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 accountability or for budgetary mismanagement

Minimum requirements for 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 passengers/day use Fertagus trains (note: 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 SA Rua Laura Alves, 4, 8º, Lisboa, Portugal tel: (351) , (351) fax: (351)