On 29th August 2017, the Council of Ministers (“CM”) held its 30th Ordinary Session in which it has reviewed and approved a Bill establishing the Principles and Rules Applicable to the State Business Sector (“Bill”).
The fundamental principles and systematic of the Bill were discussed and approved by the Parliament on 21 March 2018, and the discussion and approval of each specific article, paragraph and sub-paragraph of the Bill took place on 4 April 2018.
The next step shall be the publication of the Bill at the Government Official Gazette to become legally effective, however, until that happens, we had access to the version of the Bill approved by the CM and, although it may had suffered changes during the discussions at the Parliament (we can only confirm this after its publication at the Government Official Gazette), we understand that it would be useful to make reference to three innovations proposed by the CM under the Bill which we believe we should emphasize, as follows:
- The Bill applies to all State Business Sector (“SBS”) which, pursuant to article 3(2) of the Bill, is comprised “by all the State’s productive and commercial units, organized and managed in a business way, covering State-owned companies and public limited companies in which the State owns an equity”.
To date, the regulation of the SBS has been divided into legislation which governs State-owned companies and public limited companies in which the State owns an equity, respectively (namely the Law No. 2/81, of 30 September, which approved the Law on Organization and Operation of State-owned Companies, and the Law No. 6/2012, of 8 February, which approved the Law of Public Limited Companies in which the State owns an equity), however, the Bill includes two chapters on State-owned companies and public limited companies in which the State owns an equity, respectively, and proposes to repeal the Law on Organization and Operation of State-owned Companies and the Law of Public Limited Companies in which the State owns an equity.
It is, perhaps, the most important innovation of this Bill, which proposes to comprise in a single Law the rules relating to the State-owned companies and public limited companies in which the State owns an equity.
State-owned companies are exclusively owned by the State and qualify as public bodies, whereas public limited companies in which the State owns an equity are regulated by the Commercial Code and act as private entities.
The article 49(3) of the Bill, however, lays down that companies in which the state holds a minority of the share capital are not covered by the Bill, that is to say that only public limited companies in which the State is the sole shareholder or owns the majority are covered by the Bill.
- Another innovation brought by the Bill, pursuant to its article 8, relates to the assignment to the CM of powers to create and define the organization, operation and competence of an entity that will manage and coordinate the SBS.
Presently, there is the Institute for the Management of the Equity of the State in Public Limited Companies (Instituto de Gestão das Participações do Estado – IGEPE) with the aim of managing, coordinating and controlling the State’s shareholdings in different types of public limited companies in which the State owns an equity, however, the Bill proposes to create an entity with broader powers, including, for example, monitoring the economic and the financial performance of the companies comprising the SBS, managing the State’s shareholdings and financial holdings and ensuring the implementation of the Policy and Strategy of the SBS.
- Last but not least, we make reference to article 34(2) of the Bill, which states that State-owned companies may enter into arbitration agreements as a dispute resolution mechanism, under the applicable legislation.
The State-owned Companies Law presently in force prohibits the use of arbitration to settle disputes involving State-owned companies, since its article 48 lays down that judicial courts are competent to settle all disputes in which a State-owned company is involved and the Administrative Court is competent to decide on appeals against definitive and enforceable administrative acts of State-owned companies bodies governed by public law, as well as to settle disputes on the validity, interpretation or enforcement of administrative contracts executed with a certain State-owned company.
The use of arbitration as an alternative dispute resolution mechanism is commonly accepted worldwide and its advantages are unequivocal.
At a time where there is a growing interest in the country to develop and implement projects for the exploration of natural resources and considering that some of the State-owned companies that are part of the SBS have been involved in such projects (e.g. the national oil company Empresa Nacional de Hidrocarbonetos, E.P.; the public utility Electricidade de Moçambique, E.P.; the railway company Caminhos de Ferro de Moçambique, E.P.), the prohibition laid down in the State-owned Companies Law presently in force is not in line with the best international practices under projects for the exploration of natural resources.
Paradoxically, practice has shown that, even with the existence of this prohibition, some State-owned companies have been entering into arbitration agreements and have been involved in arbitration proceedings.
Thereby, the article 34(2) of the Bill proposes to remove the prohibition and to eliminate any doubts on the possibility of State-owned companies entering into arbitration agreements.
We will return to this matter in the future and in further detail, after the publication of the Bill at the Government Official Gazette.
Article compiled by Paulo Ferreira – Lawyer at Mozambican member firm CGA