Public-Private Partnerships in Portugal: practical case studies

Rui S. Monteiro (Parpública SA)

• Why procuring PPPs? Can you get what you want?• Minimum requirements for PPP procurement• The “Fertagus” and the “Metro Sul do Tejo” cases• PPPs and institutional change

Why procuring PPPs?

• Effectiveness (performance-based contracts)

• Efficiency (whole-life-costing approach)

• Rapid delivery of infrastructure

• Quality of service

Can you get what you want?

• It will depend on good contract design

• And also on good tender design and

procurement

• But, more critically, on good contract

management

PPPs are an effective tool for infrastructure

delivery ─ but they may be also an engine for

budgetary efficiency and accountabilityor for

budgetary mismanagement

Minimum requirementsfor PPP procurement

• Political willingness to procure PPPs

• A PPP-focussed procurement unit, able to

steer and control government know-how and

external consultants

• A scheme for the assessment of budgetary

risks

• Public authorities aware of the need to hire and

train people in order to manage PPP contracts

efficiently

Fertagus (1)

Cross-Tagus suburban train service

Fertagus (2)

€40m investment

18 double-decker

trains

1210-passenger

each

Central government sponsored the contract

Fertagus (3)

Contract provided for no payments by

government

Effectiveness and quality:

Two years after starting operations,• the service was the best in the country• users were very satisfied• it helped decongesting the bridges (and the

city)

But demand level was 1/3 of the one expected

Fertagus (4)

Contract renegotiated in 2004:

• most guarantees scrapped (incl. traffic

guarantee)

• higher-than-expected revenue-sharing

introduced

• rail service was extended (using the same

trains)

• trains removed from contract (sale-and-lease-

back)

• term reduced (from 30+15, to 7 yrs with 9 additional yrs dependent on financial equilibrium without subsidy)

• government subsidises low-demand circulations

Fertagus (5)

Currently,

• reliable service, 143 circulations/day, 6

trains/hour

• 80 000 passengers/day use Fertagus trains

• (note: 156 000 vehicles/day cross the bridge)

• very high user appraisals, demand increasing

• government is paying subsidy but the benefits from the revenue-sharing mechanism are increasing

Fertagus (6)

Lessons:

• private provider can be reliable and efficient

• public authorities need to avoid “optimism

bias”

• a revenue-sharing contract could be better than a full transfer of demand-risk to the private partner

• you may procure medium-term concessions using leasing contracts for rolling stock

Metro Sul do Tejo (1)

• tram system for municipalities on Tagus’ left bank

• 19 km, €320m greenfield investment (€75m EU

grant)

• project sponsored by the central government, with initial high level of support by local councils

Metro Sul do Tejo (2)

• the 30-yr contract was signed by the central government in 2002 without licensing granted; the environmental authority blocked the project for a few months; then one local authority blocked works in a few critical stretches, requiring some large underground parking facilities as “compensation” for use of land

• project completion was delayed until central government accepted paying for €72m parking facilities

• the system is now operating but still not completed, so demand is low (public partner will pay compensation)

Metro Sul do Tejo (3)

Lessons:

• prior licensing (urban and environmental) is critical

• local authority support must be granted from the inception

• local community disturbances should be evaluated from the inception, including compensation costs in the expected cost of the project

• contract managers need to prevent/face problems, avoiding deadlocks that delay project completion

PPPs and institutional change

• Political willingness and careful steering of

procurement units and external consultants can

deliver draft contracts and tender procedures

• But, in order to get efficiency, public authorities

need to design new institutions for:

project assessment: budgetary risks +

sustainability

contract management

Procurement of efficient PPPs

• PPPs lock governments and private partners in

long-term relationships; so, governments need to

avoid being “trapped” in the wrong kind of

contract

• They need to balance PPP promotion (by

procurement departments) and screening for

budgetary risks (by efficiency-focussed

departments)

• And they need to design PPP contracts able to

face inevitable changes: technological,

demographic, political,...

PPP contract management

The long-term characteristics of PPP contracts

require a different kind of contract management:

• more focussed on the prevention and mitigation

of budgetary risks (instead of managing project

risks);

• able to develop cooperation between partners;

• but also able to prevent or counterbalance

harmful strategic behaviour by private partners

A new view on infrastructure

• PPPs are not just one way of procuring

infrastructure;

• PPPs create a new focus on outputs, outcomes,

and performance, inducing institutional reforms for

the benefit of users and taxpayers;

• And PPPs require also some institutional reforms

in order to select adequate projects, design

efficient PPP schemes, and manage contracts

efficiently

Thank you for your attention.

Questions?

Rui Sousa Monteiro

Parpública SARua Laura Alves, 4, 8º, 1050-138 Lisboa, Portugaltel: (351) 217 950 507,  (351) 969 845 042fax: (351) 217 817 170e-mail: rui.monteiro@parpublica.pt