Spain to bail out road concessionaires

The Spanish government has included a series of measures in this year’s budget that will allow it to bail out several road concessionaires which ran into problems with lower than expected traffic and, more importantly, higher than expected land expropriation costs. Help comes in the form of low-interest loans from the government, increased tolls, and extensions to the concessions’ life.

The Spanish government’s budget for this year outlines a series of measures intended to rebalance several road concessions struck with higher than expected land expropriation costs and lower than expected traffic.

The measures intend to rebalance road concessions held by Spanish developers like Abertis, ACS, Cintra, Sacyr and OHL, specifically four of Madrid’s ring-roads and three highway concessions. By far the biggest problem affecting these concessions – and especially Madrid’s ring-roads – have been the massive increases in land expropriation costs.

Originally set around the €300 million mark these costs have ballooned to some €2 billion, after landowners appealed to the courts and obtained judgements instructing concessionaires to pay more for the land they had already bought. Concessionaires have yet to settle the difference and have been appealing to the government for help.

That help is now forthcoming in the form of low-interest, long-term loans amounting to some €1.4 billion. The loans will target the distressed projects and are set to be provided for the outstanding length of their concessions. They cost 150 basis points and the government will establish a two-year “grace” period before concessionaires are required to start paying them.

Repayment will be facilitated by allowing the affected concessionaires to increase toll prices or by negotiating an extension of the road concessions’ contractual length. But a local industry source was sceptical of the solution’s ability to confront the main issue: ballooning land expropriation costs.

“At the end of the day, these loans may help solve the declining traffic problem, by offering a better refinancing solution. But the larger problem is the way land costs have increased. It will be impossible for these concessions to generate the amount of cash-flows necessary to cover that increase,” said the source.

Solving the expropriation issue is seen by the industry as a pre-condition to guarantee private sector support for the government’s forthcoming €15 billion infrastructure plan, to be mostly financed by the private sector. Otherwise, investors may stay away from it, afraid that similar situations might occur. But even if the solution being proposed is not ideal, the source is optimistic:

“These measures show the government is trying to find a solution for this problem. Even if this one is not perfect, I am sure an agreement will be reached sooner or later.”