by Decree-Law no. 15/2022 of 14 January, establishes new sets of rules that were not yet available or were poorly implemented in previous regulations.

Achieving the national energy transition goals focusing on solutions to circumvent the current grid capacity shortage is SEN’s purpose: countering the grid’s inactivity and maximizing the reception potential of the Public Service Electricity Grid (Rede Elétrica de Serviço Público - RESP).

Two of the most important new features are new hydrid power production and hybridization of existing plants:

• Hybridization is adding to an existing power plant or self-consumption production unit (unidade de produção de autoconsumo - UPAC) of new production units that use several primary renewable energy sources, without changing pre-existing injection capacity of the power plant or UPAC; and
• Hybrid new plants or UPAC are those that, for the prior control procedure, simultaneously present more than one production unit using several primary renewable energy sources.

The new framework simplifies and promotes the use of the same injection point in RESP by several technological tools with a different primary source. It allows hybrid generation systems to be set up ab initio or later through a very straightforward prior control procedure to amend the production license.

Renewable power generating plants can carry out a hybridization project; but solar and wind energy hidridized plants have specific daily and intra-annual cycles that leverage their complementarity and allow maximizing the reception point at RESP.

The scale of wind energy generation in SEN, makes the opening for hybridizarion become clearer. In the last 5 years, wind-generated electricity corresponded, on average, to 24% of mainland electricity consumption, with an installed capacity in 2021 of 5,628,00 MW and representing a production share within renewable energies of 55.71%.

Prior control - I

Installation of a hybrid power plant or UPAC or the Hybridization of an existing power plant or UPAC are subject to prior control under the following terms:

The award of a Production License is dependent on the prior issue of a grid capacity reservation title into RESP (título de reserva de capacidade - TRC).

Hybridization does not require a TRC as there is no increase in the injection capacity of the existing power plant or UPAC.

TRC can be acquired in one of three ways:

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Introduction

Until 2006, Eletricidade de Portugal, E.P. (“EDP”), a state-owned company, held all the electricity production, transmission, distribution and supply market and its main infrastructures. From 2006 onwards, activities linked to the electricity marked, such as the electricity production and supply, started to be more liberalized. This liberalized market opened the doors for several other private companies and investors.

Most recently, Decree-Law 15/2022, of 14 January (“Electricity Law“), implemented Directive (EU) 2018/2001 of the European Parliament and of the Council of 11 December 2018, on the promotion of the use of energy from renewable sources, and Directive (EU) 2019/944 of the European Parliament and of the Council of 5 June 2019, that establishes the common rules for the internal market for electricity.

The Electricity Law sets a framework to the National Electrical System (Sistema Elétrico Nacional - “SEN”). Some of its most distinctive features are the creation of three Technological Free Zones (regulatory sandboxes), the creation of the Electro-Intensive Customer Statute and the creation of an electricity aggregator, responsible for connecting the consumption flexibility and storage electricity, purchasing or selling through electricity markets and/or though bilateral agreements.

In this paper, we travel through all Market Participants and their respective functions and obligations as defined in the Electricity Law.

The Portuguese Electricity market Participants 

Electricity Producers 

Electricity Producers, ruled by articles 11, 39, 97 and Annex I of the Electricity Law, are responsible for generating and providing electricity to the Portuguese electricity grids. Electricity producers can:?

To operate, producers shall obtain from the Portuguese Directorate of Energy (Direção Geral de Energia e Geologia – “DGEG”) a prior registration certificate or a production license (as pursuant to the installed capacity) in relation to each production unit.

The procedure to obtain an electricity production license is subject to the prior assignment of a public electricity grid (Rede Elétrica de Serviço Público – “RESP”) injection capacity reserve title (Electricity Law, article 18/1). This request must be submitted through the DGEG electronic platform.

Storage Companies 

Electricity storage (regulated in article 2/60 of Directive (EU) 2019/944 and in articles 11 et seq., 79, 80 and 97 of  the Electricity Law) is defined as the process by which previously produced energy is stored through its conversion into another form of energy to be used in a different time. In Portugal, hydroelectric pumping is the most common energy storage method. Other common energy storage technologies in use are lithium batteries and flywheels.

Autonomous storage activity is subject to a prior control procedure by DGEG in case installed capacity:

Integrated storage activity with the production of electricity shall follow the prior control procedure applicable to production covering, in such case, all activities simultaneously.

SEN Global Manager

The Global Manager of the National Electrical System (Sistema Elétrico Nacional - “SEN”) is responsible for SEN management. 

It is also responsible for ensuring SEN’s harmonized operation, security and electricity supply stability in the short, medium, and long term. 

This includes ensuring that the system is operated safely and efficiently, as well as coordinating with other European countries a stable and secure electricity supply.

The Electricity Law establishes the Global Manager of the National Electrical System rules and the technical management of the National Electricity System in its articles 3 jj) and 103 to 106.

Article 104 of the Eletricity Law establishes that the technical management of the National Electricity System is assigned to Redes Energéticas Nacionais SGPS, S.A. (“REN”) in its capacity of TSO - National Electricity Transportation Grid (Rede Nacional de Transportes - “RNT”) operator. 

Integrated DSO

The Distribution Grids Integrated Operator (“Integrated DSO”) holds the technical management of the electricity distribution grids in high, medium, and low voltage and is responsible for the technical management of the distribution grids in articulation with the Global Manager of the National Electrical System.

The Integrated DSO rules are set in articles 108, 109 and 166/2 of the Electricity Law.

This includes managing the electricity flows in the distribution grids and ensuring their interoperability with the grids to which they are connected. According to article 108 of the Electricity Law:

E-REDES, S.A. is the only company in Portugal that operates in the distribution system at high, medium, and low voltage.

Transmission System Operator 

The Transmission System Operator (“TSO”) is the entity in charge of the electricity transmission activity, and it is responsible for the construction, operation, and maintenance of the transportation grid, ensuring the grid capacity in the long term.

TSO main rules can be found in articles 2/35, 6, 40 to 42  and 47 to 56 of Directive (EU) 2019/944, in articles 3/zz), 105, 106, 227 and in Annex II of the Electricity Law.

Electricity transmission is carried out by REN, which is responsible for, among other things:

Annex II set the bases of RNT 50 years concession for mainland Portugal. REN holds the concession of RNT until 2057 and is subject to the control by DGEG and to the supervision of the energy services regulatory authority ERSE – Entidade Reguladora dos Serviços Energéticos. 

Medium and High Distribution System Operator 

The Distribution System Operator ("DSO") rules are found in articles 2/39 and 35 of Directive (EU) 2019/944 and in articles 3/xx), 8/1 and in Annex III of the Electricity Law that sets the bases for the medium and high-voltage electricity distribution grids concessions.

DSO activity is granted by a 30-year concession subject to a public tender procedure.

DSO of medium and high voltage is responsible for:

E-REDES holds the DSO concession until 2044. 

Low Distribution System Operators 

The Low Voltage System Operators (“LDSO”) rules are set out in articles 2/39 and 35 of Directive (EU) 2019/944 and in articles 3/xx), 8/1, 115, 116, 268, 285 and in Annex IV of the Energy Law.

According to Annex IV, low voltage electricity distribution in Portugal is a municipality activity, which may be granted by a 20-year concession contract under a public tender procedure.

Article 118 establishes that the low voltage distribution concession is a remunerated activity. The remuneration is based on the size of each municipality and the number of customers. There is also a solidarity factor that benefits the municipalities with a lower population.

Besides its technical assignments - which include the relationship with DSO - LDSO also has commercial duties, such as: metering reading, making the reading metering reading data available to suppliers and the invoicing and collection of the grid access tariffs from suppliers.

There are currently 11 LDSO, with E-REDES accounting for around 99.5% of consumers. The existing municipal concessions have mismatched periods, with most expiring in 2022.

Closed Distribution System Operators 

Closed Distribution System Operators are entities responsible for ensuring the capacity of the closed distribution system. A closed distribution system is a system that is part of areas or infrastructures excluded from the scope of electricity distribution concessions.

The Closed Distribution System Operator and the Closed Distribution System are regulated in articles 38 of Directive (EU) 2019/944 (EU) and in articles 3/yy) and 120 and onwards of the Electricity Law.

The Closed Distribution System Operator is responsible for:

Electricity Market Operator 

Electricity Market Operators are entities responsible for the market management and related activities. The main regulations in their regard are set out in articles 163 et seq. of the Electricity Law.

In the last stage of the electricity supply chain, the Electricity Market Operator (along with Electricity Suppliers) relates directly to consumers. Consumers can choose their supplier and change (free of charge) whenever they find better suited offers to their type of consumption.

The main duties of an Electricity Market Operator consist of:

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