Opportunities in the Portuguese Water Market

Introduction

Historically, Portugal has limited the intervention of private companies in certain economic activities of public interest. The provision of telephony services was only fully liberalised in 2000 and the opening up of the power distribution and generation markets is now underway. The Government still retains a 10% golden share in Portugal Telecom, the former telecommunications State monopoly, as well as 34% share in EDP, the electricity dominant player.

The water sector is still controlled by local authorities and by ADP - Águas de Portugal, SGPS, SA ("ADP"), the State holding for water supply.

The Portuguese Government has recently decided to foster the creation of public/private partnerships in the water supply sector as well as to privatise ADP, valued at 2.247 million euro.

In this article, we review the opportunities for private investors in the Portuguese water market.

Background

Until 1993, the supply of water was restricted to the State and to local authorities. In November 1993, Decree Law 379/93 allowed the creation of water supply municipal systems, operated by the local authorities or by private entities under concession agreements.

Almost a decade after the approval of Decree Law 379/93 the supply of water and water treatment systems still lack quality in management, have low financial, technical, environmental and human resource investment and consequently suffer from overall lack of service quality. More importantly, there investment in water and waste treatment facilities has been to date has been not sufficient to improve the existing systems.

In order to tackle with these problems, the central Government has created a regulatory authority for the water and waste sector (Instituto Regulador de Águas e Residuos), in charge of setting the guidelines and quality standards for water concessions.

In April 2000, the Government approved a Strategic Plan for the Supply of Water and Disposal of Residual Water (the "Strategic Plan"), which aims at extending the water supply and wastewater treatment services coverage to a maximum level of 95% of the population in accordance with the projections set out in the 2000-2006 Regional Development Plan (Plano de Desenvolvimento Regional).

The Strategic Plan sets forth the following goals:

expand existing water and waste systems;

build new systems;

improve wastewater treatment facilities;

repair and replace water ducts;

promote the re-utilisation of treated wastewater;

preserve...