Portuguese PM eyes 30% cut to PPP costs

Pedro Passos Coelho (pictured) told parliament his government is targeting renegotiations, especially in the roads sector, that will save the state some €4bn to €4.5bn over the life of the country’s public-private partnership contracts.

Portuguese Prime-Minister Pedro Passos Coelho told parliament recently that his government is eyeing renegotiations on the country’s public-private partnership (PPP) contracts that could save the state between €4 billion and €4.5 billion over the life of these contracts.

“The government has set a target, together with Estradas de Portugal, and is working towards it. The government sees a 30 percent reduction [in state costs with PPPs] as achievable. And I hope [that reduction] is achievable, because that would entail, over the life of these contracts, a reduction of between €4 billion and €4.5 billion [in public sector payments],” Passos Coelho told parliament.

Estradas de Portugal is Portugal’s roads agency, which seems to indicate the brunt of the cuts will target Portugal’s road PPPs.

The Portuguese Prime-Minister said the state will have to pay “between €1.2 billion and €1.4 billion [in annual PPP costs] over close to 30 years. Our goal is to renegotiate those contracts.” 

Passos Coelho added that when his government took office it was looking at annual payments of “close to €1.9 billion, starting in 2014,” but it managed to suspend several PPP contracts that had not yet started, reducing that figure.

Local sources contacted by Infrastructure Investor were sceptical about the 30 percent headline reduction, especially since many of the roads that formed part of the previous government’s €5 billion roads programme have already finished construction. 

While there is space for cost-cutting on some of the roads under construction – through cancelling certain stretches, or reducing operation and maintenance requirements – the number of road PPPs that are not yet operational is small, the sources pointed out.

Portugal’s PPP programme carries some €25 billion in liabilities, equivalent to more than 14 percent of its gross domestic product “in present value terms”, a June 2011 report by a unit of the European Commission pointed out.

According to Portuguese economist Mariana Abrantes de Sousa, “about 80 percent of [Portugal’s total] PPP liabilities [are] in the transport sector”.