Portugal’s roads agency may default in 2014

An audit report by Portugal’s Inspecção-Geral de Finanças, a unit of the country’s Finance Ministry, paints a dark picture of the future of Estradas de Portugal (EP), Portugal’s roads agency, responsible for paying concessionaires the availability payments agreed for many of the country’s road public-private partnerships (PPPs).

“Given the current situation in the financial markets and the general constraints that most companies face in getting financing – difficulties EP is starting to experience – and unless other measures are taken, including state intervention, the company will face serious difficulties in obtaining financing in 2013,” the report states. 

It adds: “It is predictable that EP becomes financially unsustainable starting in 2014, given the considerable worsening of its financial situation due to the start of the [availability] payments for the sub-concessions contracted over the last three years.”

EP was set up by the previous government to handle Portugal’s road concessions independently. Its structure calls for the firm to charge tolls across Portugal’s roads and use the proceeds to finance the availability payments contracted for many of the country’s PPPs. The problem is that EP’s revenues are “notoriously insufficient, especially with the start of payments for the sub-concessions in 2014,” the report explains.

The report predicts that EP will post a loss of €75.2 million in 2012 and that losses will worsen as more and more of the concessions that formed part of Portugal’s recent €5 billion roads PPP programme start operations. 

Worryingly, the report also highlights that EP’s bank debt will balloon by €2.25 billion between 2011 and 2015 to total €4.25 billion in 2015. Given that 77.5 percent of EP’s debt is short-term and thus “inadequate to the long-term profile of EP’s activity [the] risk of refinancing increases,” the report adds.

This is not the first time EP has hit the headlines. Investors familiar with Portugal’s €5 billion roads programme will remember that international banks had doubts about EP’s structure during the programme’s procurement, especially because the company is independent from the state. 

At the time, banks asked the Portuguese government to commit to support the company in case there were any financial problems in the future. But the then Socialist government only went as far as writing a letter – without any binding legal value – stating its commitment to helping EP, if necessary.