FINANCING SYSTEM TO ENSURE PAYMENT TO
CONTRACTORS BY LOCAL AND REGIONAL AUTHORITIES
The Spanish
State Official Gazette of Saturday, 10 March 2012, published Royal
Decree-Law 7/2012 of 9 March, which creates the Fund for the Financing
of Payments to Suppliers (“RD-L 7/2012”).
RD-L 7/2012
establishes the necessary means for the operation of the financing
system created by Royal Decree-Law 4/2012 of 24 February, which provides
the information duties and necessary proceedings to establish a
financing mechanism to ensure payment by local and regional authorities
to suppliers (“RD-L 4/2012”). RD-L 4/2012 clarifies and complements some
of the provisions of RD-L 7/2012.
We summarise
below the main novelties of RD-L 7/2012 in the form of responses to
questions.
back to top
How WILL LOCAL
and RegionAL AUTHORITIES PAY ANY DEBTS THEY HAVE WITH suppliers AND what
will be the effects?
The financing
provided to local and regional authorities that apply for the special
financing system will be carried out by means of direct payment to
suppliers.
This direct
payment will cause the Fund for the Financing of Payments to Suppliers
(“FFPS”), set up by RD-L 7/2012, to be subrogated to the supplier’s
rights vis-à-vis the local and regional authorities for the amount paid.
back to top
What is the
FFPS?
RD-L 7/2012
creates the FFPS as a public entity with separate legal personality and
capacity to act, attached to the Ministry of Economy and Competitiveness.
However, when performing functions concerning the involvement of local
authorities in the State’s taxes, the FFPS is attached to the Ministry
of Finance and Public Administration.
An Executive
Council will be in charge of the FFPS’s management, which will be
supervised by the State Public Accounts Department (“Intervención
General del Estado”) and by the Court of Auditors (“Tribunal de
Cuentas”).
back to top
What are the
FFPS’s functions?
The FFPS
arranges credit transactions with the public authorities that apply for
this financing mechanism. As for local authorities, credit transactions
will be granted through the deductions in State taxes referred to in
article 11 of RD-L 4/2012.
The FFPS will
also cancel any outstanding debts of the public authorities, upon the
instructions of the Ministry of Finance and Public Administration.
back to top
How IS the FFPS
financed?
The FFPS has the
following resources to perform its functions:
- An overall
budget up to EUR 6 billion (EUR 1.5 billion to be paid in 2012). This
amount will be financed with public debt.
- The FFPS is
authorised to:
- Obtain
financing from national and foreign capital markets, among other
means by issuing securities, arranging loans and credits, and any
other debt transactions. The FFPS is also authorised to carry out
exchanges, purchases and conversions on the transactions mentioned
above. However, they should be carried out within the limits
established each year by the General State Budget Law.
- Carry out
management duties on its liquid assets.
- Arrange
transactions based on financial instruments, to minimise the
financial risks.
All the debts
and liabilities contracted to obtain financing by the FFPS will be
guaranteed by the State vis-à-vis third parties. This guarantee will be
explicit, irrevocable, unconditional and direct.
The State Credit
Institution (“Instituto de Crédito Oficial”), as a payment
agent, is in charge of the management of the transactions set out in
RD-L 7/2012, through the payment of compensation.
back to top
Can debts of
the concessionaires of public services be included in the financing
system of rd-l 4/2012?
RD-L 4/2012
refers exclusively to local authorities’ debts arising from works,
supply and services contracts included within the scope of the
Consolidated Text of the Law on Public Administration Contracts,
approved by Royal Decree-Law 3/2011 of 14 November
RD-L 7/2012 now
includes in this financing mechanism the debts arising from the
management of public services contracts in the form of concession,
provided that they fulfil all other requirements of RD-L 4/2012.
back to top
Can all the
LOCAL AUTHORITIES make use of this financiNG mechanism?
Only local
authorities participating in the State’s taxes in accordance with the
Law Regulating Local Finances (“Ley Reguladora de las Haciendas
Locales”) may apply for this financing mechanism. As a result, the
local authorities of Navarre and the Basque Country cannot apply for it,
because of the special nature of their financing system (“régimen
foral”).
back to top
what about the
Autonomous Regions?
RD-L 7/2012
states that the autonomous regions can voluntarily apply for this
special financing mechanism, in accordance with the agreement reached by
the Council for Fiscal and Financial Policy, held on 6 March 2012. The
Governing Council, or the competent body, must approve a resolution
which specifically agrees to the mentioned agreement executed by the
Council for Fiscal and Financial Policy.
RD-L 7/2012 does
not mention the use of the financing mechanism by institutions and
dependant bodies of the autonomous regions, unlike RD-L 4/2012 with
regard to local authorities. However, both legal rules should be
interpreted with the final objective in mind, which leads us to consider
that institutions and entities that are entirely dependant upon the
autonomous regions can make use of the financing mechanism.
back to top
what other
novelties Does RD-L 7/2012 INTRODUCE IN RELATION to RD-L 4/2012?
RD-L 7/2012 also
introduces the following novelties:
- In the case
of debts subject to fractional cancelation agreements with contractors,
it clarifies that the outstanding amount will be the amount that
remains unpaid at the time when the certified list of debts is
published by the debtor local authority.
- It develops
the local authorities’ information duties in connection with the
adjustment plans set out in article 7 of RD-L 4/2012.
back to top
