The Portuguese Experience with Public-Private Partnerships

Abstract

Abstract: This paper documents the Portuguese experience in Public-Private Partnerships (PPPs). Since 1993, Portugal has been using PPPs intensively, mainly for highway construction and in the health sector. This has enabled the country to close the infrastructure gap and avoid the budget constraints at the moment of the investment. Doubts about whether PPPs represent value-for-money have emerged. There are several reasons why PPP were unsuccessful: (i) the concentration PPP projects was very high over a limited time span and the public sector was not prepared nor had the ability to manage and control the contracts, (ii) the incentive to resort to PPPs was mainly to avoid budget constraints, but not to use of public resources better by taking advantage of private sector efficiency, (iii) the risk allocation between the private and public sector was flawed because the private sector bore too little risk and payments from the public to the private sector were considerably above the investment cost. The current and future annual payments from the state to the private sector are a substantial burden in the current times of austerity and budget consolidation. As the country had to ask the troika (IMF, ECB, and European Commission) for a financial rescue from, PPP renegotiations are ongoing to reduce public payments.