The public-private partnership (PPP) model started to be widely used from the 1990s onwards, with the purpose of equipping the country with modern infrastructure and services. The sectors that attracted more private investment in PPP have been, mainly, the road infrastructure and health sectors, with the innovative feature of placing clinical national health service (NHS) hospitals under private management with an aggressive risk allocation to the private sector. Such PPP activity was boosted further after the international financial crisis of 2008, with the purpose of enhancing the Portuguese economy's poor performance.
As a consequence of the sovereign debt crisis experienced in Europe in 2011 and, more specifically, of the bailout advanced to Portugal by the European Union and the International Monetary Fund (IMF), public expenditure under PPP contracts was significantly reduced, which has led to the renegotiation of several PPP projects, in particular in the road sector.
Portuguese companies experienced difficult conditions, mainly owing to liquidity constraints and to the slowdown of the Portuguese PPP and construction markets in connection with the economic crisis, leading many of those companies to search for new opportunities in foreign markets, particularly in the Portuguese-speaking countries in Africa.
At the beginning of 2014, the government approved the Strategic Plan for Transport and Infrastructure, which selected some infrastructure projects that could bring positive economic effects to Portugal between 2014 and 2020. The modernisation of the Portuguese rail freight sector, the development and increase in the capacity of the major Portuguese ports, a few projects in the road sector deemed essential to complete the road network, as well as an increase in cargo capacity at Lisbon Airport, are some priority projects. Owing to diverse aspects, such as the limitations of the new European funds framework, some of these future infrastructure projects may be launched and executed under a PPP model.
Existing PPPs have been the subject of public disapproval, given the heavy burden that payments by the state under those projects impose on the national budget. However, the PPP model has not been completely abandoned, and recently the government launched the Hospital Lisboa-Oriental Complex project, probably the most important project launched under a PPP model in recent years, having also announced the renewal of some PPP contracts in the health sector. Moreover, recent changes to the PPP legal framework, carried out in 2019, are a strong indicator of the government's willingness to enhance the adoption of the PPP model.
The year in review
Over the past few years, the growth of PPP businesses in Portugal has been slow, with few greenfield projects coming to the market.
In addition to recurring renegotiations within existing road PPP contracts, the winning bidder in the international public tender for the design, construction, financing, operation and maintenance of the Hospital Lisboa-Oriental Complex is expected to be revealed in the first few months of 2021, following the conclusion of the negotiation phase, which will involve a maximum of three bidders selected according to the analysis and evaluation of proposals submitted on 31 January 2019. This is the first time in Portugal that a PPP in the health sector has been launched solely for the construction, operation, maintenance and management of a hospital building, staying the responsibility of the management of clinical services in the hands of the NHS and not in the hands of a private entity.
In 2018, the government approved the extension of the PPP contract for the management of Hospital of Cascais' clinical services until 31 December 2021, by which time a new public tender will be launched.
The first semester of 2020 also saw the creation by the government of a project team for the study and preparation of tender procedures in relation to the Beatriz Ângelo Hospital, in Loures, after the publication of the public partnership evaluation report, which concluded that the adopted model clearly entailed financial benefits or savings, or both, in favour of the state.
Further, the tender procedure concerning the extension of the Porto underground system, launched in 2017, was concluded in the final months of 2020, and the preparatory works (archaeological studies, among other things) were initiated in December 2020.
Nonetheless, the award of these new PPP contracts, and the renegotiation and restoring of the financial balance of existing road PPP contracts (which covered the reduction of service requirements and availability payments and, in some road PPP contracts, the possible extension of the maximum duration of the concession contracts), are still the main subject matter, and they still substantially contribute to the public expenditure.
Within the legislative package approved in the first semester of 2020 in the context of the covid-19 pandemic, the government approved Decree-Law 19-A/2020, of 30 April 2020 (DL 19-A/2020), which establishes an exceptional regime for the financial rebalance of long-term contracts to which the state or any other public entity is a party – including PPPs – and an exceptional regime that limits the non-contractual liability of the state. DL 19 A/2020 suspended any clauses and legal provisions providing for the right to financial rebalance or to compensation for loss of revenues between 3 April (the effective date of the state of emergency's first renewal) and 2 May (the expiry of the state of emergency), preventing private parties from relying on such clauses and provisions in respect of any events occurred during such period.
As for events that occurred after the expiry of the state of emergency, and to the extent their contracts expressly provide for a right to compensation for loss of revenues, or if a pandemic constitutes a ground for the exercise of the right to financial rebalance, private parties will be able to exercise such rights. DL 19 A/2020 establishes that such financial rebalance can only be achieved with the extension of the deadline for the performance of contractual obligations or the extension of the term of a contract, thus eliminating the (legal or contractual) right of the private parties to adjust prices or to receive any financial compensation.
Portugal is still one of the European countries with the highest costs assigned to PPP projects (mainly in the road sector), notwithstanding the slowdown in relation to new PPP-based projects over the past few years. In fact, according to the statistical information provided by the European Commission, Portugal recorded the highest ratio of PPP over total gross fixed capital formation between 2000 and 2014, which demonstrates the relative weight of PPP projects within the Portuguese economy.
Evidence of this is seen in the choice of Portugal as the host country for the International Centre of Excellence on PPPs in water and sanitation, in May 2017, with the signing of a memorandum of understanding between the United Nations Economic Commission for Europe (UNECE) Executive Secretary and the Secretary of State for the Environment in Portugal. The Centre, affiliated to the UNECE International PPP Centre of Excellence in Geneva, will be hosted by the National Laboratory of Civil Engineering in Lisbon, and was created with the aim of assisting low and middle-income countries to utilise PPP-based projects for water supply and sanitation services.
In relation to the legal framework for PPPs, 2020 saw relevant changes in this area, with the enactment of the aforementioned DL 19-A/2020 establishing a specific legal framework regarding the impacts of the covid-19 pandemic on PPP contracts, and of Decree Law 23/2020 of 22 May 2020, which provides for a new legal regime for the launching of PPP contracts in the health sector.