A bill that sought to mandate state-owned companies to transfer a fixed share of their profits to the national budget has been unanimously rejected by the Shura Council.
Members warned that the move could undermine the independence of public firms and weaken Bahrain’s long-term investment strategy.
The council yesterday voted to reject two combined draft laws submitted by Parliament and referred them back to MPs for reconsideration.
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 in the national budget. The move would have primarily affected the sovereign wealth fund, Bahrain Mumtalakat Holding Company, and energy investment firm Bapco Energies.
Cabinet Affairs Minister Hamad Al Malki, who is politically responsible for Mumtalakat, said the government agrees with the concept that state-owned companies need to contribute to the national budget. However, he noted that the proposed mechanism for doing so remains problematic.
“State-owned companies should indeed contribute, but not through fixed amounts that fail to account for market conditions that may impact their performance,” he said.
“Currently, government as well as legislators from both chambers agree on a contribution during negotiations on the national budget every two years.
“Mumtalakat has contributed BD240 million towards the budget – it was BD10m in 2017, jumping to BD40m in the recent two-year budget agreement.”
Mr Al Malki said fixed contribution would affect state-owned companies’ ability to expand developmental and investment plans.
Oil and Environment Minister and Special Envoy for Climate Affairs Dr Mohammed Bin Daina said the boards of state-owned companies determine their own budgets.
“There are internal and external auditors monitoring finances besides scrutiny from the Finance and National Economy Ministry alongside the National Audit Office,” he said. “There are governance rules involving layers of monitoring. State-owned companies contribute towards the budget as a commitment, irrespective of whether they make high or low profits. The current mechanism is fair and there is no need to shift to something else.”
The Shura Council’s financial and economic affairs committee had earlier recommended rejecting the bills, arguing that existing legislation and oversight mechanisms already ensure transparency and accountability.
Committee chairman Khalid Al Maskati said the panel supported efforts to strengthen public finances but warned against imposing rigid legal obligations on state-owned enterprises. He explained that fixing a mandatory percentage of profits could have unintended consequences as such a requirement might force companies to borrow funds to meet obligations to the state treasury.
Mr Al Maskati added that maintaining the operational independence of state-owned enterprises was essential to safeguarding their competitiveness and long-term financial sustainability.
“Strengthening public finances must go hand in hand with protecting governance frameworks that enable these companies to succeed and generate sustainable wealth for the national economy,” he added.
Shura members also raised concerns that legally mandating profit transfers could weaken companies’ ability to reinvest earnings in strategic projects.
Dr Ibtisam Al Dallal said the proposal, although well-intentioned, could lead to unintended economic consequences.
“Enhancing the resources of the national budget is a noble objective, particularly at a time when global economic challenges and rising public debt require careful financial management,” she said.
“But imposing a fixed share of profits through legislation could reduce the ability of government companies to reinvest in expansion and development projects.”
She warned that such a measure could transform state-owned companies from engines of economic growth into “mere annual financing tools for the budget”.
Shura first vice-chairman Jamal Fakhro said the proposal raised fundamental questions about the role of government-owned enterprises.
“If we create institutions to manage their own revenues and expenditures, how can we then require them to transfer those revenues to the government while still expecting them to cover their operational costs?” he asked.
He said the proposal could effectively reverse reforms implemented over the past two decades.
“We created these entities to invest and grow public wealth,” he added. “Returning all profits to the government would take us back 20 or 25 years.”
Shura member Dr Bassam Al Binmohammed said legislators needed to decide whether the priority was distributing current profits or expanding long-term economic growth.
“If we support investment and expansion, these companies must retain the flexibility to reinvest and grow,” he said.
Legal concerns were also raised during the debate. Shura legislative and legal affairs committee chairwoman Dalal Al Zayed said the two companies were established under special decrees and operate under the Commercial Companies Law.
“Applying this proposal could create legal and regulatory complications and potential financial risks, particularly in situations where companies record losses,” she said.
mohammed@gdnmedia.bh
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