Case Studies: A22 Algarve, Portugal

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Project Overview
Figure 1: A22 – Algarve, Portugal
A22 – Algarve, Portugal
Project Type: Both
Contract Duration: 30 years
NPV for State payments: 215.7M (original proposal with 9.5% discount)
State: EUR 1086.6M
Construction: EUR 218.2M
Concessionaire: EUR 472.1M (Investment, operation and maintenance)
Financing cost:

EUR 217.4 M

(Financial data from the court of auditors report of 2003).
Project Time Line
Tender Call: October 1997
Date Contract Approved (signed): 11 May 2000
Other important dates for the project:
Completion of Construction: 11 March 2003
End of Renegotiations: December 2011


Motorway A22 – Algarve, known as the Via Infante de Sagres, crosses the region of Algarve longitudinally, connecting the municipalities of Lagos, Portimão, Lagoa, Silves, Albufeira, Loulé, Faro, Olhão, Tavira, Castro Marim and Vila Real de Santo António. The eastern end of the A22 is the international Guadiana river-bridge situated on the border with Spain and the link to motorway A-49.

The A22 – Algarve concession has a total length of 127.1 km and provides mostly two lanes in each direction. It offers reduced travel times, higher speeds, lower congestion and a much more comfortable and safe design than the lower standard alternative EN/ER125 road.

It consists of a greenfield section of 35.6 km from Lagos to Alcantarilha (design, build, maintain and operate) and a brownfield section of 91.5 km from Alcantarilha to Vila Real de Santo António (maintain and operate). The A22 eastern section is part of the IP1 route on the main national road network as well as European Motorway E1.

The western section is the only part of the complementary IC4 national road network currently in service, as the remaining part is being re-assessed in view of environmental and strategic development issues. At the Ferreiras junction, near Faro, the A22 intersects the A2 motorway, which connects the region of Algarve (south Portugal) to the capital Lisbon (see Figure 2).


Figure 2: A22 - Algarve motorway

The A22 – Algarve is a 30 year concession initially designed as a shadow toll road. As of December 2011 user tolls were introduced following contract renegotiation.

The Contracting Authority (Public Party)

The A22-Algarve is part of the national road plan and was initiated by a Government Decree. Central government is involved in the contract through the Ministries of Social Infrastructure (Ministério do Equipamento Social – MES) and Finance (Ministério das Finanças – MF). Project approval, inspections, expropriation processes and more recently pricing are under the juristiction of the Central Government, the National Road Institute (Instituto das Estradas de Portugal S.A. – IEP S.A.) and the Finance General Auditor (Inspecção-Geral de Finanças – IGF).

Regulatory requirements concerning road design, construction, operation and maintenance are carried out by IEP S.A. and, as of 2007, the Instituto de Infra-Estruturas Rodoviárias (InIR, I.P.).

The Concessionaire (Private Party)

The contract was awarded to EUROSCUT – Sociedade Concessionária da SCUT do Algarve, S.A. (, consisting of the following companies:

  • Cintra (71%);
  • Ferrovial (4%);
  • Agroman (4%);
  • Construções Gabriel A.S. Couto (3%);
  • Empresa Construção de Obras Pública Arnaldo de Oliveira (3%);
  • Eusébio e Fillhos (3%);
  • Empreiteiros Casais (3%);
  • J.Gomes Soc. Const. Do Cávado (3%);
  • Aurélio Martins Sobreiro (3%).

Cintra, currently owned by Ferrovial, is a large international developer of transport infrastructure. It is based in Spain and currently operates road concessions in Canada, United States, Spain, Portugal, Ireland, Greece, Colombia and Australia.

Ferrovial is a large international investor in transport infrastructure. It is based in Spain and works in four main business areas: services, toll roads, construction and airport management.

Agroman, currently owned by Ferrovial, is a large international investor in transport infrastructure.

Empreiteiros CASAIS is a Portuguese construction company whose principal activities include civil engineering and construction of infrastructure, including bridges, industrial buildings, and schools. The company has operations in Europe, Africa and America.

Construções Gabriel A.S. Couto, Empresa Construção de Obras Públicas Arnaldo de Oliveira, Eusébio e Filhos, J. Gomes Soc. Do Cávado and Aurélio Martins Sobreiro are Portuguese companies active in engineering and construction.

The financing structure includes 16.9% equity and 82.1% debt, partly from the European Investment Bank and partly from a syndicate of international banks (data from Court of Auditors report of 2003).


The A22 motorway serves the region of Algarve, crossing it longitudinally from East to West. Its connection to the A2 motorway allows for regional distribution of national traffic from the North. In Vila Real de Santo António, A22 links to the Spanish motorway A-49 and therefore serves international traffic. Finally, the region of Algarve is a well-known tourist destination. Tourism generates a significant number of trips (especially during the summer months), particularly freight and airport transfers.

Traffic peaked in 2009 with an average daily traffic (ADT) of about 19,000 vehicles, when the August peak ADT was approximately 30.000 vehicles. However, since the introduction of tolls in December 2011 a significant drop in traffic has been witnessed (see Figure 3).

Key Purpose for PPP Model Selection

The Government Decree 267/1997 introduced the possibility of shadow toll PPPs and determined the delivery model of the A22 – Algarve motorway.

Project finance was introduced to speed up the implementation of the National Road Plan (Plano Rodoviário Nacional) and increase the supply of toll-free road infrastructure.

Project Timing

The economic crisis (2008) coincided with many PPP projects already under way. The Government nevertheless decided to proceed, considering that investments (public and private) would be a better response to the crisis and would increase market confidence. However, the public budget has been seriously constrained, leading to the decision to enforce user tolls from December 2011.


Figure 3: Actual average daily traffic 2010 - 2012
Source: Instituto de Infra-Estruturas Rodoviárias (InIR, I.P.) Traffic Reports 2010-12

Project Locality and Market Geography

The A22 motorway links urban agglomerations along its axis as it crosses the Algarve longitudinally. It connects to the Spanish motorway A-49 (the E1 European motorway) and the A2 motorway, which allows for regional distribution of national traffic.

The A22 motorway also forms part of Priority Project 8, a multimodal axis between Portugal/Spain and Europe.

Procurement & Contractual Structure


The tendering process followed a two-stage approach corresponding to a “long list” and a “short list” phase.

In the long list phase compliant proposals were analysed with respect to two sets of weighted criteria. The first (accounting for 65-70% of the score) included the net present value (NPV) of the financial cost of the concession for the State, the risks associated with this NPV, and the infrastructure delivery deadlines. The second set (30-35% of the score) included the financial, organizational and contractual soundness of the bidder, the degree of commitment of other entities the bidder intended to involve, the quality of the proposal in terms of project conception, construction and operation, the service level provided, and the road safety plan.

The two best bids were selected to continue to the “short list” phase, which involved a parallel negotiation process with each bidder and the submission of a best and final offer. The concession contract was awarded to EUROSCUT.

Contract Structure

The A22 – Algarve motorway concession contract was signed on May 11, 2000 and concerned the maintenance and operation of the A22 – Algarve motorway from Lagos to Vila Real de Santo António for 30 years, and the design, construction, maintenance and operation of the incomplete Lagos to Alcantarilha section.

The concession contract established the rights and obligations of the private and public parties and the framework of risks, costs and incentives, as well as the transfer of ownership rights. Operations included accident assistance and data collection. At the end of the concession period, the asset ownership will return to the State at a maintenance standard defined in the contract.

The land expropriation process was undertaken by the State with the concessionaire providing all of the necessary documentation. Compensation costs were to be covered by the concessionaire to a maximum of PTE 2,400M (EUR 12M), with the National Road Institute (IEP S.A.) covering any excess expropriation costs.

A fixed availability fee was foreseen for the first stage of the concession (during construction, roughly 2.5 years) depending on the length of road in operation. During this period, remuneration for the new motorway sections included a fixed availability payment and a variable payment depending on traffic, road length, duration of operations, and a shadow toll defined by the State on an annual basis. Three levels of shadow tolls were used according to traffic bands. For the lower traffic bands, higher tolls were to be paid, while higher traffic bands corresponded to lower tolls.

The tolls were also structured in three parts: the first would pay for fixed operation and maintenance costs and senior debt; the middle part would pay for variable operation and maintenance costs and subordinated debt; and the third part would cover dividends and stockholders debt.

After the first stage of the concession, the contract based remuneration on an annual variable sum depending on traffic volumes and the proportion of heavy vehicles, road availability, and a shadow toll defined by the State on an annual basis. Incentives were foreseen for low road accident indices while penalties were imposed for low availability.

Following contract renegotiation, user fees / tolls were introduced in December 2011. According to the Directorate-General of Treasury and Finance (DGTF) remuneration is now based on availability payments.

The original contract also included financial rebalancing payments in the following situations:

  • Changes in concession activities introduced unilaterally by the State, leading to increased costs or reduced revenue for the private partner;
  • Force majeure events;
  • Legislative changes which increase costs or reduce revenues;
  • Other relevant situations.

The following three key indicators were to be used as the basis for financial rebalancing:

  • A minimum annual debt service coverage ratio;
  • A minimum loan life coverage ratio;
  • A minimum internal rate of return for the shareholders.

Security guarantees of at least PTE 500M (EUR 2.5M) were issued in favour of the State. During construction the guarantee was set at 5% of the annual construction budget, reduced 1% of its reversible tangible asset value, following the completion of each section.

The guarantee was finally set at 1% of the reversible tangible asset value of the newly constructed road section. This is adjusted annually by the consumer price index.

The concessionaire is also obliged to effectively and comprehensively insure against the risks involved in concession activities, including its own. The SPV shareholders are also bound by the concession contract to issue a bank guarantee in favour of the SPV for the full amount of their respective equity.

Staged construction is also included in the contract, with the addition of lanes following a renegotiation when traffic reaches certain levels.

Risk Allocation

The concession contract states “the private partner bears full and exclusive responsibility for all the risks associated with the concession except when the opposite results from the concession contract”.

In 2012, the Directorate General of Treasury and Finance (DGTF) published PPP risk matrices. Figure 4 summarises this report, which represents the situation following the renegotiation concluded in December 2011. More specifically:

  • Design and construction risk is totally private.
  • Planning risk is shared.
  • Maintenance risk including reconstruction is totally private, while the risk of latent defects is shared.
  • Demand risk is totally public, although the value of the shadow toll depends on measured traffic bands, exposing the private partner to some demand risk.
  • Availability risk is allocated to the private partner when associated with supply disruptions, whereas when associated with level of service it is allocated to the public partner.
  • Risks related to inflation, interest rates and default are borne by the private partner.
  • Risks associated with general legislative changes are borne by the private partner, whereas those associated with specific legislative changes are born by the private partner.


Figure 4: Risk allocation

  • Force majeure risks (natural catastrophes and war or political/civil unrest) are shared.
  • Risks associated with archaeological findings are totally public.
  • Environmental risks are allocated to the private partner in construction stage and to the public partner in the operation stage.
  • Risks associated with quality standards and changes in concession activities introduced unilaterally by the State are totally public.


In the first years of operation actual traffic was greater than forecast, according to reports published by the Road Institute (Figure 5). Traffic volumes following the recession are presented in Figure 3, where a considerable drop in traffic is witnessed in 2012 and 2013.


Figure 5: Actual and forecast average daily traffic
Source: Road Institute

The concession contract explicitly mentions two performance indicators: Availability and Road Accidents.

Availability is measured by an indicator of supply disruption. Supply disruptions are measured in lane-km x hours per year.

Road safety is measured by a road accident index defined by the contract:



  • ISt(A) is the road accident index for year t on the A22 – Algarve concession;
  • Nt is the number of accidents with victims registered by the police authority;
  • L is the total length of road in operation in that year;
  • AADTt is the average annual daily traffic for year t on the concession.

This index is compared with an average index ISt-1(weighted) which considers road accidents on all the shadow toll concessions in the country, ISt(SCUT), and the road accidents on the A22 concession the previous year, ISt1(A). The comparator is defined below:



  • ISt (conceession SCUTi) is the road accident index for each of the national shadow toll road concessions i in year t;
  • Li is the total length of road in operation for shadow toll road concession i in year t.

Penalties are associated with low availability and higher road accident indices, as shown in Figures 6 and 7 respectively.

Day-time (7am-9pm) Night-time (9pm – 7am)
Threshold 20,000 lane-km-hrs/year 33,000 lane-km-hrs/year
Penalty PTE 1M per 1,000 lane-km- hrs/year PTE 0.5M/ 1,000 lane-km- hrs/year

Figure 6: Unavailability Threshold

Penalty Threshold ISt(A)>ISt-1(ponderado)
Penalty A22h.png
Bonus Threshold ISt(A)<ISt-1(ponderado)
Bonus A22j.png

Note: Pt is the shadow toll payment due to the private partner for year t
Figure 7: Road safety penalties and bonuses


  • Directorate General of Treasury and Finance (2012). Annual report on PPPs (2012).
  • Instituto de Infra-Estruturas Rodoviárias. Relatório de Tráfego (Traffic Report). Annual, 2008-13
  • SPV website, visited July 2013
  • J. Costa, R. Couchinho, J. Ribeiro, R. Macário, 2014, A22 – Algarve, in A. Roumboutsos, S. Farrell and K. Verhoest, COST Action TU1001 – Public Private Partnerships in Transport: Trends & Theory: 2014 Discussion Series: Country Profiles & Case Studies, ISBN 978-88-6922-009-8