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Franchising / Public-private partnerships

Franchising

Tunisia does not have legislation or a legal framework to deal with franchising. This does not mean that franchising is prohibited. Franchising agreements entail that the rights are exclusive; such exclusivity was indeed prohibited under the umbrella of number 91.64 relating to competition and prices, dated July 29 1991. But since the introduction of a law dated July 18 2005, which amends the competition law, all the prohibitions affecting previously exclusive concession agreements have been withdrawn; this includes prohibitions that affect franchising agreements. From now on, the authorisation of the Ministry of Commerce and the compulsory opinion of the Competition Committee are not required. The granting of a master franchise covering Tunisian territory is therefore in accord with applicable Tunisian regulations. It does not require any administrative authorisation.

As franchising is not covered by Tunisian legislation, there is no specific requirement to provide a pre-disclosure document to the prospective franchisee. However, a strict minimum of information must be provided: the franchisee must be aware of the terms of its future commitments so that it can sign the franchise agreement. The withdrawal of a need for Ministry of Commerce authorisation does not exempt the prospective franchisee from having to deposit a "Cahier des Charges" in accordance with the Ministry of Commerce ruling of July 26 2001 regarding the exercise of concessionary activities. Furthermore, the Cahier des Charges stipulates that the individual or legal entity must have Tunisian nationality. For this reason, Tunisian residents should own at least 50% of the share capital of the franchisee company, to avoid any roadblock at the moment of deposit of the Cahier des Charges. Indeed, our experience in this matter has confirmed that within distribution field domains, the Tunisian administration remains extremely sensitive regarding the protection of the Tunisian Market.

Payment transactions between Tunisia and foreigners are ruled by decree number 77.608 of July 27 1977, relating to the application of law number 76.18 of January 21 1976, in connection with the Tunisian Exchange Control Code. According to the provisions of the Code, transfer of capital is only possible without any prior authorisation of the Central Bank if it relates to the payment of a current operation (opération courante), as listed in article 12 bis of the Code.

Even though article 12 bis of the Exchange Control Code provides that transfers made in connection with technical assistance services and transfer of trademark licensing rights are considered to be current operations, from a practical point of view the Central Bank considers these operations to be current only if the related transfers are made through industrial franchise agreements. Since such operations derive from commercial franchise agreements, the Central Bank no longer considers transfers made in this way to be current operations.

Because of this, it is necessary to obtain transfer authorisation. Such authorisation is rarely granted, and the procedures relating to it are both difficult and restrictive. Resident franchisees do not have the right to proceed directly to transfer operations by making cheques in favour of non-residents. Franchisees will have to inform the Central Bank of the precise nature of the related transfer. They will also need to give the Central Bank the Intermédiaire Agréé, with necessary justifications.

To avoid any exchange control restriction as for the payment of foreign franchiser royalties, franchise agreements with a local franchisee, and the licensing trademark use agreements shall be concluded for free. To compensate for the losses resulting from these transactions, a technical assistance agreement should be concluded against payment. Indeed, the Exchange Control Code considers the transfer of sums in connection with technical assistance agreements to be current operations. They therefore do not require the prior authorisation of the Central Bank.

Even though the authorisation of the Central Bank is not required, the Circulaire aux Intermédiaires Agréés no 93.21 of December 10 1993 ordains that if payments in favour of non-resident service companies take the form of proportional royalties (turnover, profits, added value or quantities produced), the amounts to be transferred must be justified by a calculation of the royalties established by the resident company. This means that in all cases, the Central Bank will have a prior look on the related transaction.

Public-private partnerships

The Tunisian government has embarked on a policy of state disengagement and a reduction of government intervention in numerous areas. The reorganisation of Tunisian state capital that has followed has speeded up the process of privatisation and public-private partnerships (PPP) in Tunisia. Since 1987, following a plan of structural adjustment, Tunisia has opened the capital of public companies to private, national and foreign investment. The process has now arrived at a stage of maturation: it no longer concerns overdrawn companies but deals only with profitable firms.

Privatisation and PPP occur when private firms contribute to fields that in the past were the exclusive domain of public bodies. Examples are the conditioning of minerals, land passenger transport, transport of goods, telecommunications, education and other fields. At the end of 2006, 203 companies were participating in the privatisation process, for a market worth a total of TD5557 million ($4.5 billion). Foreign firms' revenue from privatisation has reached TD4823 million, of which service industries (tourism and handicraft, commerce, transport, and financial services) comprise 83.5%. To bring about privatisation and PPP, Tunisia adopted an arsenal of legislation relating to the procedures and conditions of transfer of shares or titles held by the state. The government did its best to develop a free-market economy.

Legal framework

The legal framework for privatisation is based on law no 89.9, relating to the participation of private and publicly-owned companies. It came into operation in February 1 1989, and the government has amended it subsequently to bear on the public market. Indeed, any transfer, exchange action or company title in which the state holds a stake must obtain the favourable opinion of the Commission of Stabilization and Reorganization of the Public Participation Companies (CAREPP, French initials), following the terms of article 24 of law 89.9. According to article 27 of the same law, it is the Tunisian Prime Minister who makes decisions regarding the stabilisation and reorganisation of the system, on the advice of CAREPP.

The chief characteristic of Tunisian regulation on privatisation is that the legislator envisages a number of provisions that grant fiscal advantages during the reorganisation operation. These provisions encourage foreign investors to choose Tunisia over other countries. According to articles 29, 30 and 32 of the law, various forms of fiscal relief can accompany the reorganisation – reinvested income, the ability to fix rights fees for the registration of the articles of association of the companies that are being created, or for acts noting modifications in the structure of their capital. The law also allows for exemption from rights of partition relating to the reduction of capital, exemption from the registration on real estate and business-asset transfer, and from companies' income tax during the first five exercices of effective activity. Exemption from capital gains tax on transfers carried out by the assignor companies, and total or partial exemption from sales-stock exchange tax, are also possible. The Tunisian Prime Minister grants these advantages on an individual basis, on the advice of CAREPP.

Methods of privatisation

The privatisation operation must be financially interesting for both the state and the private investor. It is therefore necessary to carry out a preliminary evaluation of the company. The potential purchasers will complete a full audit. The procedure of privatisation starts with the Minister of Development's decision to study the capital restructuring of the company, and the Tunisian authority proceeds to evaluate the titles or assets of the object of privatisation. At this stage, the General Direction of Privatization undertakes a global study (financial and technical) to determine the strategy to be undertaken. The file is submitted to both the Technical Committee of Privatization (created by the Prime Minister's circular 55 of August 11 1993), and to CAREPP, for review. The Prime Minister makes the final decision.

With the exception of sale to employees, all transactions carried out within the framework of a privatisation must employ a call-for-tender. More precisely, they must select one of three options: market best-offer transfer, public call-sale transfer, private transfer, or a combination of all these methods. Article 33.4 of the law allows for the possibility of transfer of a block of shares on invitation to tender, based on a specifications document. According to the terms of article 33.5 of the law, the sales are achieved at the Stock Exchange without negotiation. In this case, all approval and pre-emption clauses inserted in the bylaws of the company are considered as null and void, regardless of the public participants and public companies concerned.

In blocks-of-shares transfers, it is either an invitation to tender on the basis of a specifications document, or the publication of the shares on the stock exchange, that stimulates competition. The transfer of a block of control, combined with a public offering, is used for companies that are doing well and having growth potential. In this case, the transfer of a block of shares is combined with a public offering. The technique ensures a diffusion of the shareholding and stock exchange quotation of new titles.

A transfer of management is one concession that the government may make. An activity that a public body has traditionally controlled is given over to a private entity for a particular period. The private body may also have access to activities or areas that are usually the exclusive concern of a public body. The government draws increasingly on these techniques (BOO, BOT), which are becoming more and more relevant because of the size of the projects that are under development, and the number of interested parties.

The opening of a capital technique consists of transferring a stake of the capital of large, public-owned companies. The aim is to gain the support of a partner with high potential, either technical or financial. The transfer is also meant to stir up the financial market and promote popular shareholding. This technique is not considered to constitute privatisation in the strict sense.

The biggest Tunisian privatisation operation, completed in 2006, was that of the national telecommunications operator, Tunisie Telecom. The privatisation, under which 35% of the company's share capital was transferred, generated considerable income for the government. It has been considered a success. For this operation, the Tunisian state sought a strategic partner to contribute to the running of the country's most profitable company. At the time of writing, the privatisation and restructuring operations of Enfidha Airport, Société Skanes Palace International, Société Tunisienne d'Industrie Laitière (STIL), Société des Fermes Laitières, Société de Mize en Valeur et de Développement Agricole (SODASS) are being finalised. The choice of the capital-opening technique confirms Tunisian policy as one that favours public-private partnership over the pure model.

Samir Abdelly

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