Landmark sentence for Spanish road operators

Spain’s highest tribunal has ordered the government to compensate the operator of the Madrid-Toledo toll road. The historical sentence sets a precedent for other troubled toll road operators seeking compensation from the government.

Spain’s Supreme Court has ordered the government to pay compensation to the concessionaire of the Madrid-Toledo toll road, ending a three-year dispute between the authorities and a team of investors including Spanish developer Isolux Corsan and Portuguese bank BES.

The operator of the Madrid-Toledo toll road, known as AP-41, is demanding €420 million from the government to compensate it for changes to the original concession contract. Specifically, the road operator argued that the government’s decision to annul construction of the final stretch of the AP-41, which would have linked Toledo to Cordoba, in the south of Spain, has jeopardised the economic equilibrium of the concession.

The Supreme Court has now ruled in favour of the concessionaire, but has ordered both parties to sit at the table to negotiate the final amount of the indemnity payment. Regardless of the outcome, the historical sentence sets a precedent that is likely to be exploited by other disgruntled toll road operators in Spain seeking compensation from the government for their troubled road concessions.

Many Spanish toll road operators have been hit with changes to their original concession terms that have caused revenues to plummet. The operators of Madrid’s ring-roads, Las Radiales, have been famously hit with higher than expected land expropriation costs following a change to the law. Combined with the damage caused by the financial crisis and over-optimistic traffic predictions, Las Radiales are now hovering on the brink of collapse.

The Supreme Court’s decision on AP-41 will almost certainly open the door for more negotiated settlements between the government and troubled concessionaires, local market sources said, adding that this particular case would now bring into question whether those settlements will be enough to restore these concessions to economic health. 

The pressure is certainly on the government to negotiate, they said. But under Spanish law the state is responsible for the ultimate fate of all concessions. According to the local press, that means it will be forced to take these roads onto the balance sheet if they default, at a hefty cost of more than €3.5 billion.