The electronic auction of shares in the Algarve Motorway Company - Via do Infante (AAVI, S.A.) runs until October 31st and represents a unique opportunity for investors interested in Portugal's road infrastructure sector.
This auction offers over 75,000 shares of the concessionaire responsible for the management and operation of one of the Algarve's main highway, the A22, also known as Via do Infante.
Via do Infante is a strategic route that connects the entire Algarve region, facilitating the transit of residents, tourists, and freight transport. With the road infrastructure sector constantly evolving, the sale of these shares may attract investors looking to diversify their portfolios and participate in a market that plays a fundamental role in the regional and national economy. The auction also reflects the dynamism of the concessions market in Portugal, highlighting opportunities for new investors in the segment.
A22 - Via do Infante
Structure, Objectives, and Revenue Sources of the Concessionaire
In May 2000, the Portuguese State and Algarve Motorway – Via do Infante – Concession Company AAVI, S.A. signed a 30-year concession contract, ending in May 2030. This was awarded through an international public tender, granting the concession for the design, construction, lane expansion, operation, management, and maintenance of certain motorway sections and associated road networks in the Algarve, on a SCUT (shadow toll) basis without toll fees for users.
The concession also includes the design, project, construction, financing, maintenance, and operation of the IC4 Lagos – Lagoa and IC4 Lagoa – Alcantarilha sections, as well as the IC4 Alcantarilha – Guia and IP1/IC4 Guia – Vila Real de Santo António sections for conservation and operation purposes.
Additionally, the Concessionaire benefits from revenues derived from the subleasing of service areas and insurance indemnities for damage caused on the motorway by traffic accidents. They are also compensated for operation and maintenance services, which are recognized as service fees.
Opportunities and Challenges for Concessionaires with the End of Tolls in 2025
What does the end of tolls mean for concessionaires?
When the concession contract was signed in 2000, the Algarve Motorway (A22) operated under a SCUT system. In 2011, tolls were introduced on this motorway due to deficit reduction measures.
Thirteen years later, in June 2024, the Portuguese Parliament approved the end of tolls on former SCUT roads, which will take effect in 2025, following the approval of the State Budget. Tolls represent an important part of the financing model for concessionaires, who use these resources to cover operating costs, maintenance, and recoup the investments made in building and upgrading infrastructure.
However, the end of tolls may lead to an increase in traffic, potentially generating indirect revenues. Higher traffic on highways can lead to more movement in service areas, benefiting businesses related to food service, fuel, and other associated services.
This situation also creates opportunities for concessionaires to explore new business models, such as partnerships with technology companies for the installation of electric vehicle charging stations or the development of infrastructure that leverages high vehicle circulation to generate alternative revenues.
At the same time, these factors could result in economic growth for the regions adjacent to highways, contributing to a more robust and dynamic ecosystem, benefiting local populations and promoting regional development.
Another positive aspect is the improvement of public perception of concessionaires. The removal of tolls may be seen as a response to driver demands for more accessible and efficient transportation, potentially increasing customer satisfaction and loyalty.
Illustrative Image of a Motorway
Additionally, the reduction in operational costs associated with toll collection, such as system and personnel maintenance, may free up resources that could be invested in road infrastructure improvements.
In summary, the end of tolls could make concessionaires more attractive to investors due to increased traffic, improved customer satisfaction, reduced operational costs, and regional development, resulting in opportunities for expansion and infrastructure improvement.
What are the financial implications of toll removal for concessionaires?
The end of tolls in Portugal in 2025 does not necessarily mean an immediate reduction in revenues for concessionaires, due to contractual provisions that ensure financial stability. Regardless of traffic flow, concessionaires have a contractual and unconditional right to receive compensation for toll collection services, as well as remuneration for construction and operation services on highways.
This financial mechanism ensures that companies continue to be compensated for services rendered, even if the toll collection model is changed or removed. Moreover, the presence of contractual safeguards protects concessionaires from demand fluctuations, insulating them from direct revenue impacts caused by changes in vehicle numbers on the roads.
This stability is further reinforced by the possibility of extending the concession beyond 2030, which increases the value of the shares and attractiveness to investors. It's also worth noting that loan payments are scheduled to be completed by 2027, providing the concessionaire time to adapt its strategies and seek new funding or partnerships to offset the loss of toll revenue. This ensures they can continue to operate and grow sustainably even after changes to the toll collection system take effect.
In short, specific contractual provisions ensure the financial stability of concessionaires, translating into a low-risk, profitable investment.
Article by Isabel Meireles, LEILOSOC®, dated October 18, 2024
