Portugal: Public/Private Partnerships

Last Updated: 9 October 2003

Summary

Decree-Law 86/2003 of 26 April 2003 sets out the main general rules and principles applicable to public and private partnerships.

Portugal has since the early nineties been familiar with the concept of project financing under public/private partnerships (PPPs). In fact, with the number of projects built under PPP schemes, a set of standardised procedures has been developed.

Until now and while developing several different projects within the same sector, the Government first established the framework regulations for the development of PPPs in such sector and then specific regulations for each new project. The same with respect to projects for the construction of a single facility or infrastructure, where the Government approved regulations detailing the main terms and conditions for the development of such projects.

Decree-Law 86/2003 of 26 April 2003 now sets out the general rules and principles applicable to the definition, conception, preparation, tendering and selection procedures, modification, inspection and supervision of PPPs, without prejudice to further regulation within any given sector.

1. Requirements

Any applicant must meet several requirements for the setting up of a PPP project, which include (i) the clear definition of the PPP’s purpose, including the expected results, so as to allow both parties to establish a reasonable share of the entailed liabilities; (ii) the presentation of a partnership model and of its benefits in comparison with other alternatives; (iii) compliance with all applicable legal requirements, including all necessary administrative licences, authorisations and opinions; and (iv) the adoption of all actions that are likely to lead to the economic competitiveness of the PPP project.

2. Project liability and risk sharing

As a rule, the public entity shall be responsible for supervising and controlling the performance of the PPP project with the purpose of ensuring public interest. On the other hand, the private entity shall be responsible for the financing, development and management of the PPP project.

The project agreement must clearly set out the risk sharing between the public and private entities, subject to the following principles: (i) the risk sharing must take into account the capability of the parties to handle such risks; (ii) the PPP project must entail a significant and effective transfer of risk to the private entity; (iii) the avoidance of any unjustified risks, unless in connection with the reduction of previously existing risks; and (iv) the transfer of the financial risk to the private entity, except in case of an event of default by the public entity, amendment to the contract by decision of the public entity or force majeure.

3. Supervision committee

Any State Department that intends to initiate a PPP project must notify the Ministry of Finance or any entity appointed for this purpose.

Within fifteen days from such notice, a Supervision Committee shall be created. This Committee must then be notified as soon as the PPP project is ready to be carried out.

The Supervision Committee shall issue two independent non-binding opinions within thirty days, to be submitted to the joint approval by the Ministry of Finance and the Ministry of the relevant sector. Both Ministries shall then jointly approve the conditions under which the PPP project is to be developed, including but not limited to the tender document, the standard conditions and contract, the description of the project and of the financing vehicles and the tendering and selection procedures.

4. Evaluation committee

The Ministry of Finance and the Ministry of the relevant sector shall jointly appoint the Evaluation Committee, which shall be responsible for the assessment of the risks and costs to be incurred by the public entity in connection with the PPP project and for the evaluation of the submitted tenders.

5. Selection and termination of tendering procedures

The Ministry of Finance and the Ministry of the relevant sector shall jointly select the entity or entities that will develop the project, taking into account the conclusions included in the final report issued by the Evaluation Committee and the compliance with the requirements set out in 1 and 2 above.

The Ministry of Finance and the Ministry of the relevant sector may terminate the tendering procedure without the bidders being entitled to any indemnification, in case none of the submitted tenders meets public interest.

6. Inspection and supervision

A public entity appointed by the Ministry of Finance shall be responsible for the inspection of all economic and financial matters related to the performance of the PPP project, whereas all remaining issues shall be inspected by the public entity appointed by the Ministry of the relevant sector.

In any event, the Ministry of Finance and the Ministry of the relevant sector shall also be responsible for overseeing the PPP project with a view to evaluating the costs and risks involved and to improve the framework for future PPP projects.

© Macedo Vitorino e Associados - April 2003

This information is provided for general purposes only and does not constitute professional advice. If you have any question on a matter of Portuguese law you should contact a lawyer registered to practice law in Portugal. If you are a client of Macedo Vitorino e Associados, you may contact us directly at mva@macedovitorino.com or your usual contact partner.

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