Portugal's approach to PPPs has been described as "ambitious with an orderly learning process" and, despite the economic climate, the government is dedicated to initiating a considerable pipeline of infrastructure projects.

The administration has committed publicly to Transport PPPs, but is deemed to have lost direction with its social infrastructure programme - with healthcare deals struggling most.

A standard tender programme and bid specifications have been in place since 2002 for healthcare deals. The programme was redesigned and the private partner is expected to provide both hospital facilities and clinical services.

The Braga hospital is the latest deal in the healthcare sector to reach financial close.

The Project

The new hospital will serve the Braga and Viana do Castelo areas of the Northern region of Portugal.It will replace the existing São Marcos Hospital, which is spread across a number of buildings in the centre of Braga, as well as a psychiatric department located some 3km away.

The 706-bed scheme will cost up to €1.2 billion over the course of the contract and will have a building and maintenance period of 30 years, plus a clinical management period of 10 years.

The call for tenders was released in January 2005 and a bid submitted in September 2005, with a 30-month decision period.

The Escala Braga Venture consortium was selected as the provisional preferred bidder in 2007 and confirmed as such in March 2008. The team comprises:

• Jose de Mello Saude (consortium leader)
• Somague
• Edifer

The group beat off another shortlisted contender for the scheme - an Espírito Santo Saúde and Mota Engil consortium.

Braga is the second hospital PPP to be awarded to private players in the last few years, the first was the Cascais Hospital [Projects Database - Infraco and Clinico] which reached financial close on 22 February 2008.

Financing

The Braga Hospital deal reached commercial close in December 2008 for the €187 million deal.CaixaBI acted as sole MLA on the deal, providing the following debt facilities:

Infraco - €141 million

• Term loan - €105, 12-year tenor
• EBL - €25 million, 2.5-year tenor
• DSRF - €9.8 million, 11.5-year tenor
• Performace bond - €1 million, 4-5-year tenor

Clinco - €46 million

• Term loan - €10 million, 5-year tenor
• Leasing facility (for equipment) - €34 million, up to 84 months
• Performance bond - €2 million, 4-5-year tenor

The equity is be provided upon completion of construction work and will be provided as follows:

Infraco -

• José de Mello-Saúde - 20 per cent
• Cuf Descobertas (José de Mello-Saúde) - 7 per cent
• Cuf Infante Santo (José de Mello-Saúde) - 7 per cent
• Somague - 51 per cent
• Efider - 15 per cent

Clinco -

• José de Mello-Saúde - 60 per cent
• Cuf Descobertas (José de Mello-Saúde) - 20 per cent
• Cuf Infante Santo (José de Mello-Saúde) - 20 per cent

The debt:equity ratio is split 87:13.

AFMA acted as legal adviser to the banks, Arup was technical adviser, Willis provided insurance advice and Deloitte completed the model audit.

VdA was legal adviser to the consortium, KPMG acted as financial adviser, while Costa Duarte was insurance adviser.

Banco BPI provided financial advice to the authority and Barrocas Sarmento Neves was legal adviser.

The project reached financial close on 6 February 2009.

Conclusion

The close of the Braga Hospital PPP signals an important milestone in the development of infrastructure in the country which until now has been dominated by transport PPPs.

PPPs in Portugal have improved the provision of public service and have adequately responded to the pressing need to boost infrastructure delivery. They have also positively impacted on public sector services by setting a competitive benchmark for public sector performance.

However, these results are based more on effectiveness criteria than on economic efficiency. Some projects are likely to exert a significant fiscal impact in the long run, as there is widespread agreement that the risk borne by the public sector was significantly underestimated at least in some cases.

Should this concern prove well-grounded, expectations on future costs and revenue streams will have to be considerably revisited.

The project at a glance