Directory of Innovative Financing: Portugal

Portugal

Project Title: Tagus River Bridge

Country: Portugal

Project Cost: Esc170 billion ($1.1 billion)

Sector: Transport

Status: Closed in July, 1994; due to open to the public in April, 1998

Concessionaire/Lead Manager: Lusoponte, a consortium led by Trafalgar House (UK) and Campenon Bernard (France), holds the project under a 30-year government concession; Chase Manhattan Bank and Schroders were joint advisers.

Customers: Lisbon motorists

Financing Package: The project was financed primarily via an Esc64 billion European Union grant (38%) and Esc60 billion-equivalent European Investment Bank 20-year loans (35%), with sponsor equity, government grants and existing bridge revenues making up the balance. As only 60% of the financing could be obtained in escudos, the remaining 40% will come in DM, with the DM lenders provided with protection against possible escudo devaluation.

Innovation: This project involves the building of Europe's longest bridge. As such it is one of Europe's largest privately financed transport ventures, with a concession structure that has several innovative aspects. Access to long term EIB funding has proved crucial to the financing.

In designing the concession agreement in 1992, the Portuguese government said bidders could finance part of their construction costs by receipt of revenues from the existing April 25th bridge after the concession award was announced. The revenues would then be treated as taxable income. The government also vowed to transfer to the winning party that bridge itself, the city's largest. Bidders, however, had to design their own tariff structure, length of concession, and say how much of the April 25th bridge's revenues they would need to take.

As part of the award to Lusoponte, the government increased the April 25th bridge's toll from Esc100 to Esc150. Those fees became part of the build-up to the new bridge's future rate of Esc260 plus any necessary inflation adjustments. The decision was not communicated well to the public, however, and caused political problems. Angry consumers protested the announcement of those rates increases by blockading the April 25th bridge near the time of financial closure in a demonstration could only ended with police intervention. As a result the government agreed to offer a frequent-user discount and an extended summer toll holiday that was seen as cutting Lusoponte's revenues by up to 15%. To make up for this shortfall, the government agreed to compensate during construction, two years after opening, and then at intervals throughout the project lifetime. Lusoponte will be able to draw on the April 25th tolls as revenue starting in 1996.

Brief: This 12km crossing with 6 km of access roads is to be officially known as the Vasco Da Gama Bridge, and is due to open in time for Lisbon's high profile international festival Expo 98. It will run across a 10km section of the Tagus from Sacavem in eastern Lisbon to Montijo on the river's southern bank.

The 20-year EIB financing reduces early debt-service obligations and allows the tolls to be kept down to a reasonable level. The loan is to be disbursed over the first five years, a period in which that public sector institution assumes full project risk. But since it is unable to assume long-term risk, during the remaining 15 years, the EIB's financing will be guaranteed by a syndicate of commercial bank that Chase and Banco Portuguese Atlantico are in the process of arranging. The commercial bank guarantee is designed to fall away as the project become profitable.

Infrastructure and Financial Markets Division
Private Enterprise and Financial Markets Subdepartment
Sustainable Development Department
Inter-American Development Bank

Last updated: 02/26/07