By Don Quijones, Raging Bull-Shit .
When it comes to wasting money on white-elephant projects, Spain is in a league of its own. Its ill-fated infrastructure projects include ghost airports (including one that boasts Europe’s longest runway), high-speed-train stations located slap bang in the middle of nowhere and Valencia’s fast-crumbling City of Arts and Sciences.
Arguably the country’s most madcap construction scheme to date, however, was the development of nine privately built and managed toll roads to cover routes around Madrid — routes that were already amply covered by “free” public highways. The year was 2003, Spain’s real estate bubble was in full swing, and cheap money was flowing like bootlegged liquor in a mid-1920s Chicago speakeasy.
Experts cautioned that the scheme would backfire horrendously, but their warnings were ignored in the rush for quick, easy money. Leveraging its absolute majority in parliament, the Aznar government bulldozed the project through while quietly inserting in the fine print a provision that the state would serve as ultimate guarantor for each project.
Today the highways are as good as empty, save for the occasional luxury car shuttling a senior politician, business executive or banker to and from their expenses-paid junkets. As the experts warned at the time, almost all other drivers have kept to the jam-packed-but-free public highways. Once the financial crisis hit, what little traffic there had once been on the toll roads quickly dissipated, with some roads registering drops of between 10 and 50 percent in the last year alone.
The result is that eight of the nine toll roads are now facing bankruptcy. In total, over 5 billion euros has been squandered. What that means – or at least should mean – is that Seopan, the consortium of concessionary companies involved in the project, including six of Spain’s biggest hitters in the construction industry (Sacyr, Ferrovial, FCC, Acciona, Abertis and OHL), now face the prospect of significant losses on their books.
The six banks that helped finance the project (Santander, La Caixa, Sabadell, Popular, BBVA and Bankia) now want their money back, as do the landowners on whose land the roads were built. And guess what? They’ll get it, give or take a little short back and sides. And guess what else? Seopan will also be partially bailed out. After all, its members represent the crème de la crème of Spain’s international business community. As such, they too must be protected from the all-too-cruel invisible hand of the market.
Kicking the Can Down the Road
The big question is: just how will the government pull it off? As things currently stand, the plan appears to be: first, nationalise the bankrupt roads by creating a 100 percent state-owned company that would assume the debt load and add it to the national debt; and second, restructure the banks’ now worthless loans of over 2 billion into a new 30-year bond with an annual interest of just one percent — hands-down, the best example yet of kicking the proverbial can down the albeit empty road!
The problem for the government is that most of the concessionary firms involved are intent on minimising their losses (quelle surprise!). They have even lobbied for a minority participation in the new state-owned company – a proposal that the government has outright rejected since it would count as direct state aid, thus contravening EU competition laws.
Meanwhile Spain’s three biggest banks – Santander, BBVA and La Caixa – have been applying pressure of their own as they hold out for an interest rate on the bond much closer to the current market rate of over four percent. Their reasoning is simple: at a rate of just one percent, most of the money they’re owed would be eroded away by inflation — just as has been happening to most of their savers in the age of ZIRP.
If the government shirks from bailing out the motorways by taking on their debt, the construction companies will start legal proceedings against the state that could end up costing the same in terms of the effect on the deficit. “I don’t think the government will want this to go to the courts, as it won’t benefit anyone,” Seopan’s chairman. Julian Nuñez, told Reuters. “We have around a month, maybe a little more … This cannot go further than June.”
Whatever solution is hashed out in the final negotiations, the one thing that is abundantly clear is that the real loser in all this will be the general public, as billions of euros more of taxpayer funds are shifted from state coffers to the bottomless pockets of some of the country’s largest corporations — at a time when austerity is biting and vital public services face across-the-board cuts.
PPP: Popular Party Partnerships
The question most Spanish people should now be asking (but by and large aren’t) is “why?” Why are these companies being almost wholly insulated from the risks of doing business, while countless perfectly viable SMEs go under due to lack of credit? Also, why does just about every Spanish government seem so intent on misallocating funds to projects that provide no public value whatsoever? The answer to both questions is quite simple: rampant collusion and corruption between government and business.
As revealed by the Bárcenas scandal, many of the same construction companies that stand to benefit from the upcoming bailout have also been identified as donors to the governing Popular Party’s illegal political kickbacks scheme. They include Sacyr’s current chairman Manuel Manrique, who is alleged to have personally paid 200,000 euros to Luís Bárcenas, the PP’s former treasurer and current occupant of Madrid’s El Soto del Real prison.
As I reported in Spain Exports Its Construction Model, With Predictably Dire Consequences, Sacyr currently leads the consortium overseeing the expansion of the Panama Canal, a huge infrastructure project that was recently brought to a standstill by Sacyr’s “lack of funds” — a lack of funds whose only remedy was yet another financial intervention (read: covert bailout) on the part of the Spanish state.
Also confirmed among the PP’s illegal donors are two other members of Seopan, FCC and OHL. In a nutshell, here’s how Public-Private Partnerships (or Popular Party Partnerships) currently work in Spain: construction companies (as well as businesses from many other sectors) channel millions of euros of undeclared donations to the party – money which, it seems safe to say, is promptly rerouted to the offshore bank accounts of senior PP politicians. Once in government, the party gives the green light to a host of socially useless and financially doomed infrastructure projects that will generate billions of euros for donor companies while bleeding taxpayers dry. For the companies, it’s money for old rope; for the PP politicians, it’s money stashed in Switzerland, the Cayman Islands or wherever else they think they can hide it.
Ghost airports, roads to nowhere, high-speed-train tracks linking up small provincial cities… all these and many more dead-end investments were a direct result of Popular Party Partnerships. Not once, it seems, did the Aznar government consider the public utility or business soundness of these projects – for the simple reason that its loyalties, bought on the sly and the cheap through the ritual offering of cash-filled envelopes, lay elsewhere.
Now it’s the turn of Aznar’s successor, the bearded incompetent Mariano Rajoy, to bury the toxic financial waste under the soon-to-be-buckling floorboards of yet another bad bank. Meanwhile, the roads that should never have been built become yet another financial albatross around the taxpayers’ necks. And to rub the final pinch of salt in the wound, should any of these roads ever, by some ridiculous miracle, become profitable, they will very quickly be re-privatised and placed once again in the clutching hands of the very same companies that are about to be bailed out. By Don Quijones, Raging Bull-Shit
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