BANKS WILL NEED €700M TO FINANCE PPPS
The national banks are responsible for 41% of the necessary funding to pay for public-private partnerships until 2014. Warning that it is not possible to foresee what might happen, Professor of Finance João Duque noted that the rescue package agreed with the so-called troika includes financial aid to national banks
Banks need to raise up to €700m this year in order to fulfil the compromises agreed within the so-called PPPs(public-private partnerships) and might face some issues trying to grant those funds, reports Público in Monday’s edition.
Commitments by national banks covering the period between 2008 and 2014 reach €2.7bn, just for the construction of seven roads, four hospitals and a section of the high-speed railway (TGV), assuming that they would fund up to 41% of projects by PPPs.
With problems to fund these projects they end up being at risk, especially because Portugal is going through a financial crisis and needs to reduce its public debt. Not being able to anticipate what might happen in a scenario where banks won’t be able to fund PPPs, the President of ISEG (a Lisbon-based School of Economics and Management) and Professor of Finance João Duque said to PDV that the future of PPPs depends on the fact if they are still in an investment phase or already running. Regarding the first case, it is easier to put an end to those contracts, but it will not be easy in regard to the second one. One way or another, João Duque warns that the rescue package agreed with the so-called troika, which comprises the EU and the IMF, includes financial aid to national banks.
PPPs were an enterprising solution that governments came up with to build public infrastructures like roads and hospitals while sharing risk with private companies in a long term relationship. These also allow governments to exclude such public works from the public debt.
The State spent a net €238.8m in 2010 and will spend €371.6 in 2011 covering all projects by PPPs, with roads representing the major share.
Construction companies and banks
According to Público, the relationship between banks and construction companies is changing, largely because of the restraints in funding markets. In terms of bad loans, the construction sector leads the list of defaulters with a ratio of 7.4%, above the average recorded in the business segment, which is 5.5%. Theconstruction sector’s bad debts already amount to €42bn and might even get worse, writes Público.
The PSD/CDS government has said that contracts already signed will be reassessed and it will be renegotiating all the contracts which do not safeguard the state’s interests. That was the case of the Lisbon-Madrid high-speed train, or TGV, that were put on hold. The government said it will be reassessed within the new priorities for the transportation sector in Portugal.
The coalition government also said that PPP’s payments will only be made after approval by the Audit Court.
Earlier this month, Diário Económico reported that costs in Health PPPs will increase 35% this year to €232m, after having reached €172m in 2010.