Free movement of capital: Commission refers Portugal to European Court of Justice over special rights held by the State in GALP Energia

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 GALP discourage investment from other Member States in violation of EC Treaty rules.

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

• veto rights on any resolutions purporting to authorise the execution of equal partner or subordinate group agreements and further, any resolutions which may, in any way whatsoever, endanger the supply of oil, gas and electricity or other derivatives thereof to the country;
• the right to appoint the chairperson of the board of directors.

The Commission considers that these special powers constitute an unjustified restriction on the free movement of capital (Article 56) and the right of establishment (Article 43), in violation of EC Treaty rules, 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 in GALP (IP/07/908). The Commission considers Portugal's arguments in defence of the special rights unsatisfactory in the light of the relevant European Court of Justice case law.

Proportionality concerns

Portugal argued that the special rights are justified on two grounds: first, because the services provided by GALP 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:

http://ec.europa.eu/community_law/index_en.htm