A proposal to require government-owned companies to transfer a fixed share of their profits to Bahrain’s national budget has been recommended rejection by a Shura Council panel, which warned that the move could undermine corporate independence and create unintended financial risks for the state.
The proposals sought to amend Article 10 of the 2002 Budget Law and introduce a requirement to include at least 50 per cent of the net profits generated by fully state-owned companies – particularly Bahrain Mumtalakat Holding Company and Bapco Energies – within the national budget.
However, the financial and economic affairs committee concluded that the objectives behind the proposals were already being achieved through existing legislation and oversight mechanisms.
Committee chairman Khalid Al Maskati said the panel consulted relevant ministries and state entities before reaching its recommendation.
“The committee appreciates the intentions behind the draft laws, particularly the aim of enhancing transparency and strengthening oversight over public funds,” Mr Al Maskati said.
“However, after extensive discussions and reviewing the legal and financial frameworks governing state-owned companies, the committee concluded that the existing legislation already provides adequate mechanisms for monitoring and accountability.”
The committee examined the proposals during five meetings held between February 1 and March 1, attended by officials from the Finance and National Economy Ministry, the Cabinet Affairs Ministry, Bapco Energies and Bahrain Mumtalakat Holding Company.
According to the Finance and National Economy Ministry, government companies operate on commercial principles and require operational flexibility to meet strategic and investment objectives.
The ministry also warned that obligating companies to transfer all profits or fixed portions of their earnings into the state treasury could conflict with the Commercial Companies Law, which regulates the preparation of financial statements and profit distribution.
It also noted that companies such as Mumtalakat and Bapco were established through special decrees specifically designed to give them the flexibility needed to operate under market conditions.
Bapco Energies stated that it agreed with the government memorandum calling for reconsideration of the proposals.
Company representatives told the committee that the existing legal and financial oversight mechanisms were sufficient and that the current governance structures already ensure accountability and transparency.
Meanwhile, Bahrain Mumtalakat Holding Company, the kingdom’s sovereign wealth fund, emphasised that its profits are managed in line with its commercial nature and strategic investment goals.
The company explained that decisions on profit distribution are typically taken by shareholders through the general assembly, based on board recommendations and after considering the company’s financial needs, investment plans and future expansion strategies.
“Imposing a fixed percentage of profits to be transferred to the state budget would limit the flexibility required for long-term investment planning and could negatively affect the company’s ability to compete and secure investment partnerships,” the company noted in its submission to the committee.
Mumtalakat also highlighted that it already contributes regularly to the state budget, revealing that it transferred a total of BD200 million between 2017 and 2024, regardless of its financial performance during those years.
Mr Al Maskati said maintaining the independence of state-owned companies was essential to safeguarding their competitiveness and financial sustainability.
The committee also stressed that state companies are already subject to multiple layers of oversight, including parliamentary scrutiny, reporting requirements to the Finance and National Economy Ministry and audits conducted by the National Audit Office.
Another concern raised by the committee was the potential financial impact on the government itself.
The report warned that forcing companies to transfer profits automatically into the state budget could lead to situations where the government would ultimately bear financial burdens if those companies later incurred losses or operational costs, potentially increasing public expenditure and widening the fiscal deficit.
“The committee believes that strengthening public finances must go hand in hand with protecting governance frameworks and operational independence that enable state-owned companies to succeed,” Mr Al Maskati added.
The financial and economic affairs committee has recommended that the Shura Council vote against two draft laws submitted by Parliament when the legislation comes up for debate during Sunday’s weekly session.
mohammed@gdnmedia.bh
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