Portugal’s Court of Auditors, the country’s highest body regulating public spending, has taken the first step towards unblocking the country’s €5 billion roads programme after it recently green lighted the concession contract for the Douro Interior highway.
As previously reported on InfrastructureInvestor.com, the administrative court rejected all of the concession contracts awarded by roads agency Estradas de Portugal (EP) on the basis that it had acted illegally by allowing bidders to raise the net present value (NPV) of their final proposals from their initial offers on the back of increased government contributions. EP argued at the time that the financial crisis ballooned the cost of bank debt, forcing it to increase its payments so that projects could close.
The solution found for Douro Interior was to ask the two shortlisted bidders for the best and final offer (BAFO) stage to re-submit their BAFOs. This allowed the winner to lower the amount of availability payments to be paid by the government over the life of the concession from €757 million to €696 million – in line with the consortium’s initial proposal.
In exchange, EP has agreed to pay the concessionaire the €60 million difference between the final and revised offers, if necessary, on the condition that any refinancing gains they obtain will be channelled towards amortising that difference. Should refinancing gains actually exceed the amount needed to cover that difference, the profits will be equally shared by the concessionaire and EP.
However, the court said it would be monitoring any increased payments to make sure they are absolutely necessary and in conformity with the law. EP’s bet is that bank spreads will improve over the next five years – when it will have to pay its first availability payments – so that concessionaires are able to refinance their loans at better rates than when they reached financial close for these projects, in the midst of the financial crisis.
But the court warned that the solution found for Douro Interior is “exceptional” and might not apply to the other concessions it rejected. There is also the distinct possibility that the winning consortia for many of the rejected road concessions will not accept this solution so easily. This is because the winner for Douro Interior, led by local construction firm Mota-Engil, agreed to only forfeit €60 million in availability payments.
In other cases, though, the amount of availability payments concessionaires would have to forfeit in order to get their proposals in line with their initial offers is expected to be significantly higher, a local source indicated.