What goes around, comes around: Portugal's debt boomerangs back on public-private partnerships

Many reactions to the solutions proposed by Europe's political leaders to the deepening and spreading eurozone crisis seem to revolve around two things: scepticism towards their effectiveness and increasingly harsh criticism of the so stubbornly pursued approach - carrots (bail-outs) for banks and sticks (austerity) for the people.

It is more than a reasonable suspicion (which, after Corporate Europe Observatory appealed to the EU Ombudsman, has even tainted Mario Draghi) that corporate interests have powerful influence on these and other political decisions.

Yet, apart from 'revolving doors' or outright corruption, there are also other ways in which the public interest can be outwitted to the benefit of big business. One of them opens up when public-private partnerships (PPP) are used to build public infrastructure, for example by poorly allocating investment risks, which mostly end up on the public's shoulders.

Not a silver bullet for public infrastructure. Our website Overpriced and underwritten exposes the hidden costs of public-private partnerships.

This has happened also in Portugal. But as irony has it, the government's efforts to cut public spending - as part of its bail-out deal with the EU and the IMF - have now boomeranged back on the private companies themselves.

Portugal has signed about 30 PPP contracts, mostly for the construction of transport infrastructure, which, according to Reuters, “contributed to the economic imbalances that forced Portugal to seek an international bailout”. Apparently, and no novelty for a motorway PPP, the concessionaires “used overly optimistic projections for traffic volumes, interest rates and profitability”, which force the state - and eventually tax payers - to pay unrealistic usage fees for several decades.

In 2010, Carlos Moreno, a former judge of Portugal’s Court of Auditors and author of a book criticising PPP schemes, estimated that “Portugal will have to pay some €48 billion in PPP liabilities between now and 2049, […] almost twice the €28 billion in liabilities recorded by the government.”

In the same year, the Portuguese government started considering renegotiations of its PPPs, and just a few days ago, it successfully negotiated a cut in payments for a motorway PPP called Pinhal Interior with concessionaire Ascendi (a joint venture between a Portuguese bank and a construction company).

Bankwatch has collected similar examples of failed PPPs on the website Overpriced and underwritten - The hidden costs of public-private partnerships, which also includes information on why this and other costly blunders appear time and again under PPP schemes.

In spite of the increasingly negative evidence, however, PPPs continue to be suggested as a means to help mitigate the economic and fiscal crisis, most recently as part of the EU's project bonds initiative. And, again ironically, the European Investment Bank, which extended a loan to the very Pinhal Interior PPP renegotiated in Portugal will have a key role to play in it.

This looks like a serious case of making the same mistakes over again and expecting different results. A disputed source once said that this is a sign of insanity. At the very least it is a sign of corporate influence at European level that is prevailing over evidence-based decision-making and needs to be urgently tackled.