Spain bets big on rail with €17bn PPP plan

Ambitious plan aims to kick-start the economy by tendering €17bn of PPPs over the next year-and-a-half. Rail tenders will make up 70% of that amount with the remaining 30% comprising road projects. Most of the new tenders will be for greenfields with the EIB and Spain’s ICO to have a crucial role in funding them.

After months of delays and fine tuning, transport minister José Blanco has finally unveiled his plan to help kick-start the Spanish economy – a €17 billion public-private partnership (PPP) programme to be tendered over the next year-and-a-half.

José Blanco

Rail projects – including high-speed rail, freight transport and suburban rail lines – will comprise about €12 billion of the projects tendered with the remaining €5 billion dedicated to upgrading and refurbishing parts of the country’s roads network. Of the €17 billion to be tendered, €11 billion will be greenfield projects.

The transport ministry said it aims to start tendering projects by July with construction works to start being finalised by 2014. About 400,000 jobs should be created by the new stimulus plan, the bulk of which is likely to be tendered throughout 2011. Concession contracts are expected to have tenors of about 25 years for the rail projects and 30 years for the road deals, the transport ministry said.

Importantly, Blanco listened to the local industry and decided not to transfer demand risk to the private sector in the wake of the financial crisis. As such, concessionaires will be repaid via availability payments – annual contributions from the public sector paid to concessionaires in exchange for making the infrastructures they manage available in good condition.

Since these availability payments will only start being paid from 2014 onwards, they will not interfere with the government’s ongoing plan to cut its deficit by 2013. Starting in 2014, the government will start paying around €1.6 billion per year in availability payments, to be paid for “jointly by all the generations that will enjoy” the new infrastructures, the transport ministry said in a statement.

The European Investment Bank (EIB) and local state-backed credit institution ICO are expected to play a preponderant role in financing the programme. Media sources suggest the EIB could finance up to 50 percent of the €17 billion programme, with ICO funding around 20 percent and concessionaires and commercial banks paying for the remaining 30 percent.

ICO has already created a €1 billion infrastructure fund to lend to projects during 2010 and 2011. The fund will lend up to €100 million per project with loan tenors of up to 30 years available. For projects smaller than €100 million, ICO might co-invest directly alongside the private sector.

The government is also in talks with commercial banks and Spain’s savings banks to secure their participation in funding the PPP programme.  As part of the new plan, concessionaires are required to pay at least 20 percent of a project’s total cost from their balance sheets.