After years of dithering and trying to put off the inevitable, the Spanish government and the country’s troubled road concessionaires are moving rapidly toward the day of reckoning. With a second road concessionaire applying for bankruptcy protection earlier this week, road operators are finally forcing the government’s hand.
That this is taking place just as Spain seems to be inching toward a full European Union (EU)/ International Monetary Fund (IMF) bailout is a troubling prospect for both sides. But first, a bit of history is in order.
Several Spanish road concessions – a fair chunk of them located in Madrid – have been plagued for some years by a toxic combination of significantly lower-than-expected traffic, higher right-of-way costs, and, sometimes, competition from government-built free roads, among other factors.
For a long time, an uneasy truce existed between the government, troubled road concessionaires and their creditors. While teetering on the edge of bankruptcy, sponsors and creditors put standstill agreements in place, waiting to see if the government’s promises to help re-balance the financial positions of these troubled roads would materialise.
But then the concessionaire of the AP41 toll road, connecting Madrid to Toledo, filed for bankruptcy protection in late May, breaking rank and shattering the fragile detente. Earlier this week, the operator of Madrid’s R-4 Madrid-Ocana ring road followed suit, commencing ‘Chapter 11’ proceedings in a local court.
At the same time, two other Madrid ring roads – the R-3 and R-5 – are activating pre-bankruptcy measures, negotiating standstill agreements with their creditors.
Ferrovial – which owns Cintra, the majority shareholder in the R-4 concessionaire – said in a statement that “the R-4 project has been directly affected by external factors (substantial reduction in forecasted traffic, additional expropriation costs, economic recession, etc.)”.
But it also stressed that “a significant factor in this decision [to file for bankruptcy protection] was that the potential measures foreseen under [the] law to aid the concession were not effectively implemented by the contractor’s governing body”.
We’re sure there is plenty of blame to apportion to both sides, especially when it comes to the highly artistic science of traffic forecasting. But what’s really interesting is that this unravelling seems, at first glance, to be occurring at the worst possible moment for everyone.
After all, Spain has just applied for a massive €100 billion EU bailout for its banks, after it was discovered that many of its regional savings banks – the Cajas – had big holes on their balance sheets. Next in line are Spain’s troubled regions, many of which are going bust and applying for multi-billion Euro central government bailouts.
The onslaught has been relentless and while Mariano Rajoy, Spain’s recently elected Prime Minister, has tried to put on a brave (some would say stubborn) face, the prospect of a full-scale bailout for Spain has never been more real.
So why choose this moment for a showdown between the government and troubled road concessionaires?
Well, for the latter, it might be an opportunity to actually get some of their money back. Under Spanish law, it’s the government that will ultimately have to foot the bill if Spain’s troubled road concessions go under. If concessionaires’ liabilities migrate to the public balance sheet, a bailout could at least see banks repaid part, if not all, of their principal.
A bailout could also lead to the widespread introduction of tolling across Spain’s entire roads network. That would level the playing field, in a way, since many of these road concessionaires complain that they have suffered unfair competition from new or improved free government roads.
From the government’s perspective, a bailout could also help it implement unpopular measures under the cover of an EU/IMF troika. These could range from the above-mentioned introduction of tolling to giving government an excuse to trample on previously cosy relationships and pressure concessionaires to accept bigger-than-expected write-downs.
Of course, all of this is speculation. It might just be that the unravelling of Spain’s road concessions follows the general collapse of its economy. But whether coincidental or not, high noon is approaching.