A general introduction to public-private partnerships in Portugal

All questions


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 have attracted more private investment in PPP have been the road and railway infrastructure sectors and the health sector, the latter 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 were the subject of public disapproval, given the heavy burden that payments by the state under most of those projects – particularly in the road sector – has imposed on the national budget. However, the PPP model has not been completely abandoned, and recently the government awarded the Hospital Lisboa-Oriental Complex project, probably the most important project launched under a PPP model in recent years. 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

The year 2022 saw some signs of recovery of public investments further to the covid-19 pandemic, although there is still some uncertainty compounded by the war in Ukraine and its impact on all aspects of social and business activities, particularly on the increase of inflation.

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 renegotiation and restoration 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. Moreover, some PPP contracts (mainly in the road sector) are also under renegotiation for the purposes of financial rebalance arising from the exceptional regime for the financial rebalance of long-term contracts enacted in the context of the covid-19 pandemic, which suspended any clauses and legal provisions providing for the right to financial rebalance or to compensation for loss of revenue 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 these clauses in respect of events that occurred during this period.

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.

As regards the legal framework for PPPs, it is worth noting that the Public Contracts Code has undergone several revisions ever since it was approved, and 2022 was no exception. In order to harmonise the solutions outlined in European directives, Decree-Law No. 78/2022 of 7 November 2022 has introduced some changes to the Public Contracts Code concerning the criteria for the adoption of a direct award (a public procurement procedure in which the contracting authority directly invites an entity of its choice to submit a proposal, subject to legal requirements). In addition to that rule, this reform also brought in new labour requirements. In accordance with the Public Contracts Code, awarded entities must now include a clause on the regime applicable to the employment contracts of workers assigned to PPPs in the specifications. In concession contracts with terms longer than one year, it is mandatory to enter into an open-ended employment contract, and failure to do so could result in a fine of up to €44,800.

The year 2022 was also quite relevant for PPPs in the health sector. The government awarded the construction and concession for the Hospital Lisboa Oriental for 30 years, and it will be built under the PPP regime. The Hospital will be built upon a total area of 180,000 square metres in Marvila (Lisbon) and will have 875 beds, ensuring most of the activity currently performed by the Centro Hospitalar Universitário de Lisboa Central, which includes six hospitals (Hospital de São José, Hospital Santa Marta, Hospital Santo António dos Capuchos, Hospital D Estefânia, Maternidade Dr Alfredo da Costa and Hospital Curry Cabral) in addition to covering all the clinical specialties available in the six current units in the Lisbon region (including rheumatology, nuclear medicine and radiation oncology). It is expected that the new Hospital will benefit not only the citizens of Lisbon but also those who live in Alentejo and Algarve.

Additionally, a Spanish group has been awarded the contract to manage the Cascais Hospital PPP, which had been under the management of a Portuguese group since 2008. During the past 14 years, the Hospital has carried out 1.9 million consultations, 134,000 procedures, 2.1 million emergency room visits and 32,000 births in its maternity unit. Cascais Hospital is one of the PPPs in the Portuguese health sector that achieved the greatest notoriety at the time, both financially and in terms of service provision.

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