It “could be” a good deal for taxpayers….
By Don Quijones, Spain & Mexico, editor at WOLF STREET.
Spain’s government continues to raise the bar when it comes to the ubiquitous practice of kicking the can down the road: in Spain, the roads in question, snaking around or sprouting from the nation’s capital, Madrid, are very real. They’re also largely empty. And broke.
These toll roads have been bleeding funds at such a rate that their owners — a consortium of concessionary companies, including six of Spain’s biggest hitters in the construction industry (Sacyr, Ferrovial, FCC, Acciona, Abertis and OHL) — have ended up liquidating their assets and are now handing over full ownership rights to Spain’s long-suffering taxpayers, as is common practice these days for many failed large enterprises.
Thanks to the timely intervention of Spain’s government and a friendly judge or two in Madrid’s mercantile courts, the companies will get much of their money back. And that money will go straight back to the banks that helped fund the ill-conceived projects.
All of this was agreed to well over a decade ago when the Aznar government decided, against all advice, to open to public tender nine privately built and managed toll roads to cover routes around Madrid that were already amply covered by “free” public roads. The government also quietly inserted in the fine print a provision that the state would serve as ultimate guarantor for each project.
When the crisis hit with full effect in 2009, Madrid’s already quiet toll roads became virtually empty, save for the occasional luxury car shuttling a senior politician, business executive or banker. Now, seven years later, the bill has come due after a previous agreement that would have unleashed a 50% haircut for all parties involved fell through. The outstanding bill could now reach as high as €5 billion.
Two of the roads in question, the R-3 and R-5, were due to be closed indefinitely on Saturday Oct 1. But then a judge in Madrid intervened at the last minute demanding that the state take full control of them while compensating the concessionaires for their losses. On Monday Spain’s Minister of Industry Rafael Catalá, said that the state’s purchase of the toll roads “could be” a good deal for taxpayers, adding that [comments in brackets my own]:
We would have preferred for the concession to have been sustainable [as many experts said was impossible from its very inception], we have worked to that end and we even proposed a renegotiation of the debt, but today the (roads) are bankrupt and the State will have to take over responsibility for them as stipulated in the contracts [which the government, under Catalá’s own party, helped draw up 12 years ago, with a little help from the concessionaire’s lawyers].
This is not the first time Spain’s government has lent a very large helping hand to some of the country’s biggest construction companies, many of whom have been accused of contributing generously to the governing Popular Party’s decades-long kickbacks scheme. The pattern is always the same: a project gets built, often at the construction company’s behest. Then when it fails, the government’s state guarantees kick in.
Here are three of the worst examples from recent years:
Project Castor: This was a madcap scheme to convert an abandoned oil field off the country’s Eastern coast into a natural gas storage facility. Many experts warned that the idea would not work and that the risks were too great, but they were summarily ignored. The project had to be closed in 2014 after more than 500 tremors, the largest measuring 4.2 on the Richter scale, were felt in towns Spain’s north-eastern coastline. Once the project was closed, the company behind it, Escal, a subsidiary of Spain’s global construction behemoth ACS, got all its money back — all €1.35 billion of it! Now the European Commission is investigating whether the pay out represented illegal state aid.
Panama Canal: The hugely ambitious project to double the canal’s capacity was led by Spanish construction giant Sacyr, which put in a bid for just over $3 billion — $2 billion less than the government’s expected budget. It’s a classic ruse: in Spain, firms habitually underestimate total costs when submitting bids and then ask for more money later. It’s not just common practice, it’s enshrined in law. But when Sacyr tried to pull the same stunt in Panama, asking for an extra $1.6 billion to finish the project the government would not cave in quite so easily. In the end, the Spanish taxpayer had to pick up part of the tab in the form of state guarantees — nobody knows exactly how much. The settlement of the outstanding cost overruns is now in international arbitration.
The High-Speed Train to Mecca: Spain is in second place globally, behind China, in terms of high-speed rail infrastructure. But when a consortium of Spain’s biggest construction companies tried to apply their expertise to linking Medina with Mecca, the problems quickly began to mount – in form of sand. It was constantly blowing across the tracks, despite the construction of a 1.5 meter containment wall to keep it out. Hence cost-overruns, by now around €1.5 billion. And the House of Saud is neither in the mood nor financial position to shell out more. Ominously, a summit has been arranged this month between Spain’s Minister of Industry, Rafael Catalá, and Saudi Arabia’s Minister of Transport, Sulaiman bin Abdullah Al-Hamdan, to find an amicable solution to the cost overruns. And that can only mean one thing: Spain’s taxpayers will once again be left on the hook.
There are plenty more examples of white elephant projects that have bled and will continue to bleed dry Spain’s taxpayer funds, including a desalination plant in Murcia, myriad ghost airports, high-speed train stations located slap bang in the middle of nowhere, a barely used tunnel through the Pyrenees connecting France and Spain’s rail networks, and Valencia’s fast-crumbling City of Arts and Sciences. The supposedly private sector restructuring of Spain’s green energy giant Abengoa also includes state guarantees.
And on it goes… Harebrained infrastructure projects that should never have been conceived and whose existence is owed to two preconditions — easy credit and a government that is willing to backstop any large-scale project as long as it enriches the same corporations that have helped fund its multi-decade kickbacks scheme — will continue to be refunded at or as near as possible to 100 cents on the euro. It’s hardly any wonder that more and more Spaniards are warming to life without a government. By Don Quijones, Raging Bull-Shit.
It just doesn’t let up in Spain. Read… Stealth Bailout of 2 Franken-Banks Now Happening in Spain