Águas de Portugal maps out its future

Subscription required

As a guest you can read up to 3 full articles before a subscription is required.

You can read a further 2 articles for free.

Subscribe Now, Sign up for a Free Trial, Log In

The merger of bulk and retail water services in Portugal will result in a series of private concessions being rolled out next year. Not everyone is happy with the reform process.

Portugal’s state-owned bulk water operator AdP has gone public with plans designed to ensure its future financial sustainability and cut the debt burden accumulated over 20 years of sustained investment in modernising Portugal’s water supply and wastewater infrastructure.

In the first stage of the restructuring plan, the group’s 19 multi-municipal bulk water and wastewater utilities will be amalgamated into four regional companies: North, Central, Tagus Valley-Alentejo and Algarve, with a fifth separate region under consideration (see map). This will bring economies of scale and allow tariffs to be equalised across the country by merging profitable coastal systems with loss-making systems in the interior, according to AdP’s CEO Afonso Lobato de Faria.

In a second stage, the traditional division between state-managed bulk water operations and municipally managed retail water services will be abolished in favour of integral water cycle operations, with individual municipalities losing direct responsibility for water and wastewater provision.

The Portuguese government then wants to see these integrated regional companies offered as private sector concessions from 2013 onwards in order to take advantage of the “huge interest in accessing the cashflows generated by final water service consumers.”

The money generated from up-front payments related to the concessions could help to reduce AdP’s €3 billion debt pile, while further private sector capital could be accessed in order to meet infrastructure investment commitments of €2.5 billion between now and 2017.

Even more important for the longerterm sustainability of the municipal water sector, however, is the thorny issue of raising tariffs. The sector currently has an estimated annual deficit of €600 million deriving from municipal inability or unwillingness to set tariff levels to ensure full cost recovery, especially for wastewater treatment.

AdP has calculated that combined water and wastewater tariffs will have to be raised to an average of €2.70/m3, compared to an average of €1.45/m3 in 2008, a figure which takes into account the large number of municipalities which did not bill for wastewater services four years ago.

An AdP spokeswoman told GWI that “raising water tariffs is always a very passionate issue, but we believe that the joint efforts of the water regulator ERSAR, the Portuguese government and other stakeholders will help the water sector achieve progress.” She added that “some municipalities have already implemented the regulator’s tariff recommendations to achieve full cost recovery.”

Some municipalities oppose the plan. José María Pos-de-Mina, mayor of Moura, Alentejo, and ex-president of the municipal association for public water management (AMGAP), told GWI that the restructuring plan fails to take into account the position of the so-called public-public AdP-municipal partnerships in the regions of Alentejo and Aveiro, which already operate efficiently and guarantee full cost recovery.

“We do not believe the mergers will produce big savings, nor do our municipalities want to lose control of water management” through the integration of bulk and retail services, he added.

AdP, however, believes that most municipalities will be supportive because they “are facing huge financial pressures and will not be able to continue to subsidise water with municipal budgets.”

Portuguese water operators also have concerns about the concession plan. Rui Godinho of the Portuguese association for water distribution and sewerage (APDA) told GWI that, “depending on the dimension of the resulting regional water companies, the complexity of the assets involved and the financing conditions of the bid,” Portuguese companies would probably not be able to compete with large international operators.

“The best possibility for Portuguese companies to succeed is if they are able to participate in public tenders as part of joint ventures with significant international players,” he added.