It was one of the last economic decisions of António Costa’s government and the process was on its way to creating a parliamentary commission of inquiry when the then Prime Minister resigned at the hands of Operation Influencer. The political crisis and the vacuum that followed put the inspection of Efacec in limbo. Meanwhile, other controversies arose that diverted the attention of the parties, such as the case of the twins and the internationalization of the Santa Casa, which were privileged for the establishment of investigations in Parliament. But not everything is yet told in the nationalization and subsequent privatization of Efacec.

The Court of Auditors (TdC) is completing an audit requested by the Assembly of the Republic when the company was still state-owned. This audit also covers the evaluation of the sale to the Mutares Fund, which has already been concluded. According to the preliminary audit documentation, which has gone through the contradictory phase, The works already carried out amount to public funding of 484 million euros. until privatization, which is due to be completed in October 2023. And which could still exceed 500 million euros. There are also potential gains for the State with a new sale of Efacec, but the assessment made in the preliminary version of the audit, as the observer knows, is that the nationalization of the northern industrial company did not meet any of the initial objectives.

Most of the financial aid, amounting to 445 million euros, was provided through tenure the state-owned Parpública, with another 35 million euros from the Banco Português do Fomento. In the case of Parpública, as the previous Government already mentioned when it decided to hand over Efacec to the German fund Mutares, there were 200 million euros in supplies, to which were added 231 million euros placed at the close of the operation -201 million- in capital and 30 million to deal with possible contingencies of the balance sheet at the time of the sale. 4 million euros will also be spent on the sale process (between evaluations and advice), as stated in the Court of Auditors in the preliminary documentation of the audit of Efacec, the Observatory noted. And also an amount related to the interests of supplies, which, by the way, is in dispute between Parpública and the General Directorate of the Treasury and the Treasury.

Not all of these figures were known until now. But there is more. There is a risk that the bill will increase, warns the Court of Auditors. and to increase 80 million euros, reaching the 564 milliondue to the contingent liabilities assumed by Parpública in the sale of Efacec to Mutares.

This risk was emphasized in the legal certification of the state holding company’s accounts from 2023. These potential liabilities, mentioned in the preliminary report of the TdC, include possible financial deviations in the projects, as well as potential amounts derived from judicial processes unfavorable to Efacec and prior to October 31, 2023 (date of signing of the contract with Mutares),” can be read in the certification of accounts from last year.

Parpública’s accounts were only made public last Friday (still without the auditor’s certification, which was only made public this Monday), a week after Parpública’s administration. tenure having been dismissed by the Government without justification.

The audit also indicates, as Observador knows, that the minority shareholder, MGI Capital (which brings together former Efacec shareholders José de Mello and Têxteis Manuel Gonçalves) did not accompany the State in financially supporting Efacec, nor did it spend money from its sale—it will be able to see its contingent liabilities reimbursed by the State, taking into account the conditions of the contract signed with the German fund.

Questioned by the Observer, an official source from the Court of Auditors states that the “audit of Efacec’s public financing, at the request of the Assembly of the Republic, is at the draft report stage.” And it does not add anything to the information contained therein,

The contract for the sale of Efacec was signed by the State with Mutares in October last year and at the time it was admitted that the nationalisation operation would have cost the State some 400 million euros.

State leaves Efacec, Mutares joins a “cowardly” company. At what price?

Most of the state support to Efacec was provided through Parpública, but a September 2023 order by then-Secretary of State for the Treasury João Nuno Mendes determined that the public holding company would be “reimbursed for all amounts incurred in the process of privatization of Efacec, on the understanding that it must cover all treasury support granted, releasing Parpública from any liability,” Parpública’s 2023 report and accounts mention.

The company has already received a refund of 202 million euros, but it also wants to receive reimbursement of the interest generated by the Treasury loans to Efacec. And, for this reason, it demanded payment from the Directorate General of the Treasury and Finance (DGTF), which does not agree with this reading. “Taking into account that the DGTF does not recognize part of the debt, an impairment loss of 7.7 million euros was recorded,” Parpública states in the annual report.

In the context of the sale to Mutares, the Government announced that the guarantees granted to Efacec worth 72 million euros had been released.

António Costa e Silva, then Minister of Economy, stressed at the time that it was not yet possible to determine the final cost account for the State of the nationalisation of Efacec, since it depended on the future remuneration that the State could receive either through the payment of dividends or through the economic benefit guaranteed in the contract with Mutares when this fund sells the company. According to what was said, in a base scenario, the State will be entitled to 66% of the proceeds from the future sale by Mutares of Efacec and to 75% of the dividends that Efacec can distribute, despite no longer being a shareholder. This is because it made an agreement (called cascade) that allows it to retain economic rights over Efacec.

The expected value was never revealed. But now, in the framework of the audit by the Court of Auditors, it is admitted that, in a five-year sale, Efacec will guarantee a return of 385 million euros to the Portuguese State and 178 million euros to the purchasing fund, which spent only 15 million euros on the deal. Which, without the new contingencies of 80 million, would mean a net loss of 60 million for the State with Efacec. But this is a projection and cannot be confirmed for now.

Nationalization failed in all objectives

The main object of the Court of Auditors’ audit is the nationalisation and public management of the industrial company, which responds to a request made by Parliament at the end of 2022.

Efacec was transferred to the State in 2020 after the first months of the pandemic (almost at the same time as TAP). This decision, defended by the then Minister of Economy, Pedro Siza Vieira, was not only taken because of the economic recession, but also because of the fragility resulting from the scandal that ensnared the largest shareholder. Months earlier, the Angolan businesswoman Isabel dos Santos was the target of one of the most successful leaks of confidential information, the Luanda Leaks.

Government “temporarily” nationalizes Isabel dos Santos’ stake in Efacec. But she should stay until the end of the year.

As for nationalisation, the preliminary version of the aforementioned audit, as The Observer knows, is scathing in concluding that none of the objectives that underpinned the political decision were achieved. In other words, they all failed.

The deterioration of Efacec’s financial and commercial situation was not prevented, its financial and operational value was not stabilized and jobs were not preserved (by 2022, almost a third of employees, especially qualified personnel, had left the company).

The relationship with the financing banks forced the presentation of public guarantees – it was not enough for the banks to have the State as a shareholder – and Efacec entered into technical bankruptcy (due to having negative equity capital).

Strategic company? The assumption of nationalization was not validated by the State

In this version of the audit, which is still being worked on, the Court of Auditors considers that the nationalization of Efacec was not justified by any technical grounds and was independent of the public interest invoked (but not proven). The operation went ahead without the State validating the argument presented by the administration that Efacec was a strategic company for the country, viable and sustainable while it was experiencing temporary cash flow difficulties.

This year, the current government agreed with Parpública’s refusal to grant the emergency financial support requested by Inapa (the state holding company was the largest shareholder in Inapa, although without controlling capital) on the grounds that it was not a strategic company for the national economy.

The collapse of Inapa. A “European leader” on the role that is not strategic for Portugal, says the largest shareholder (the State)

The nationalisation of Efacec was also not accompanied by any study on the impact on the State’s accounts. A situation which, according to the Court of Auditors, continued for more than three years during which the company was part of the State’s business universe.

In 2020, the Observer questioned the Ministry of Finance, headed by João Leão, about the existence of any prior evaluation or feasibility study for this operation, specifically by UTAM (State Business Sector Technical and Monitoring Unit). The answer was negative.

“The operations in question (Efacec and TAP) do not constitute the acquisition of shares by public companies,” a situation to which the regime provided for in the framework law for public companies, which requires this prior assessment, would apply. “In the case of Efacec, it was a nationalization and not an acquisition, and nationalizations have their own legal regime.”

Previous Government allowed Efacec to escape stricter rules for public companies

The negative analysis is not limited to the financial impact, but also questions compliance with the State’s legal framework on financial control and public accounting rules.

One of the flaws identified in this audit (not yet finalized) was the decision of the previous Government not to classify Efacec as a public company, even after it became clear that the transitory nature of the nationalization would last, after all, longer than expected (three years). The nationalization diploma allowed Efacec to remain outside the application of the legal regime applicable to the State business sector.

By not revoking the exception or limiting the timeline of this exceptional situation in a context of uncertainty about privatization, Efacec was allowed to operate, for an indefinite period, outside the legal regime of public companies, which includes the status of public manager and financial control mechanisms of the state business sector.

TAP, which was nationalised in the same period, had some exceptions, but was included in the legal regime of public companies, so the negotiation for the payment of compensation to an administrator (Alexandra Reis) was considered illegal (in view of the rules applicable to state companies).

TAP IGF Audit. The illegalities, the blame, the challenges and those left out (for now)

Although the General State Account between the years 2020 and 2022 has information on transfers from the State to Efacec and the support granted by Parpública to the company, in the form of supplies, they are found in the accounts of tenure state, these two accounts were not consolidated. The absence of complete information on Efacec’s liabilities and assets did not allow revealing the true picture of the company’s public accounts.