A group of private water companies has urged the EU to investigate what it says are undeclared subsidies and other practices distorting
fair competition between public and private water operators in Portugal. Brussels has twelve months to decide how to react.
AEPSA, the Association of Portuguese Companies for the Environment Sector, filed a formal complaint with the European Commission this month, arguing that the Portuguese state has conferred unfair advantages to public water and wastewater operators in the country over private ones. Unless the Commission dismisses the complaint, it will lead to an EU investigation. Eduardo Marques, president of AEPSA, told GWI that while he considers many factors have contributed to this situation, one article of this year’s state budget law was “the straw that broke the camel’s back”. Article 113 of the 2021 budget law ensures that loans taken out by municipalities to end concessions early are not counted towards their debt ceiling. “We think this is not constitutional,” Marques said, adding that while it would have been impolitic to raise the matter while Portugal held the EU’s rotating presidency for the first half of 2021, the time had now come for action. The complaint puts forward “seven different situations which are against EU laws” on competition and state aid, Marques explained. One is the possibility for publicly-run water services to use municipal funds to balance their budgets, which AEPSA argues constitutes an undeclared form of state aid which private operators are denied. Marques alleged that the country’s government used €50 million in EU funds to prop up the finances of public utility Águas do Norte and failed to disclose this to Brussels as state aid. “This is the wrong way to make this entity [financially] sustainable,” Marques said. “If they are having problems with their economic model, they should increase tariffs, not go to the state asking for money.” Meanwhile, he added, government documents have at times expressly barred private water operators from being eligible for EU subsidies. As a result, ten times more EU funding goes towards supporting public operators’ investment programmes than private operators’, Marques lamented, citing figures from regulator ERSAR. “Portuguese law says we have an open market” for water and wastewater services, he went on, “but in the last ten years we have not seen any new concessions, no subconcessions, and fewer service contracts. The market is flat, it has even receded because of [article 113].” In documents shared by AEPSA with the press, the country’s main public utility Águas de Portugal (AdP), is named repeatedly as a source of grievances. AdP acts as a concessionaire on the Portuguese market, but is a state-owned company. As such, it can agree 50-year concessions with municipalities, when private operators are limited by law to 30 years. The shorter amortisation period, Marques said, forces private operators to set higher tariffs. AdP has the option to contract ‘subconcessions’ out to private companies, but AEPSA says it has never done so. When asked why, Marques told GWI “because I think the state wants to grow the public sector and not the private sector.” For the past five years, he explained, Portugal’s minority government has relied on support from left-wing parties in parliament. “It is not easy to make communist parties like private initiative,” he added with a chuckle. AEPSA previously made entreaties to the government to try and effect change. When a crucial law regulating the sector came up for revision, Marques said he proposed scrapping a clause which allowed concessionaires to renegotiate a contract’s terms if consumption changed markedly. “We made proposals so that more of the risk is borne by the private sector, but two years later the law is the same. If there are no laws that increase the burden of risk onthe private partner,” he said, “municipalities do not want this type of tender.” Both AdP and the Portuguese government told GWI they had not seen AEPSA’s complaint in full and declined to comment.
“The major problem,” Marques insisted, “is not how much work there is for private companies. The real problem is that the sustainability of the environment, and of the operators, is in a bad way. “ERSAR has conducted benchmarking exercises, and you can see the performance indicators of private entities are much better than the public-sector average. For water losses it is less than half. So if we have better performance, know-how, and investment capacity,” he asked, “why don’t we have more work? Something is not right.” Marques hopes that the Commission can convince the Portuguese government to negotiate with private operators to reform the sector. “Going to the European Court of Justice [where Portugal could be fined] is the worst solution,” Marques said. “If it is possible to negotiate, and you are flexible to make a negotiation, we like that solution. “The private sector does not want any privileges,” Marques said in conclusion. “We want only the same rules for public and private, normal market rules.”
MAKING WAVES IN LISBON
AEPSA’s complaint, if successful, could lead to significant reform of rules for private operators in Portugal.