Portugal's political crisis stalls key projects, TAP privatisation

By Sergio Goncalves

LISBON (Reuters) - Portuguese green energy investments that require European Union funds and the privatisation of airline TAP are among the projects at risk of being derailed in the wake of Prime Minister Antonio Costa's resignation, experts said on Wednesday.

Costa resigned after an investigation into alleged corruption in his inner circle around projects linked to lithium mining, green hydrogen and a large data center.

Prosecutors detained Costa's chief of staff and are investigating the outgoing Socialist prime minister, who denied any wrongdoing.

The resignation means the government will act only in a caretaker role, pending a decision by the country's president on whether to call fresh elections or allow the Socialists to form a new government.

"With the government in mere day-to-day management, many of the country's strategic projects will remain at a standstill and will be postponed, this is inevitable," said Joao Duque, dean of the Lisbon School of Economics and Management (ISEG).

"The abrupt fall of the government is bad for the country's external image, as it was associated with alleged corruption and not political issues."

Among projects at risk are the first auction of offshore wind licenses, which kicked off last month, mega-projects for hydrogen production, and a modernization of several structural railway lines across the country.

Filipe Garcia, head of Informacao de Mercados Financeiros consultants, said that a pause in energy transition projects was also expected "as the environment ministry and the Portuguese environment agency APA are at the epicenter of the investigation."

Prosecutors named APA's president as a formal suspect along with Infrastructure Minister Joao Galamba.


Costa's government predicted that renewables - from hydrogen to offshore wind - could attract investments worth 60 billion euros ($64.26 billion), or 25% of the country's GDP, much of that from foreign investors.

Portugal has already received 2.7 billion euros in EU post-pandemic recovery funds, but needs to accelerate the approval of projects that qualify for such aid if it is to make use of the 22 billion euros on offer by the 2026 deadline. Only 12% of the funds have been deployed so far.

"The execution of the EU recovery funds will also probably be delayed and if the execution is already bad, it will get even worse," Duque said.

Miguel Frasquilho, an economist and former TAP chairman, said the privatisation of the national carrier, which the government hoped to start this year, will be suspended and "it will only be able to proceed with a new government" exercising full powers.

Frasquilho, however, added that TAP's sale value might benefit from a longer wait. "The harsh restructuring imposed to make the company profitable and sustainable is now bearing fruit and the government should not rush its privatisation," he said.

The planned sale has already attracted interest from Lufthansa, Air France-KLM and British Airways owner IAG.

TAP last month reported a 62% jump in third-quarter net profit to a record 180.5 million euros ($193.32 million).

($1 = 0.9337 euros)

(Reporting by Sergio Goncalves; Editing by Paul Simao)