Portugal cancels high-speed rail PPP

The new Portuguese government has definitively abandoned plans to build a high-speed rail link between Lisbon and Madrid. The consortium that had been awarded the first stretch of the line is now claiming up to €300m in compensation from the government.

The writing had been on the wall since last summer, when the newly elected Portuguese government decided to suspend construction of the Lisbon-Madrid high-speed rail line, saying the project would be “re-evaluated”. So it wasn’t entirely surprising when the government announced it was “definitively abandoning” the high-speed rail public-private partnership (PPP).

The decision follows last week’s rejection of the concession contract awarded for the first stretch of the line by Portugal’s Court of Auditors, the country’s spending watchdog, citing several irregularities throughout the procurement process.

A consortium including Portuguese companies Brisa, Soares da Costa and Spanish developer Iridium had successfully secured funding for the €1.65 billion, 165-kilometre first stretch of the Lisbon-Madrid line in late 2009 and had been waiting ever since for a green light from the government and the Court of Auditors to start building it. 

A tender for a €2 billion, second half of the Lisbon-Madrid line had already been put on hold by the previous Socialist government, following the outbreak of Portugal’s sovereign debt woes.

Following the government’s decision to cancel the high-speed rail PPP, the question now becomes whether the winning consortium for the first portion of the line will be able to claim up to €300 million in compensation it says it is due for costs incurred through preparatory studies, bidding, and the securing of financing for the deal.

Predictably, the government and the private sector are at odds over the actual compensation amount, with a war of words unfolding in the Portuguese press. 

Soares da Costa head António Castro Henriques told Portuguese newspaper Jornal de Negocios that “there is a clause in the concession contract that clearly refers to a reimbursement of expenses in case the concession contract is not approved [by the Court of Auditors].” But Minister of Economy Alvaro Santos warned that any compensation due will be “certainly less” than the €300 million referenced by Henriques. 

The dispute process may prove to be of particular interest to industry pundits, considering that the European Union and the International Monetary Fund told the new Portuguese government that it will have to revise its PPP contracts, with a view to reducing the state’s commitments, as a condition for the €78 billion bailout provided to the indebted nation last year.