Analysing profitability in the SCUTs : excessive returns and renegotiations

Abstract

The aim of this thesis is to study the existence of excessive returns in the Shadow tolls Road projects (SCUTs) in Portugal, exploiting the feasibility of renegotiating the contracts providing excessive rents at the government’s benefice. The study analyses evidence on excessive returns by using a profitability assessment methodology, consisting in comparing an accurate profitability measure with a suitable benchmark. For the SCUTs showing evidence on excessive returns, renegotiations scenarios where these returns are readjusted to the “fair” level are constructed and simulated. We find that four of the seven SCUTs in Portugal – Interior Norte, Algarve, Beiras Litoral e Alta and Norte Litoral – show evidence on excessive returns for the period after the new payment model implementation (in 2010). We further estimate that renegotiating the State payments for these SCUTs permits savings of €837 Million in the aggregate SCUTs payments’ present value. We also find that such levels of cut in the State payments lower the debt service coverage ratio of certain projects below the security level. Imposing renegotiations where the capacity of the firms to pay the debt is not threaten reduce the value of savings to €631Million.