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The Report "State-Owned Enterprises, SOE 2019-2020", published by the Portuguese Public Finance Council (CFP), is a pioneering document on the analysis of this sector in Portugal, now made possible largely by access to information made available by the various relevant entities.


The report presents a detailed portrait of the patrimonial situation of the 143 state companies that make up the State-Owned Enterprises Sector (SOE), in particular the 88 non-financial companies.


The shareholder function in these 143 entities is exercised by the central State and the shareholding amounted to 30 986 million EUR in 2020, representing 15.5% of the national GDP (+1.7 p.p. than in 2019). The 158 958 professionals working in the sector at the end of 2020 (+3.5% than in 2019) represented 22.1% of public employment and 3.4% of national employment. The COVID-19 pandemic had a very negative impact on the economic performance of these entities, with gross value added (GVA) contributing 3.1% to GDP and 3.6% to national GVA in 2020 (-1.3 p.p. and -1.5 p.p. than in 2019, respectively).


The 88 non-financial companies had 144,714 employees in 2020, 4.5% more than in 2019, but recorded a 23.5% decline in turnover compared to 2019, to 9.3 bn€, and a 38.5% decline in GVA creation to 4.7 bn€, representing a very significant deterioration of their economic results during the 2019-2020 biennium, reflecting the negative effects of COVID-19. EBITDA fell from 1.5 bn€ in 2019 to a residual value of 12 M€ in 2020, while the operating income fell from 131 million euro (M€) to EUR -1.6 bn€ and net income reached -2.5 bn€, representing a worsening of 1.7 bn€ compared to 2019.


Overall, the assets of this group of companies increased by 621.5 million EUR compared to 2019, to 59.4 bn€ in 2020, but the liabilities grew by 1.2 bn€, to 56.2 bn€ in 2020, which strongly deteriorated the equity of these companies (3.15 bn€ in 2020, -15% than in 2019). This deterioration in equity reflects the negative results of 2020, which absorbed most of the capital injections made by the State in that year (+ 1.5 bn€). In this sequence, there were 33 public companies with negative equity at the end of 2020 (thus being in a situation of technical bankruptcy). 


Two sectors of activity concentrated more than 80% of the economic and financial aggregates of the State's non-financial companies at the end of 2020: the health sector (NHS), which had the largest number of professionals (78%), turnover (55%) and relevant operating expenses (65%); and the transport and storage sector, which gathered the largest share of assets (70%) and share capital invested by the State (67%).


All NHS state companies recorded negative net results in 2020, for an aggregate total of -775.7 million EUR (-750.1 million EUR in 2019) and more than half had negative equity, a total of 22, at the end of 2020.


In the transport and storage sector, turnover fell by 50.6% compared to 2019, with a greater impact in the transport area. The relevant operating expenses had a lower reduction (-37.7%), which deteriorated the GVA and operating efficiency, generating an overall net profit of -1.7 bn€, in 2020, a figure that compares with the -200 million EUR reported in 2019.
The State financial enterprises sector achieved a positive net result of 606 million EUR in 2020 (a reduction of 176 million compared to 2019).


The State's net financial effort totalled 5.1 bn€ in 2020, 14.6% less than in 2019, representing 2.5% of that year's GDP. Revenue from the SOE fell by 32.9% to 248 M€, due to the decline in dividends (-214 million EUR). Financial flows to the sector also fell, totalling 5.6 bn€ in 2020 (-16.7% than in 2019), distributed between capital grants (36.3%), transfers and subsidies (33.6%) and loans (30.1%). 


The investment outlay by SOE in 2020 totalled 1,864 million EUR, 4.5% more than in 2019, equivalent to 0.9% of GDP, with the intangible fixed assets item representing more than 50% of the total investment related outlays made.


In terms of contingent liabilities, it stands out the stock of State guarantees at the end of 2020, which amounted to 6,392 M€ (3.2% of GDP). About 20% of these guarantees were associated with state entities classified outside the general government sector (1.3 bn€),and could have an impact on the deficit and public debt if called. The second most relevant form of contingent liabilities results from the indebtedness of state owned corporations, namely those outside the general government sector, whose overall amount of indebtedness amounted at approximately 2.3 bn€ in 2020 (1.2% of GDP).


Some comments or conclusions may be drawn from the situation of the SOE described in the report. Firstly, CFP takes note of the strong exposure of this sector to exogenous shocks, whether of a more cyclical nature, such as the pandemic, or of a more structural nature, such as the impact of demographic and climate change. Therefore, even more than public administrative sector entities, state companies should today, in their medium and long-term management instruments, carry out a proper identification of the different risks, a (predictive) assessment of their impacts and the adoption of the necessary prevention and containment measures. Secondly, although the role of the State-Owned Enterprises must be accepted and acknowledged in areas of strategic interest to the national economy (e.g. storage and logistics) or the pursuit of general economic interest services (e.g. health and collective passenger transport), the truth is that the scope of action is carried out in a competitive context and according to market principles, as a result of the  imposition of the European legislation, thus requiring the development and timely approval of management instruments that promote the improvement of the main financial, operational efficiency and solvency indicators. This requirement is now more critical than ever - in a framework of strong deterioration seen in recent years and with worrying signs in the immediate future - not only to ensure the future financial sustainability of these entities, but of the State as a whole, as their exclusive or majority shareholder. Thirdly, it is necessary to densify the exercise of this State shareholder function within a legal-privatistic framework of action, by defining truly strategic guidelines for companies in the different areas and taking into account their role in the national economy. The strategic, financial and managerial planning framework of the SOE, already resulting from the applicable legislation, should be fully implemented in practice. Its complete and adequate implementation is critical to ensure that state companies in Portugal may avoid being instruments of inefficient absorption of public resources and assert themselves as promoters of economic development, of the country's competitiveness, of "crowding-in" of the private sector and also (but not least important) to ensure the complete satisfaction of the public interest.

Date of last update: 10/05/2022

General Government Sectors . Report nº 4/2022 . 10 May 2022