Spirit of the law: New regulations are intended to give local communities more control over project implementation

For several months, the use of local development companies (LDCs) seems to be the solution to all the evils inherent in the implementation of public projects. The city of Casablanca alone created seven of them between 2008 and 2014, with varying degrees of success and reservation, voiced mainly by locally elected representatives. However, these firms are an effective tool when certain parameters are anticipated. It is therefore important to recall their legal status and their interest in the implementation of projects.

Legal Framework Applicable to LDCS

The law applicable to LDCs is laid down in Articles 140-144 of Law No. 17-08, amending and supplementing Law No. 78-00 concerning the charte communale ( community charter) under which it can be noted that:

• The communities must hold at least 34% of the share capital and, in all cases, the majority of it must be held by legal entities governed by public law;

• The social objective of these LDCs needs to relate to the industrial and commercial activities of the regional authorities, with the exception of the management of the community’s private sector;

• LDCs are established as société anonymes (limited companies) governed by Law No. 17-95 on Limited Companies;

• LDCs cannot have subsidiaries, even subsidiaries in which a minority interest is held; and

• A deliberation of the municipal council is compulsory for most company acts (constitution, dissolution, changing the corporate object, capital increase, disposal of shares, etc), failing which the decision becomes invalid.

A New Tool

The main advantage that LDCs offer is a more flexible tool that enables communities to implement their projects. As far as public management is concerned, the main difficulties lie in decision-making, the constraints of public accounting and, ultimately, the funding. The LDC, a limited company, may have a board of directors. To anticipate potential stonewalling and to facilitate decision-making, it is also possible to enter into a shareholders’ agreement that will include provisions governing the allocation of seats on the board, rules for voting during meetings, management of the firm, principles for contracting each shareholder with the company, procedures governing the transfer of shares such as shareholder’s pre-emption and approval, among other things.

To date, as no specific regulatory provision has been promulgated, Law No. 69-00 on the financial control of the state over public enterprises and other organisations may be applied to LDCs. An analysis of this law suggests that, according to distribution of capital, LDCs are classified as public subsidiaries or joint enterprises, and as such are subject to a conventional audit. Moreover, public procurement rules do not apply to LDCs since such rules concern the state and public institutions. LDCs may therefore use a service provider.

Finally, LDCs allow for a third-party financing arrangement for shareholders. For example, in the case of a public heritage rehabilitation project, a lease or a public land occupancy agreement should first be finalised between the LDC and each of its shareholders, which will concern the restoration of a building. The project management work will be handled by the LDC.

After rehabilitation of the subject of the lease or occupancy agreement, the second phase consists of handing it back to the community as part of a secondment agreement, whereby the community will then pay rent to the LDC, which financed the renovation, with such funds going to cover the financial amortisation as well as the LDC’s overhead costs.

Public Procurement Rules

Article 131 of the Public Procurement Code provides for a derogation from the principle of call for competition and excludes from its scope “services supplied on behalf of regions, prefectures, provinces and municipalities by legal entities governed by public law, [and] local development companies.” This provision allows for a community to entrust, without a call for competition, a specific public management mission to a LDC in which it has a share.