This content is from: Local Insights

Stringent rules for public companies

New provisions have recently been enacted providing more stringent rules for the management of public companies wholly or partially owned by local entities in order to safeguard the balance of the public accounts.

A first provision aimed at redefining the managing method of public companies was introduced by Article 23-bis of Law Decree No 112/2008 converted into Law No 133/2008.

Such rule extends the applicability of the internal stability pact to public utilities, and imposes to the so-called in-house providing companies and to companies privately and publicly held to comply with bid procedures for the purchase of assets and services and the employment of personnel.

This provision should have represented a first pace for the consolidation of the public accounts.

Being the local entities shareholders of the public utilities (in certain cases the public utilities are wholly owned by the local entity) and responsible for the public services committed to such companies, the management of the budgets of the local entities is strictly connected to the management of the budgets of the public utilities.

Therefore, as indicated in various occasions by the Court of Accounts, the adoption by local entities of consolidated accounts would represent the only remedy for monitoring and evaluating the entire economic structure of the controlling entity in order to guarantee a prudent and good management of the public administration.

The provision, however, has not yet been implemented as the implementing regulations provided by Article 23-bis have not yet been adopted. A draft regulation has been prepared by the Ministry for the Regional Affairs but it is still under discussion.

The draft has been subject to many comments by the interested parties and particularly by the professional accountants and auditors. These comments were addressed to focus mainly the practical impossibility to apply to commercial companies accounting principles specifically drawn up for local entities.

Notwithstanding that, the legislator is proceeding in the project of redefining the criteria for the management of the public companies (and in particular of the public utilities) within the frame, limits and goals of the controlling entities.

Article 19 of Law Decree No 78/2009 (recently converted into Law No 102/2009) has confirmed the applicability of the internal stability pact rules to public utilities wholly or partially owned by local entities, whether or not in house providing companies, to companies operating exclusively for the controlling local entity and within the goals of the public entity and to companies not engaged in entrepreneurial activities operating for the common interest.

Article 19 also extended to the aforesaid companies the limits and the prohibitions provided for the local entities as to the employment of the personnel and the reduction of the expenditures for external professional advices.

Also this provision has been subject to many critics as it would be conflicting with the dynamism specifically pertaining to the commercial companies thar can increase and develop their business only through the acquisition of new services and new personnel without restrictions and on the basis of procedures compliant with the logic of the market.

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