PPP Portuguese Motorway Case
In Portugal the road sector model until 2007 was as follow:
-Motorways developed using PPP.
-8 contracts, concessionaire remuneration by real tolls, paid by user no State Payments.
-Estradas de Portugal, public institute responsible for the development, operation and maintenance of the remaining network
Road sector model from 2007 onwards
-Estradas de Portugal S.A. created, state owned enterprise (100%) in concession regime.
-SCUT contracts into availability payments contracts, with real toll applied with EP ownership -
renegotiation of contracts triggered.
-EP launches new subconcessions under availability and service remuneration schemes, with real toll applied with EP ownership -
contracts between 2008-2010.
-Future sectoral trend: concessions reverting to EP at the end of contract life or through negotiation.
In 2010 the new model is fully in force but the Financial crisis kick-in:
-General reduction of traffic levels
-EP´s financial forecasts revised: long run toll revenues expectation reduced.
-Motorway PPP development model unsustainable.
Initially in 2007 there was a strong support from the Government and the majority of politic parties (center right), left-field parties were all against PPP model (Portuguese Communist Party and Bloco de Esquerda), but after 2011 critics from all the political arena and Civil society begin to arise, in 2013 re-negotiations between the public and the private partners, in the initial contract sub-concessions were signed under "optimist bias", over-investment and abusive of PPP model leading to a situation of fiscal unsustainability of the sector, but the private side didn´t accept negotiations without long term benefits, many voices from the Civil Society arise again, claims of fraud with several evidences were put on the table, lack of transparency in all the process were evident.
The PPP program has made a difference in improving the country’s infrastructure, this has enabled the country to close the infrastructure gap and avoid the budget constraints at the moment of the investment, doubts about whether PPPs represent value-for-money have emerged. There are several reasons why PPP were unsuccessful:
(1) the concentration PPP projects was very high over a limited time span and the public sector was not prepared nor had the ability to manage and control the contracts,
(2) the incentive to resort to PPPs was mainly to avoid budget constraints, but not to use of public resources better by taking advantage of private sector efficiency,
(3) the risk allocation between the private and public sector was flawed because the private sector bore too little risk and payments from the public to the private sector were considerably above the investment cost. The current and future annual payments from the state to the private sector are a substantial burden in the current times of austerity and budget consolidation.