August 3, 2012 / 12:42 PM / 7 years ago

Portugal cuts costs in landmark road concession rethink

* Lisbon gets 1st public-private partnership renegotiation

* Says new road deal with Mota, BES saves state 500 bln eur

* Total future PPP costs for state put at 26 bln euros

* Government seeks 30 pct cut in those costs

LISBON, Aug 3 (Reuters) - Portugal secured a cut in payments to private firms under a motorway concession contract, in a landmark deal that could pave the way for billions of dollars of savings over coming decades for a state that is battling to reducing spending.

State-owned roads firm Estradas de Portugal said late on Thursday it had renegotiated the concession for the Pinhal Interior construction project in central Portugal, generating savings worth 500 million euros ($608 million) over the concession’s lifespan to 2040.

The contract is one of around 30 public-private partnerships (PPP), most for road and rail construction, signed by the government and committing the state to costs estimated at 26 billion euros.

Prime Minister Pedro Passos Coelho wants to cut Portugal’s future PPP obligations by 30 pct in the next 30 years.

Thursday’s deal covered a contract signed in 2010 with private partner Ascendi, owned by Banco Espirito Santo and construction company Mota Engil, at an estimated cost of 1.2 billion euros.

Estradas de Portugal said the cheaper deal would reduce its debt by 50 million euros a year.

PPP funding schemes, which guarantee reimbursement on private investment but can be risky for the state, contributed to the economic imbalances that forced Portugal to seek an international bailout.

In Portugal’s case, they used overly optimistic projections for traffic volumes, interest rates and profitability, according to the government.

Economists said the revised Ascendi transaction signalled that the government is determined to enact the structural reforms mandated under the 78-billion euro bailout from the European Union and International Monetary Fund.

“This is a big issue for Portugal’s economy. It’s the first motorway PPP to be revised and a good step, because it was an area which had not been tackled before,” said Rui Barbara, economist at Banco Carregosa in Lisbon.

“Most (fiscal) measures so far had been to reduce the deficit in the short term and not so much to address the structural flaws of Portugal’s economy.”

Mota shares were up 0.4 percent on Friday and BES was up 1.5 percent.

$1 = 0.8224 euros Reporting by Daniel Alvarenga; Editing by John Stonestreet

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