An urgent need for public awareness

Catarina Cordas; Patrícia Melo; Rui Domingos

The history of privatisation policies in Portugal is not linked to structural adjustment programmes or other direct intervention by the World Bank or the IMF. Its effects are only now starting to be visible to the common citizen. The government directs all the processes aimed at the privatisation of public services, and the scarce and vague information that reaches the population is usually belated and incomplete.

Thehistory of privatisation policies in Portugal is not linked to structuraladjustment programmes or other direct intervention by the World Bank or the IMF.Its effects are only now starting to be visible to the common citizen. Thegovernment directs all the processes aimed at the privatisation of publicservices, and the scarce and vague information that reaches the population isusually belated and incomplete. The question now is how much of this process,and the rationale behind it, can be shared by people at large, who do not takepart in the decision-making process directly. We believe a participatory stancemust be adopted—that people should be encouraged to discuss and generateopinions and ideas on the current process of privatisation of public services,which will have an impact on everyone’s life. Since privatisation is in itsinitial stage, the data available is very limited, and the consequences,especially for the most fragile segments of the society, are not yet clear.

Overthe last century of Portuguese history, the State has had a very interventionistrole in economy and society. The 1974 revolution that overthrew the dictatorshipand restored democracy brought about the nationalisation of many companies andentire sectors, from banking to cement production. In 1986 Portugal joined theEuropean Union, and was thus obliged to comply with competition laws andmacroeconomic goals set by Brussels.

Forthe last 20 years, the public sector has been shrinking. State companies wereprivatised, and the number of public workers decreased as a percentage of thetotal workforce (although still a significant share – 14% in 2002). Apparentlyfor political reasons, public employees also make up a significant share ofvoters, and no government ever forgets that while negotiating with their unions;public workers have obtained economic and social privileges, such as a lowerretirement age and higher pensions. One positive aspect of the public service isgender equality: women earn the same as men, whereas in the private sector womenearn on average about 66% as much as men (Eurostat).

Thecentre-right government that came into power in March 2002 has furtherdiminished state intervention. Since then, government has made it a priority tocontrol the budget deficit by the year 2004, as part of the European Union’sStability Pact. Cutting costs seems the more reasonable thing to do, as anincrease in government revenue through higher taxes, besides being unpopular, isnot very effective. Thousands of public workers under contract have beenlaid-off since May 2002; public institutes and agencies were closed down ormerged, from environmental agencies to support institutions for drug addicts,and some government buildings are for sale.

Themajor opponents of these latest measures are state employees, who fear losingtheir jobs or privileges they have long enjoyed. Their unions are very active,taking social protest to the streets with calls for general strikes. At the sametime there is increasing pressure to privatise public services.


Socialsecurity is a universal constitutional right. However, chronic under-funding,caused by an ageing population and stagnant population growth, has made changesnecessary. In the short run, the proportion of pensioners will increase whilethe proportion of active workers, who contribute to pension funds, willdecrease. The government has responded by proposing a new Basic Law for SocialSecurity, which would allow workers above a certain wage level to choose betweencontributing to the public Social Security for their pensions—currently theonly option available—or to subscribe to private retirement plans with aprivate insurance company. This Law is presently under discussion in Parliamentand at the Council for Social Concertation, with representatives of thedifferent social and economic sectors.

Somecritics of the new law, especially the most left-wing political parties, arguethat the funding crisis has been exaggerated by private insurance companies,which seek to persuade the public that the financial collapse of the socialsecurity system is imminent. They also argue that the proposed solution willonly add stress to the public social security sector, which will receive lessincome as a result of diversion of funds to the private sector.

Oneof the ways previous governments intended to maintain social security revenueswas through an increase in the retirement age for men and women. In 1993, thegovernment increased the contributive lifetime from 36 to 40 working years, andwomen’s retirement age increased from 62 to 65 years old. In addition, becauseunder-funding is largely a result of social security tax evasion by small andmedium size enterprises, the government intends to improve enforcement with morefrequent inspections of these firms. According to the Commerce Confederation andthe Industry Confederation, if the government is successful in its efforts,bankruptcy may be imminent for a large number of those companies, with aconsequent increase in the number of unemployed and still greater stress on thesocial security system to pay unemployment subsidies.


TheState provides universal health care for all, irrespective of economic status orplace of residence. The National Health System comprises public and privatehospitals, regional public health units, private pharmacies, private clinics,public and private labs, and freelance doctors. The role of the State is toensure high quality service in both private and public institutions and to seethat private healthcare providers follow rules governing competition. However,the public health sector has been criticised for not achieving its main goal ofuniversal care. From a recent study from the Chamber of Pharmacists, thepeople’s perception of public sector service, although positive, is lesspositive than their opinion of private institutions. To ensure good qualityservice and budget compliance, the State is now turning to private companies tomanage state-owned hospitals and health units, starting in November 2002.

Thebiggest protest has come not from patients, but from health workers, whogenerally try to make the best of the scarce resources they have and now fearlosing their jobs or being forced to work even harder, subject to the mandatesof the new management. On the other hand, private management seems to supportthe interests of patients, especially when it increases quality withoutincreasing the prices paid.

Theonly experience so far of private management of a public hospital, the HospitalFernando da Fonseca near Lisbon, is not conclusive, as the government is askingfor compensation from the hospital’s management board for not having achievedits contractual goals, and the board is asking the government for funds thatwere supposedly part of the contract and never arrived (July 2002). Still thegovernment is moving on with the private management model in 36 privatehospitals, through partnerships with private groups and charities (Misericórdias).


Until1997, all railway activities had been undertaken by the state-owned Caminhos deFerro Portugueses (CP). CP was a vertically integrated monopoly, receivingsignificant financial support from the government. Since 1997, the railways haveundergone restructuring to increase efficiency. The new railway model definesdistinct levels of competence. In the same year, CP was divided into twodifferent companies, separating infrastructure from operation: CP now providespassenger and freight transport services while a new state-owned company—RedeFerroviária Nacional (REFER)—manages the infrastructure. Furthermore, in 1998the Instituto Nacional do Transporte Ferroviário (INTF) was created as anindependent rail authority responsible for the regulation and development of therail transport sector. A new company, FERTAGUS, was created in July of 1999, asthe first private operator, responsible for new suburban passenger service inthe Eixo Norte-Sul (the urban region of Greater Lisbon).FERTAGUSassures the management and commercial exploitation (at the operational level asopposed to the infrastructure level) of the commuter railway line while itsclients pay a fee for the use and management of the infrastructure to REFER.According to the daily information given by CP (available in the trainstations), the results so far reveal improvements in the frequency andpunctuality of both passenger and freight trains.

Becausethe infrastructure for this sector is extremely expensive, returns frominvestment take a long time. Therefore no private investor would risk itscapital without assuring return rates demanded by stockholders. This raises theprospect of tariff increases and/or the lowering of the workers’ wages as ameans of generating greater returns in the short term.[1]This becomes a social issue because poorer and disadvantaged groups aregenerally more dependent on public transport and cannot easily find affordablealternatives.


In1976, the public company Electricidade de Portugal (EDP) was created,integrating all the former companies of production, transport and distribution(which had been nationalised in 1975). In 1997, the privatisation of EDP began.The restructured electricity sector would now be regulated by an independentregulatory agency, Entidade Reguladora do Sector Eléctrico (ERSE), which wouldbe responsible for fixing the tariffs for electricity and supervising the rulesof interaction between the public and private sectors.

Theprivatisation process had immediate consequences for EDP’s workers, as someprivileges like health care, child care and electricity discounts were cut off.While employees’ living standards diminished considerably, it is legitimate toask if the privileges they enjoyed before privatisation were fair in the firstplace.


Aguasde Portugal is a national organisation with administrative autonomy. It wascreated in 1993 and integrates 14 multi-municipal concessionaires of watersupply systems and sanitation, and 14 systems of urban solid waste disposal.

Itis the second largest Iberian water operator and the eighth largest worldwide,according to the European Water Industry. The main objectives of Aguas dePortugal are management of water resources, promotion and development of thewater infrastructure and cooperation with national and internationalorganisations. The company provides basic service for seven million Portugueseconsumers (70% of the total population) and for one million people in Brazil,Mozambique, Cape Verde and Timor-Leste, being a partner in projects for thedevelopment of water infrastructure in those countries.

In2001 privatisation of the whole company was suggested. The plan was to begin byprivatising 11% of the company in 2002 and 29% in 2003. Recently, the newgovernment chose a different strategy to carry on the privatisation process:only the four profitable companies of the group will be privatised so that theexisting public monopoly is not replaced by a private one.

Thereare some arguments against the privatisation of the profitable companies becauseit will diminish state revenues. In fact, due to the synergies of this kind ofbusiness, the sum of the value of the separate companies is EUR 3 million (USD2.94 million) less than the value of the whole group. Another argument againstprivatisation is that currently this public company acts like a “publicholding”: the profits of the profitable companies finance the investment ofother companies of the group that are in start-up stages. This situation willchange with privatisation, and Portugal has some remote and poor regions wheresignificant investments, even if profitless, are necessary.

Moreover,in terms of its development cooperation policy, Portugal is committed toinvesting in the water supply and management sector in Mozambique, Timor-Leste,Angola, São Tomé and Principe, and the privatisation of Aguas de Portugal putsthese commitments at risk.


Atthe moment there are no consistent data on the impact of privatisation inPortugal. The lack of public debate onthe implications for people, especially the most disadvantaged, is a consequenceof insufficient information. Politicians who are making important decisions onthe terms of the privatisation of basic services, have more incentive to respondto lobbying pressures than to inform their constituents, and public opinionseems almost nonexistent on this issue.

Socialprotests against privatisation will not happen just because of general harm tosociety. They will only occur when people feel themselves to be directlyaffected, through loss of jobs, income or benefits.


[1] M. Manuel Marques Leitão and Moreira Vital. “Desintervenção do Estado, Privatização e Regulação dos Serviços Públicos” in Economia e Perspectiva, Vol. 2, No. 3/4, pp. 13-157.