A NEW law to compel Bahrain’s sovereign wealth fund, Mumtalakat Holding Company, and Bapco Energies to contribute 50 per cent of their net profits to the national budget is set to be debated by MPs during their weekly session on Tuesday.
The four-article legislation aims to enhance financial transparency and strengthen parliamentary oversight, according to Parliament’s financial and economic affairs committee.
Article One mandates that at least 50pc of the net profits generated by the two entities, after setting aside the legal reserves, be included in the state budget.
Article Two requires the government to submit the audited financial statements of both companies verified by the National Audit Office to Parliament within five months of the end of the fiscal year. The reports would then be formally approved by both Parliament and the Shura Council before being published in the Official Gazette.
Article Three assigns the Finance and National Economy Minister the responsibility of issuing regulations to implement the law within six months of its ratification.
Article Four states that the law would come into effect at the beginning of the next fiscal year.
The committee outlined several key principles behind the proposed law:
- Mandatory profit contribution: Ensuring that at least 50pc of the net profits of Mumtalakat and Bapco Energies are transferred to the state budget.
- Safeguarding public funds: Strengthening transparency and oversight over state-owned companies and their financial operations.
- Enhancing parliamentary oversight: Enabling Parliament to fully monitor the state’s financial resources and expenditures.
- Boosting government revenues: Increasing the state budget revenues through profits from government investments.
Expressing reservations, the Cabinet has argued that existing legal frameworks already achieve the intended goals.
“Parliament already has the authority to scrutinise state-owned companies’ revenues using constitutional and legal tools, particularly during budget discussions,” it said.
“Both companies are required to appoint external auditors, publish financial statements in local newspapers, and adhere to corporate governance best practices.
“As per Decree Law 39 of 2002, state-owned firms must submit financial reports to the Finance and National Economy Minister for approval annually.
“Both companies are subject to oversight by the National Audit Office, the Tender Board and the Industry and Commerce Ministry under corporate governance regulations.”
The Cabinet also warned that enforcing a fixed profit transfer of 50pc could negatively impact the growth and operations of Mumtalakat and Bapco Energies.
“Since corporate profits sometimes include revalued assets rather than actual cash profits, such a requirement could disrupt financial planning and limit investment capabilities.”
The Cabinet also pointed out that state-owned companies operate as independent commercial entities and imposing strict financial obligations could interfere with their autonomy and create additional financial burdens on the state in case of company losses.
The Legislation and Legal Opinion Commission raised several concerns about the feasibility and legality of the draft law.
“Mumtalakat and Bapco Energies operate as commercial entities, meaning they are governed by private-sector corporate laws rather than public finance regulations,” it said.
“The need to transfer 50pc of their net profits could restrict the companies’ ability to reinvest in growth, limiting their competitiveness in the market.
“The law could conflict with existing budget laws, requiring adjustments to the state’s financial planning framework.”
Mumtalakat has also opposed the draft law.
“The company’s profits are already subject to legislative and executive oversight, ensuring financial transparency,” it explained.
“The board of directors and the general assembly decide how profits are distributed, balancing government contributions with the company’s operational needs.
“Mandatory profit transfers could weaken the company’s independence, affecting its ability to make strategic investment decisions.”
It pointed out that Mumtalakat has already contributed BD200 million to the state budget since 2017, doubling its annual contribution from BD20m to BD40m in the 2023-2024 budget.
“The company follows strict audit, governance and transparency standards, making additional financial reporting requirements unnecessary.”
The Bahrain Chamber said forced profit allocations could reduce investment flexibility, making it harder for companies to finance expansion or repay loans.
“The draft law lacks procedural flexibility, potentially delaying or obstructing corporate growth strategies,” it said.
“Existing financial auditing laws already ensure transparency, making additional reporting requirements redundant.
“The proposal does not address how companies should handle financial difficulties, particularly if Parliament delays or rejects the state budget.”
Parliament’s financial and economic affairs committee chairman Ahmed Al Salloom, who is a Bahrain Chamber board member, argued that ensuring that a fixed percentage of state-owned companies’ profits goes into the budget is essential for financial accountability and reducing reliance on oil revenues.
“This is about ensuring the public benefits from state-owned enterprises,” he said.
“These companies are government assets and their profits should be reinvested into public services, infrastructure and economic development.”
Separately, MPs are also set to debate another government-drafted legislation, based on a parliamentary proposal, to amend the 2002 Budget Law to have all surplus from independent government agencies and authorities referred to state coffers.
The Cabinet and the Legislation and Legal Opinion Commission have opposed the move, saying such bodies were made independent for a reason.
“If we refer the surplus to the state budget, then the government will be obliged to cover loans and losses from state coffers, which will harm everything planned by the government,” said the Cabinet.
“Also, these entities already come under government policies that govern their general work.”
mohammed@gdnmedia.bh
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