TRANSPARENCY OF FINANCIAL RELATIONS BETWEEN STATE AND PUBLIC UNDERTAKINGS REGULATIONS

SUBSIDIARY LEGISLATION 601.04

TRANSPARENCY OF FINANCIAL RELATIONS

BETWEEN STATE AND PUBLIC UNDERTAKINGS

REGULATIONS

11th February, 2005

LEGAL NOTICE 45 of 2005, as amended by Legal Notice 269 of 2007.

The title of these regulations is the Transparency of

Financial Relations between the State and Public Undertakings

Regulations.

In these regulations, unless the context otherwise requires

"the Commission" means the Commission of the European Union

as established in the Treaty as subsequently amended;

"different activities" means, on the one hand, all products or

services in respect of which a special or exclusive right is granted

to an undertaking or all services of general economic interest with

which an undertaking is entrusted and, on the other hand, each

other separate product or service in respect of which the

undertaking is active;

"the Directive" means Commission Directive 80/723/EEC of 25

June 1980 on the transparency of financial relations between

Member States and public undertakings as well as on financial

transparency within certain undertakings as amended by Directive

8 5 / 4 1 3 / E E C o f 2 4 J u l y, 1 9 8 5 , D i r e c t i v e 9 3 / 8 4 / E E C o f 3 0

September, 1993, Directive 2000/52/EEC of 26 July, 2000 and

Directive 2005/81/EC of 28 November, 2005;

"dominant influence" means -

(a) the holding of the major part of the undertaking’s

subscribed capital; or

(b) control over the majority of the votes attaching to

shares issued by the undertaking; or

(c) the capacity to appoint more than half of the members

of the undertaking’s administrative, managerial, or

supervisory body;

"exclusive right" means the right that is granted by the

Government of Malta to one undertaking through any legislative,

regulatory, or administrative instrument, reserving it the right to

provide a service or undertake an activity;

"Member States" means a member state of the European Union;

"public undertakings" means any undertaking or entity over

which the Government of Malta may exercise directly or indirectly

a dominant influence by virtue of its ownership in it, financial

participation therein, or rules which govern it;

"public undertakings in the manufacturing sector ’ means all

undertakings whose principal area of activity, defined as being at

least 50% of the total annual turnover, is in manufacturing. These

undertakings are those whose operations fall to be included in

Section D - Manufacturing (being subsection DA up to and

including subsection DN) of the NACE (Rev 1) classification;

"special right" means the right that is granted by the Government

of Mal ta to a lim ited numb er of und ertak ings, through any

legislative, regulatory, or administrative instrument, which

(a) limits to two or more the number of such undertakings,

authorised to provide a service or undertake an

activity, otherwise than according to objective,

proportional and non-discriminatory criteria, or

(b) designates, otherwise than according to such criteria,

several competing undertakings, as being authorised to

provide a service or undertake an activity, or

(c) confers on any undertaking or undertakings, otherwise

than according to such criteria, any legal or regulatory

advantages which substantially affect the ability of any

other undertaking to provide the same service or to

operate the same activity under substantially

equivalent conditions;

"Treaty" has the same meaning as in article 2 of the European

Union Act.

(1) Any financial relations between the Government of

Malta and public undertakings shall be transparent as provided in

the Directive.

(2) In such financial relations, therefore, the following shall

emerge clearly

(a) public funds made available by the Government of

Malta to the public undertakings concerned;

(b) public funds made available by the Government of

Malta through the intermediary of public undertakings

or financial institutions;

(c) the use to which these public funds are actually put.

(3) The transparency referred to in this regulation shall apply

in particular to the following aspects of financial relations between

the Government of Malta and public undertakings

(a) the setting-off of operating losses;

(b) the provision of capital;

(c) non-refundable grants, or loans on privileged terms;

(d) the granting of financial advantages by forgoing

profits or the recovery of sums due;

(e) compensation for financial burdens imposed by the

Government of Malta;

(f)

the forgoing of a normal return on public funds used.

The transparency requirements referred to in regulation 3

shall not apply to financial relations between the Government of

Malta and

(a) public undertakings, as regards services the supply of

which is not liable to affect trade between Member

States to an appreciable extent;

(b) the Central Bank of Malta;

(c) public credit institutions, as regards deposits of public

funds placed with them by the Government of Malta

on normal commercial terms;

(d) public undertakings whose total annual net turnover

over the period of the two financial years preceding

that in which the funds referred to in regulation 3 are

made available or used has been less than Euro 40

million except for public credit institutions where the

corresponding threshold shall be a balance sheet total

of Euro 800 million.

(1) A public undertaking that enjoys a special or exclusive

right granted by the Government of Malta pursuant to Article 86(1)

of the Treaty, or that is entrusted with the operation of a service of

general economic interest pursuant to Article 86(2) of the Treaty,

and receives public service compensation in any form whatsoever

in relation to such service and which carries on other activities, is

required to maintain separate accounts that reflect clearly its

financial and organisational structure in

(a) the costs and revenues associated with different

activities;

(b) the full details of the methods by which costs and

revenues are assigned or allocated to different

activities.

(2) For the purpose of subregulation (1), an undertaking that is

required to maintain separate accounts shall take the following

measures

(a) the internal accounts corresponding to different

activities shall be kept separate;

(b) all costs and revenues shall be correctly assigned or

allocated on the basis of consistently applied and

objectively justifiable cost accounting principles;

(c) the cost accounting principles according to which

separate accounts are maintained shall be clearly

established

Provided that the requirements in this regulation shall not

apply to

(i)

undertakings, as regards services the supply of

which is not liable to affect trade between

Member States to an appreciable extent;

(ii) undertakings whose total annual net turnover

over the period of the two financial years

preceding any given year in which they enjoy a

special or exclusive right granted by the

Government of Malta pursuant to Article 86(1)

of the Treaty, or in which they are entrusted with

the operation of a service of general economic

interest pursuant to Article 86(2) of the Treaty is

less than Euro 40 million, except for public

credit institutions where the corresponding

threshold shall be a balance sheet total of Euro

800 million;

(iii) undertakings which have been entrusted with the

operation of services of general economic

interest pursuant to Article 86(2) of the Treaty if

the State aid in any form whatsoever, including

any grant, support or compensation they receive

was fixed for an appropriate period following an

open, transparent and non-discriminatory

procedure.

(1) Public undertakings shall ensure that information

concerning the financial relations referred to in regulation 3 shall

be kept at the disposal of the Government of Malta for five years

from the end of the financial year in which public funds were made

available to them. However, where the same funds are used during

a later financial year, the five-year limit shall run from the end of

that financial year.

(2) Public undertakings shall ensure that information

concerning the financial and organisational structure referred to in

regulation 5 shall be kept at the disposal of the Government of

Malta for five years from the end of the financial year to which the

information refers.

(3) Wherever the Government of Malta considers it necessary

so to request, such public undertakings shall supply to the Ministry

responsible for finance the information referred to in

subregulations (1) and (2), together with any necessary background

information, notably the objectives pursued

Provided that the financial information as regards public

undertakings operating in the manufacturing sector shall be

supplied by the public undertakings to the Ministry responsible for

finance on an annual basis

Provided further that such information shall be provided by

all public undertakings whose turnover for the most recent financial

year was more than Euro 250 million.

(4) The information given in pursuance of this regulation shall

be the following

(a) the annual accounts and annual report in accordance

with Council Directive 76/660/EEC. These annual

accounts and annual report shall include the balance

sheet and profit and loss account, explanatory notes,

together with accounting policies, statements by

directors, and segmental and activity reports.

Moreover, notice of shareholders’ meetings and any

other pertinent information shall be provided; and

(b) the following details, in so far as not disclosed in the

annual accounts and annual report of the public

undertaking, shall also be provided

(i)

the provision of any share capital or quasi-

capital funds similar in nature to equity,

specifying the terms of the relative provision

(whether ordinary, preference, deferred, or

convertible shares, and interest rates, the

dividend or conversion rights attaching thereto);

(ii) non-refundable grants, or grants which are only

refundable in certain circumstances;

(iii) the award to the undertaking of any loans,

including overdrafts and advances on capital

injections, with a specification of interest rates

and the terms of the loan and its security, if any,

given to the lender by the undertaking receiving

the loan;

(iv) guarantees given to the undertaking by the

Government of Malta in respect of loan finance

(specifying terms and any charges paid by the

undertaking for these guarantees);

(v) dividends paid out and profits retained;

(vi) any other form of State intervention, in

particular, the forgoing of sums due to the

Government of Malta by a public undertaking,

including inter alia the repayment of loans,

grants, payment of corporate or social taxes or

any similar charges.

The information required in regulation 6 shall be provided

within ten working days from the date of the publication of the

annual report of the public undertaking concerned. In any case,

specifically for undertakings that do not publish an annual report,

the required information shall be submitted not later than six

months following the end of such undertaking’s financial year.