If ever there was a time to get into the Portuguese market it is now and international sponsors and bankers are reacting. The Portuguese road sector ? in need of $10 billion worth of investment over the next five years ? is pulling in massive international project finance interest.

Portuguese power is also looking hot. Newly privatized Electricidade de Portugal (EDP) commissioned, in September this year, the development of new gas-fired power plant to be operational by 2003. With the consortium yet to be finalized it is likely the Portuguese government will invite an international sponsor to participate.

And in the telecom sector ABN Amro, Banque Nationale de Paris and SG signed in July 1999 the financing for the s500 million Optimus GSM project developed by local and French companies.

To date Portugal has been a very parochial market. But banks and contractors, mainly from Spain and France, are now rushing Lisbon Ð and the domestic players do not like it.

Dragados of Spain has won a 30-year concession to develop the first shadow toll project to be done in Portugal ? Beira Interior. This year Spain's Ferrovial and Acciona have been the only two companies shortlisted for the Algarve shadow toll. Spanish group Argentaria played a leading role in the financing of the $800 million Western concession, the first real toll road to close financing at the beginning of August this year. Speaking from Lisbon, Nigel Purse, partner in project finance at PricewaterhouseCoopers (PWC) in London, says: ?Spanish players are now keen on Portugal. Setting aside 500 years of historical indifference the signs are all pretty auspicious for the future of the Portuguese market."

Local players are feeling the pressure. According to one concerned contractor in Lisbon: ?There is now no room for mistake. The Portuguese government is still facing difficulties in putting into place the contractual structure of the deals allowing a number of foreign players to play unfair", he continues. The presence of foreign groups at the bidding stage has worried local players. Spanish and French companies are accused of pushing down prices without concern for the technical quality of bids.

Portuguese contractors lament the bidding procedures imposed by the government. Unique in Europe, bids for Portuguese projects need to include due diligence for both the financial and legal aspects of the deal. This lengthy and costly process does not ensure a winning bid (but it does mean that when the winner is announced the financing for the deal can close in under a month).

According to Pedro Neto, head of project finance at Banco Espirito Santo in Lisbon: ?The government should assume some of the costs.? A source close to local contractor Teixera Duarte agrees: ?It is too heavy a burden to spend three years studying a deal and pay up to $1 million for due diligence at a bidding stage. Few of us can afford that."

But international players can Ð especially since the advent of the Euro cut currency risk out of the equation.

The foreign influx has been steadily building. In 1995 the $730 million financing for the construction of the second bridge over the Tagus river outside the capital Lisbon became the most visible showcase for project finance in Portugal, pulling in a number of international heavyweights such as Chase Manhattan, ABN Amro and Societe Generale to arrange.

Since then, ?the Euro has changed the outlook for Portugal. It has given foreign players the opportunity to have a role in the local financial market without incurring in cross currency risk. Before the Euro, Escudos could only be raised locally. Today everybody is willing to lend Euros needed for Portuguese projects,? says Simon Aldrich, director in project finance at Société Générale in London.

The Portuguese government's shadow and real toll program has been a boon for project finance. Real tolls included the construction of the Western and Northern roads. Financing for the $800 million Western concession closed syndication at the beginning of August 1999 while financing for the $1.4 billion Northern concession was funded in July this year with syndication yet to be launched.

A consortium led by local Mota & Companhia is developing the Northern concession and the financing has been arranged by Banco Espirito Santo, Banco Mello, Banco Pinto & Sotto Mayor, Banco Portugues do Atlantico, CISF ? Banco de Investimento and Banco Chemical Finance. PwC was adviser to the consortium. PwC's Nigel Purse says: ?Financing for the Northern concession has been the biggest achievement so far by Portuguese players. Both local sponsors and financiers have built a good body of expertise.?

A consortium led by local Somague is developing the Western concession. Mota & Companhia was shortlisted but not selected. The loan facility for the Western road closed at the beginning of August this year and was arranged by Banco Portugues de Investimento, Caixa Geral de Depositos, Argentaria Banco de Negocios and Credit Lyonnais. In both transactions the European Investment Bank (EIB) intervened with direct lending, allowing for longer tenors.

According to Raphael Rossi, director in project finance at Mota & Companhia in Lisbon: ?The toll road program has moved at an extremely fast pace and with the Ministry of Public Works being extremely supportive. The involvement of the EIB adds value to the projects and helps sponsors and financiers making longer tenors viable.? Speaking from Luxembourg Felipe Cartaxo, head of division at the European Investment Bank replies: ?There has been a clear attempt by Portuguese banks to act genuinely on a market-oriented concept. The EIB has been a strong supporter of their efforts." He adds: "The launch of the Euro has made local players more confident in extending tenors. It has been one of the many positive effects given by the new currency. Portugal is a European country with no currency exchange risks."

In the shadow toll program, a consortium led by Spain's Dragados and local Teixeira Duarte, Soares da Costa, Alves Ribeiro, Sopol, Ramalho Rosa Cobetar has won a 30-year concession to develop the $700 million Beira Interior project. It involves the construction, upgrade and widening of the Scutvias concession ? a 176.5km highway in central Portugal. Construction will finish within the next year and it will be operational in 2003.

Other roads being tendered under the shadow toll program include the Interior Norte, Algarve, Grande Porto, Beira Litoral e Alta, Costa del Prato and Norte Litoral road projects. Value of the Algarve project is s300 million while Costa del Prato is s350million. A consortium led by local Mota & Companhia was shortlisted against France's Eiffage for Costa del Prato. Negotiations for the Costa del Prato's concession are continuing and by mid-December this year the winners for both projects will be announced with financial close due in March 2000.

Refinancing of the Tagus second bridge should also hit the market at the beginning of next year. International arrangers Paribas and Societe Generale are involved in the deal together with local Caixa Geral de Depositos and BCPA - Banco de Investimento. They are now waiting for approval from the Portuguese government before selling the debt to both local and international players.

Smaller infrastructure project sectors are also opening up. The coming of football competition Euro 2004 will provide additional opportunities for project financiers. Lisbon-based Somague is looking at the development of sport stadia to be financed on a limited recourse basis. Somague is studying three of them to be located in Lisbon, the northern city of Oporto and Algarve in the south. Bids for the construction of an urban railway project in the southern part of Lisbon are also coming in with the winner to be announced in the year 2000.

Lisbon airport expansion is a further possible infrastructure deal. But with the airport's operator still to be privatized it will be unlikely that the project will be mandated, if at all, before 2001. The government is also reputedly looking at the development of a new s350 million LNG terminal to be developed by local Transgas in the southern port of Sines. Transgas, advised by Société Générale, is looking for a strategic partner for the development of the project that is expected to reach financial close in the third quarter of 2000.

Portuguese players are confident they can stave off international competition for the domestic deals to come in the next few years. Jose Carlo Garcia, director at BCPA Ð Banco de Investimento in Lisbon points to the progress that has already been made: "The tenor of the facilities offered by Portuguese banks has changed. Eight years ago tenors between 10 and 13 years were considered long giving that in 1992 treasury bonds did not go beyond 10. Today the situation has totally changed with tenors up to 25 years. The Portuguese banking sector is now to be considered competitive by international standards.?