TGV cancellation could cost Portugal dearly

The Portuguese government’s decision to put plans for a TGV high-speed rail link between the Spanish border and Lisbon on ice could result in the loss of hundreds of millions of Euros.

The PS Government decided to temporarily shelve big-ticket public infrastructure investment plans as part of its overall austerity package aimed at putting the public finances on a more balanced footing.

But now the Government is facing an 890 million Euro bill for compensation to contractors for lost business and broken contracts and less European Union infrastructure funding.

It is facing litigation from ELOS, the consortium heading the TGV project, a loss of VAT receipts as well as a tarnished international image as a result of breaking the project agreement.

The austerity measures would also impact on projected plans to extend the project with a goods line from Badajoz to Portugal’s most important merchant sea port at Sines.

The fall-out list from damages is large and difficult to quantify but estimates put it at 247 million Euros in lost community funds for the TGV and a possible 450 million Euros from other interlinked infrastructure modernisation projects.

The consortium which won the contract to build the first stretch of the TGV for 1.359 billion Euros, has already begun to demand compensation for 20 million Euros worth of inherent costs and lost business. The initial claim is said to stand at around 60 million Euros or five per cent of the total project.

The total cost of compensation has already been estimated at anywhere between 70 million and 140 million Euros.

Then there is the problem of 247 million Euros of EU funds granted to Portugal and Spain for the joint venture.

Spain might demand compensation because its partner has backed out, given that some of this money was destined for the cross border branch between Évora and Mérida.

However, Armindo Pinho Martins, the Managing Director of the consortium ELOS, said he was confident that construction on the branch line between Poceirão and Caia would go ahead between February and March 2011. C.G.