Portugal risks TGV overspend of €230M

Ten years ago the Portuguese State was locked in a commercial dispute with the consortium Elos that had won the concession in 2010 during the PS Socialist government of José Sócrates to construct a stretch of the TGV project between Porceirão and Caia, and which since has dragged through the courts.

That was because Elos – at the time led by motorways group Brisa and construction company Soares da Costa – demanded compensation for costs incurred from the project which effectively got shelved with the change in government and the intervention of the troika from 2011-2014.
An arbitration court sided with Elos in 2016 and ordered the State to fork out €150 million plus interest. It hasn’t been paid and the bill has now risen to €234 million.
And now that Portugal has launched a fresh tender for the first stretch of the TGV line between Porto and Lisbon, the State still has to sort out the dispute with Elos, which is still in existence, but only to continue to prosecute its law suit with the State to claw back the monies owed and ordered to be paid by the court.
According to the business daily Negócios, the State has in recent budgets set up a contingency to deal with the underlying risk from a legal case brought against the State by Elos in April 2018 for €192 million plus interest now bringing the total to €234 million.
In 2010, the investment for the Poceirão-Caia stretch that was the first phase of the TGV link between Lisbon and Madrid was €1.6Bn, including some €662 million of finance from the European Union in the form of a grant, in addition to €600 million from the European Investment Bank. The State had to stump up €116 million and REFER, as the licencing company, was to pay €60 million.
Elos, which won the competition, was then made up of Brisa, Soares da Costa, Iridium, Lena Group, Oderbrecht, Edifer, Zagope, BCP and Caixa Geral de Depósitos.
The dispute arose in 2012, when Portugal was economically governed by the troika, and the Portuguese public spending watchdog Tribunal de Contas rejected the permit needed to pursue the contract won, making it impossible for the project to go ahead.
Taking into consideration the costs incurred by Elos, the consortium had to go to a court of arbitration in 2014 to claim back €159 million in compensation and in 2016 the State was ordered to pay Elos €150 million plus interest to the concessionaire.
So, the State then filed for an annulment injunction against the court of arbitration with the Central Administrative Court of the South and appealed to the Constitutional Court which threw the case out.
After various other appeals and counter law suits, and Elos stuck with a bank debt by 2019, the banks that had financed the consortium called in their loans executing the bank guarantees provided by the consortium’s shareholders to the tune of €112 million.
Therefore each one of the shareholders had to find the monies to pay back the banks. However, both the Lena Group (a construction company no longer in existence) and Edifer had to pull out of the concession (both in terms of capital and credit owed to them by the State) — they were replaced as shareholders by Novobanco in December 2019 which today has a 20% share in Elos.

Image: EPA/TERESA SUAREZ
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