EU May Take Spain to Court Over Golden Shares

The European Commission is expected Wednesday to take Spain to the Court of Justice over national rules which effectively block foreign companies from taking control of privatized companies by way of so-called "golden shares."

Madrid has used the rules to prevent the merger of KPN Telecom BV and Telefonica SA, but the Spanish legislation applies to all sectors -- and notably the electricity sector, where the rules led to the collapse of the planned purchase of Hidroelectrica del Cantabrico SA by Germany's Energie Baden-Wuerttemberg AG.

"This horizontal legislation violates European Union law guaranteeing both the free circulation of capital and nondiscrimination among member states," said an EU official who asked not to be identified.

The expected Commission decision comes amid regular sales by the 15 member states of former monopolies, in which national governments try to maintain the best of both worlds by reaping the financial benefits, but also by exercising their rights under special powers or golden shares to prevent these former national champions from passing into foreign hands.

The Commission has expressed similar concerns over national rules or practices in France, Belgium, Portugal, the U.K. and Italy, the official said. In some cases, including Spain and Portugal, the golden shares are enshrined in horizontal legislation affecting all privatizations, but in others the golden shares are simply part of a specific sale of a former monopoly.

Last month the Court of Justice upheld a Commission complaint against Italy, ruling that Italian laws which gave the government "special powers" or golden shares within the privatized ENI SpA and Telecom Italia SpA violated the nation's Treaty obligations.

Prompted by Loyola de Palacio, the Spanish Commissioner responsible for energy and transport policy, the Commissioners will also discuss on Wednesday whether to proceed with other individual cases, including one against the Netherlands, or to first come forward with an EU directive on the matter. Current EU policy is based on a 1997 Communication setting out the rights of member states in privatizations.

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