On 16 June 2021, the Portuguese Recovery and Resilience Plan (RRP) was endorsed by the European Commission (EC) and is the first recovery plan across the EU to receive such endorsement. The RRP is an instrument created within the EU’s Recovery and Resilience Facility framework as a response to the effects of the COVID-19 pandemic crisis.
The Portuguese RRP is structured around three main pillars: economic and social resilience, climate-related investment and reform projects; and digital transition. It entails the disbursement by the EU to Portugal of EUR 13.9 billion in grants and EUR 2.7 billion in loans over the period 2021-2026 to be allocated to 83 crucial investments and 37 reform measures in various fields such as housing, health services, sustainable mobility, business aid, transport infrastructure, hydrogen, renewables and others.
Next steps and implementation
In relation to next steps, the EC has submitted its proposal regarding Portugal’s RRP to the Council of the EU whose approval is expected to be obtained shortly. This will result in the disbursement of a first tranche of approximately EUR 2.2 billion to Portugal in pre-financing, representing a 13% of the total amount allocated to it. Afterwards, the payment of the subsequent remaining tranches will depend on the achievement by the Portuguese Government of the targets and milestones to be outlined in the Council’s implementation decision.
In terms of national implementation, one of Portugal’s first steps has been completed through Decree-Law no. 29-B/2021, of 4 May 2021, which establishes the governance model for the European funds allocated to Portugal through the RRP and attributes monitoring and auditing powers to designated public entities. Moreover, Portugal has also taken its first funding distribution steps with the launch of the first two tenders under the RRP for access to funding in the education sector.
Impact for the private sector and financial institutions
Among the existing opportunities set out for the private sector, of particular note is the capitalisation of companies through the newly established Portuguese National Promotional Bank (Banco Português de Fomento) which will be responsible for injecting capital into economically viable companies and addressing undercapitalisation and where companies have limited access to alternative financing.
The PNPB is a state-owned promotional bank incorporated in 2020 with the main objective of supporting SMEs and mid-cap corporates, together with large companies deemed important in terms of the national economy, by means of equity and funding operations. The PNPB will be awarded approximately EUR 1.6 billion via the RRP to provide it with capital and with which it will invest in Portuguese companies through direct funding as well by acquiring debt or quasi-equity instruments. Credit institutions and financial companies are also expected to play a significant role by complementing the financing needs of investors.
The RRP is expected to play a role in the promotion and maintenance of public and private investment. The unprecedented financial assistance package arising from the Plan is expected to boost and generate activity in the Portuguese economy, which will, directly or indirectly, create investment opportunities for financial institutions and other private sector players.
The implementation of the RRP will contribute to the fostering of relevant investment opportunities, given the involvement of various market players in innovative projects. This should, result in the need for assistance of companies and other private players in a number of ways. This is likely to include supporting such entities: (i) to effectively address emerging opportunities and identify financing sources; (ii) ion the need for identification and incorporation of efficient investment vehicles; and (iii) assistance in developing investment strategies. Support for the investors of such entities is also likely: (i) in relation to ensuring the financial capacity of those entities; (ii) on the financing provided to such entities participating in the tenders; (iii) and assistance in terms of co-financing opportunities and in the monitoring of projects’ execution in order to maximise co-financed projects.
the RRP is expected to boost and generate activity in the Portuguese economy, which will, directly or indirectly, create investment opportunities for financial institutions and other private sector players