In the latest step in the ongoing expansion of the motorway network in Portugal, the Portuguese government has granted a real toll motorway concession to Brisal Auto-Estradas do Litoral for a variable term of between 22 and 30 years.

The current road connecting Lisbon and Porto takes an inland route, but this motorway will run along the Atlantic coast, opening up another section of Portugal’s coastline to tourism.

Lovells’ partner Shibeer Ahmed says the road is expected to spark massive tourism investment on an otherwise underdeveloped section of Portuguese coastline.

‘Obviously the Algarve is very touristy, but the area between Porto and Lisbon is not as accessible to international tourists,’ says Shibeer. ‘And once this motorway is built, small roads to the coast itself can be built off it.’

The IC1 will link the A8 at the south and Costa del Prata at northern end.

The concession agreement was signed by the Portuguese prime minister, Pedro Santana Lopes, in Figueira da Foz on 30 September 2004 and the motorway is expected to be completed by the end of January 2008.

The project

The project consists of the design, construction, financing, operation and maintenance of 98.4km of real toll motorway that will run along the Atlantic coast of Portugal between Marinha Grande and Mira. The new road (IC1) will be linked to the west toll highway in the south and the Costa da Prata SCUT (shadow toll) in the north and will form an alternative route to the A1 motorway that is currently the main route from Lisbon to Porto. 

The concession granted by the Portuguese government also includes the construction of a stretch of 12.5km which will link the new road to the existing A1 motorway and which will be transferred to the IEP (Instituto das Estradas de Portugal), the Portuguese roads authority, following its completion. 

The project took just over three years from the submission of the BAFO in July 2001 to reach financial close on 30 September 2004.

London-based Linklaters partner Andrew Jones led the firm’s UK team advising the banks and the EIB. He explains that although a major financing project like this bodes well for the Portugal’s project finance market, what really stands out is Brisa’s involvement.

‘It’s interesting to see an operator like Brisa coming in and joining a project finance market that is traditionally dominated by a small group of major local and foreign construction companies,’ says Jones.

‘This deal is a significant departure from the norm because you’ve got a major PPP project led by an operating company with lots of first-hand experience and expertise instead of a large international construction firm.’

Parties involved

Brisal - Auto-Estradas de Portugal is owned by Brisa (80 per cent); BCP Investimento (10 per cent); and SMLN (10 per cent), consisting of four of the major Portuguese construction companies, Somague, MSF, Lena Engenharia and Novopca.

The Contractor is made up of four members of an Agrupamento Complementar de Empresas (ACE), composed of Somague – Engenharia, MSF – Moniz Da Maia, Serra & Fortunato - Empreiteiros, Lena Engenharia e Construções and Novopca – Construtores Associados.

The lead arrangers are Banco Santander de Negócios de Portugal, BCP Investimento - Banco Comercial Português de Investimento, Caixa - Banco de Investimento, Mizuho Corporate Bank and DEPFA BANK.

The legal advisors to the sponsor were Lovells and Vieira de Almeida & Associados. The legal advisors to the banks and EIB were Miguel Galvao Teles, João Soares da Silva & Associados, Linklaters and Vinson & Elkins. The legal advisors to the EPC contractor were Goncalves Pereira, Castelo Branco & Associados and the legal advisor to the government was Flaminho Roza.

Banco Efisa was the government’s financial advisor and BCP’s financial consultantcy arm acted as financial advisor to the consortium.

Financing

The total financing is around €794m (US$977m) and the debt:equity ratio of the project is 75:25.

The commercial bank debt financing is made up of a €263m (US$323m) term loan facility and a €7.5m (US$9.2m) working capital facility, as well as a €14m (US$17.2m) performance bond facility. The loan pricing is Euribor + 1.20 per cent during construction and Euribor+ 1.15-1.30 per cent thereafter, depending on project performance.

The project is co-financed by a commercial bank guaranteed €264m (US$324m) facility provided by European Investment Bank (EIB) priced at a fixed rate of 5.05 per cent. EIB is also providing a €290m (US$353m) guarantee facility.

The remainder of the financing will be provided by way of sponsor equity. The cash will be split 80:10:10 between Brisal Auto-Estradas do Litora, SMLN and BCP respectively.

Legal issues

The project is the first project financed variable term motorway concession in Europe. While Portuguese shadow and real toll road concessions are generally established for a period of 30 years, the variable term concession on the Litoral Centro Project will terminate when the value of the toll revenue collected by Brisal reaches a certain predetermined limit, calculated in accordance with the concession agreement. 

‘One of the most interesting and innovative aspects of the deal is the variable term nature of the concession,’ said Shibeer Ahmed, who led the team from Lovells’ London office.

‘The variable term concession is good for the public sector as the private sector is required to take all of the traffic and revenue risk and at the same time the return that it receives is capped – thereby avoiding any public criticism that the private sector is making excessive or super profits at the expense of the users of the motorway.’

Conclusion

So far, the scheme seems to be running smoothly, but of course the full impact of the road won’t be felt until it actually opens for traffic in 2008.

Decision-makers may get a chance to gauge the impact of building toll roads under variable-term concession agreements before then as another Portuguese motorway project is currently in procurement.

Observers are waiting to see whether the road project in the Duoro port and winemaking region will be negotiated on a variable term basis.

A Brisa-led consortium and a Mota-led consortium have both submitted bids which include large payments to the Portuguese government at the end of the concession, but from a legal and structuring point of view, the government has yet to decide on an end payment or a variable term.

However, once the IC1 road has been built, work on developing another section of Portuguese coast can start and the region can start to pull in billions of Euros of infrastructure investment.

Alex Black