Pitfalls identified in PPPs in Portugal

Public Private Partnerships in Transport: Trends & Theory 

P3T3                   2013 Discussion Papers 

Part I Country Profiles  -  Portugal

Rosário Macário, Rui Couchinho,  Joana Ribeiro         

Instituto Superior Técnico, Technical University of Lisbon 

Abstract 

Portugal has been one of the most active European countries in the PPP market in the last decades. Regardless of public debate and some criticism of major infrastructure projects, several Governments since 2003 demonstrated their commitment to PPPs by launching tender procedures for some of the major transport projects, as well as by implementing legislative and institutional reforms to improve the execution of PPP projects, namely the new Procurement Legislation and the creation of executive agencies to monitor and control business-State participation. As the current financial crisis has become more severe, the Government has begun to renegotiate its shadow toll concessions, including the conversion of some of them into toll 

roads. Other potential PPP projects such as the new Lisbon Airport and a high speed rail link between Lisbon and Porto have now been put on hold. 

5   Conclusion  (pg 159)

In Portugal, the engagement of private partners in transport infrastructure delivery was initiated in the early 1990s in the railways sector, using concession contracts. This situation was maintained until 2003, when the first PPP-specific legislation was adopted (DL nº 86/2003).

Many contracts came a long time before the publication of the Decree-Law nº 86/2003 of April 26th, which established the characteristics and rules to be complied with the launch of PPP in Portugal. Considering the issues raised about the allocation of risks between the parties, which is one of the striking features of PPPs, the Government approved the updated version of Decree-Law nº 86/2003, which is the Decree-Law nº 141/2006 of July 27th. Apart from these two decree laws, which are transversal to all sectors, there is a specific legislation that is designed to complement the individual circumstance of specific sectors such as environment, health or transport.

Portugal has been one of the most active European countries in the PPP market in the last decades. The share of the cumulative investment in transport PPPs is fairly high, accounting to 98% of the total cumulative investment in 2010 which represent 16 billion euro.

When the financial crisis came, the transport sector was affected and projects like High Speed Rail, the New Lisbon Airport and some new highways are now at a standstill. Projects which were already contracted have been subject to renegotiation.

Despite the serious conclusions taken by the audits of the Court of Accounts regarding deviations in time and money of the projects under PPP contracts, we can conclude that the problem lies not in the PPP instrument itself but in the misleading ways it has been implemented. 

Here, we mention some of the pitfalls that have been identified in Portuguese cases:

• Biases in planning and forecasting hindering quality of decision at project selection stage. Competition between projects creates an incentive to project promoters to emphasize benefits and de- emphasize costs and risks. This consubstantiates what the literature of several cases worldwide reports as “optimist bias”;
•  Biases towards developing new project instead of making a more efficient and flexible use from the existing ones, leading to maintain existing infrastructures in poor condition and instead applying funds to new infrastructures;
• Weak regulation, lack of performance pressure, inadequate contractual provisions;
• Biased decision-making whenever projects are assessed in isolation. A systemic view is required, projects must be assessed within portfolios and programs;
• Lack of robust instruments for decision making, such as national infrastructure accounts (balance sheets);
• Lack of reliable instrument for ex-ante assessments of the project costs (i.e. PSC); Non-efficient delivery and delays can surmount up to 30% additional costs, when studies point to possible savings of 20% from efficient delivery.

Source:   http://www.ppptransport.eu/docs/Book_part_1.pdf 

See also:  Mariana Abrantes de Sousa, Managing PPPs for Budget Sustainability, The case of PPPs in Portugal, from problems to solution , PPP Lusofonia, Portugal, September 2011      http://ppplusofonia.blogspot.pt/2011/10/managing-ppps-for-budget-sustainability.html , http://abstracts.aetransport.org/paper/index/id/3621/confid/17  
e http://trid.trb.org/view.aspx?id=1256847 

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