The unexpected resignation of Portuguese Prime Minister António Costa on November 7 has put at risk the privatisation of TAP Air Portugal (TP, Lisbon), the local newspaper Expresso and the news agency Reuters reported.

Costa submitted his resignation after police raided his official residence amid a corruption probe of his inner circle related to projects linked to lithium mining, green energy, and a data centre. He said he was “surprised” to learn about the case and denied any wrongdoing, but he explained that the seriousness of the matter was “incompatible with the dignity of the office of prime minister,” forcing him to stand down.

The current government must now act only in a caretaker role until the president of Portugal, Marcelo Rebelo de Sousa, makes a decision on whether to stage elections or allow the governing Socialists to form a new government. Costa said he would remain in office until he is replaced, but it is up to the president to decide from which date he exits.

The political crisis means that “many of the country’s strategic projects will remain at a standstill and will be postponed, this is inevitable,” the economist Joao Duque told Reuters. “The abrupt fall of the government is bad for the country’s external image, as it has been associated with alleged corruption and not political issues.”

Expresso concurred that a number of “important strategic dossiers” that were on the table for the government are now compromised, at the forefront being the privatisation of TAP, the state budget for 2024, and a decision on a new airport for Lisbon.

While the Portuguese government approved a decree in early October to initiate the TAP re-privatisation process to sell at least 51% of the company and reserve 5% for employees, in late October it hit a glitch when Rebelo de Sousa vetoed the decree over concerns about a lack of transparency in the process, which he told the government to address.

Miguel Frasquilho, another economist and a former TAP chairman, told Reuters that the privatisation - which has attracted interest from Lufthansa Group, Air France-KLM, and IAG International Airlines Group - will likely be suspended and “will only be able to proceed with a new government.” He added, however, that the flag carrier’s sale value could ultimately improve with 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.”