Court to approve solution for Portuguese roads

Concessionaires are expected to agree to channel refinancing gains to help mitigate the increased availability payments they will receive from roads agency Estradas de Portugal.

Portugal’s Court of Auditors, the highest body regulating public spending, has reached a compromise solution with roads agency Estradas de Portugal (EP) that will allow the court to ‘green light’ the concession contracts EP awarded as part of the country’s €5 billion roads programme.

As previously reported on Infrastructure Investor, the administrative court rejected all of the concession contracts awarded by EP on the basis that the roads agency 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.

Although it has yet to be officially announced, a solution has now been agreed between EP, the court and concessionaires, local public and private sector sources familiar with the negotiations said. Under the agreement, concessionaires will reverse their contracts to the NPVs stipulated in their initial offers.

In exchange, EP has agreed to pay concessionaires the difference between the availability payments stipulated in their initial and final offers 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 concessionaires and EP.

This solution effectively splits EP’s availability payments into two separate streams – a fixed payment, based on the NPVs stipulated in bidders’ initial offers; and a variable fee, contingent on whatever gains concessionaires will net from future refinancings. Availability payments are a regulated public contribution paid to concessionaires for making the leased assets available in good condition.

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. Should this happen, the refinancing gains could substantially mitigate the increased availability payments.

But if markets don’t improve over the next five years, then EP and the concessionaires will have to discuss alternative solutions, local sources said.