Portuguese Prime Minister resigns over investigation into lithium and hydrogen corruption

LISBON (Reuters) – Portuguese Prime Minister Antonio Costa resigned on Tuesday, hours after prosecutors detained his chief of staff in an investigation into alleged corruption in his administration’s handling of lithium and hydrogen mining projects.

Costa, who prosecutors said was the target of a related investigation, announced the decision in a televised statement after meeting with President Marcelo Rebelo de Sousa.

He said that his conscience is clear, but he will not run for a fourth time as prime minister.

“The dignity of the Prime Minister’s functions is incompatible with any suspicion of his integrity and good conduct, and even less with the suspicion of any criminal act,” Costa said.

It is now up to the president to decide whether to allow Costa’s Socialists, who have a majority in parliament, to form a new government or dissolve parliament and call elections.

Parliament was scheduled to vote on the 2024 budget bill later this month.

“It is inevitable that there will be elections after the sudden death of the government,” said political scientist Adelino Maltese. António Costa Pinto, of the University of Lisbon, did not rule out another socialist prime minister taking power, but also said early elections were the most likely option.

Portuguese stocks fell about 3%, and the closely watched gap between the yield on its 10-year government bonds and the euro zone benchmark German bond yield widened to 69 basis points from 65 basis points on Monday.

Projects investigated

The public prosecutor’s office said in a statement earlier on Tuesday that five people had been arrested as part of the investigation, including Vitor Escarria, Costa’s chief of staff, whose offices were searched along with several government buildings.

She added that Infrastructure Minister João Galamba and Environment Agency head Nuno Lacasta are officially suspects and will appear before a judge.

Galamba’s office and APA did not respond to a request for comment.

Prosecutors are investigating allegations of corruption and influence peddling in the Barroso and Montelgre lithium exploration concessions in northern Portugal, a hydrogen plant project in the port of Sines and a massive data center investment there.

They said they became aware that the suspects used Costa’s name and authority to “open proceedings” related to the deals, and the Supreme Court will look into Costa’s possible role in the deals.

Costa said he was “fully prepared to cooperate” with the judicial system.

“There may be at stake… facts that could constitute crimes of malfeasance, active and passive corruption of politicians and peddling of influence,” the prosecutor’s office said.

With more than 60,000 metric tons of known lithium reserves, Portugal is seen as central to Europe’s efforts to secure more of the battery value chain and reduce reliance on imports.

The APA earlier this year gave environmental approvals to local company Lusorecursos to extract battery-grade lithium in Montalegre and to London-based Savannah Resources (SAVS.L) to develop its own mine in Barroso.

Contacted by Reuters, Lusorecursos had no immediate comment.

Savannah said in a statement that it was cooperating with authorities who visited some of its locations, but neither the company nor any of its employees were the target of the investigation. She added that work on the Barroso lithium project continues without any obstacles.

Fears about the future

Costa will remain in his position until the president’s decision. Rebelo de Sousa summoned political parties for consultation on Wednesday and his advisory body, the Council of State, on Thursday.

Since coming to power in 2015 in the wake of the debt crisis and international bailouts, Costa has overseen a period of strong economic growth during which his successive governments have managed to narrow budget deficits and reduce the debt burden, and he has won praise in Europe for sound fiscal policies. .

But Costa’s last term, which began in early 2022 when his party won a surprise absolute majority in snap elections, was marred by scandals, including a controversy over state-owned airline TAP in January 2023, prompting opposition parties to demand the resignation of his government.

Carsten Brzeski, global head of macroeconomics at ING, predicted little fallout in financial markets thanks to Portugal’s hard-earned reputation there.

On the streets of Lisbon, few people showed surprise, but many expressed concern about the political crisis amid rising costs of living.

Annabella Reyes (62 years old) said, “Frankly, I do not know whether (the resignation) is for the better or for the worse. Everything is upside down. (The cost of living) is getting worse. Let us wait and see.”

Nuria Costa (22 years old) was concerned that the scandal might benefit the far-right Chiga party, which is already the third largest party in Parliament.

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