1. Special rights in privatized companies in the enlarged Union: a decade full of developments Second European Corporate Governance Conference, Luxembourg, 28 June 2005 Gerassimos THOMAS Head of Unit Free movement of capital and financial integration

2. Special rights in privatized companies: an overview 1.A restriction to the free movement of capital. 2.From Maastricht to the enlargement. 3.The state of play in an enlarged Union.

3. 1. A restriction to the free movement of capital.

4. Changes in ownership (caps on investments and voting rights) Management decisions (veto rights on mergers, changes in the statutes, disposal of assets, and rights to appoint members of the board) Special rights are used by governments to retain control over:

5. Special rights have a direct impact on cross-border integration with respect to… Direct investment: –they limit the ability of new owners to exercise their control rights; –they limit the ability of industries to restructure across borders when governments oppose foreign bids. Portfolio investment: –they introduce investor uncertainty and reduce the attractiveness of investing in companies; –they potentially reduce share-holder value.

6. Member States have justified special rights on the grounds that they… Ensure that privatized companies retain their corporate purpose and jurisdiction of incorporation. Prevent the sale of strategic assets and infrastructures. Guarantee the provision of services of general interest. Safeguard public security, public health, and national security. But…

7. Special rights must comply with the test laid down by the Court of Justice: Non-discriminatory; Justified by imperative requirements in the general interest; Suitable for securing the attainment of the objective which they pursue; Must not go beyond what is necessary in order to attain it (proportionality principle).

8. Regulation makes it easier for the State to impose public interest obligations: Regulation at the Community level (in energy, telecoms, the postal sector) Supervision by national regulators and national legislation Concession systems and tendering conditions The above are conform to Treaty principles, namely the freedom of capital movement.

9. 2. From Maastricht to the enlargement.

10. Actions taken: In 1994, the free movement of capital became the 4 th freedom of the Internal Market (EC Treaty). In 1997, the Commission issued a Communication on special rights. The Commission launched a survey in 1997 that found that special rights were still prevalent in a number of Member States. Starting in 1999, applications of candidate countries to the 2004 enlargement were screened for special rights.

11. Progress in scaling down special rights: Cases were brought to the Court of Justice or voluntarily resolved. Landmark rulings by the Court in 2002-2003 validated the Commission’s views and set a clear standard. EU-15 Member States complied or are complying with the judgements. New Member States renounced their special rights to the extent possible before accession.

12. 3. The state of play in an enlarged Union.

13. A range of sectors is still concerned: As indicated by Member States in our 2004 survey.

15. Important national and EU players are involved: Leaders on the national stock exchange Former State-owned monopolies or public utilities Market leaders in their sector Significantly contribute to national GDP

16. Thank you for your attention! Further information: http://europa.eu.int/comm/internal_market/index_ en.htm (Free movement of capital) Gerassimos THOMAS Gerassimos.Thomas@cec.eu.int Maria AREIZAGA Maria-Rosario.Areizaga@cec.eu.int