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Brussels, 18 September 2008

Free movement of capital: Commission refers Portugal to European Court of Justice over special rights held by the State/public entities in EDP (Energias de Portugal)

The European Commission has decided to refer Portugal to the European Court of Justice as it considers that the special rights held by the State in EDP discourage investment from other Member States in violation of EC Treaty rules.

The legal framework governing the privatisation of EDP and the Articles of Association provide for special rights for the State in the company, including:

  • veto rights on (a) resolutions to amend the company's articles of association, including capital increases, mergers, divisions and winding-up; (b) resolutions on entering into parity and subordination group contracts; (c) resolutions on abolishing or limiting shareholders' rights of preference as regards capital increases;
  • the right to oppose the election of a number of directors and the right to appoint a director in the company.

The Articles of Association of the company impose a limit on voting rights in the general assembly for all shareholders holding more than 5% of the capital of the company, except for the State/equivalent entities.

The Commission considers that, in violation of EC Treaty rules, these special powers constitute unjustified restrictions on the free movement of capital and the right of establishment (Articles 56 and 43 of the EC Treaty), in so far as they hinder both direct investment and portfolio investment.

In June 2007, the Commission invited Portugal to abandon the special rights held by the State and public entities in EDP (IP/07/908). The Commission considers Portugal's arguments in defence of the special rights unsatisfactory in the light of the relevant Court of Justice case law.

Proportionality concerns

Portugal argues that the special rights are justified on two grounds: first, because the services provided by EDP are of general economic interest (as defined in Article 86 of the EC Treaty); and secondly for public security and public interest reasons (security of energy supply).

Based on ECJ jurisprudence, the Commission concluded that the restrictions do not meet the necessity, suitability and proportionality criteria that might justify restrictions to the free movement of capital. In the Commission's opinion, the special rights of the Portuguese State in the company go beyond what is necessary to meet their intended objectives.

The latest information on infringement proceedings concerning all Member States can be found at:

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