Construction Giants in Spain Panic over Prospect of Losing one of their Biggest Rackets

Government gets ready to cave.

By Don Quijones, Spain, UK, & Mexico, editor at WOLF STREET.

Spain is home to some of the world’s biggest names in the infrastructure business, but many of those firms could soon be deprived of one of their most lucrative sources of income: the domestic road concessions business. Multi-decade contracts for some of the country’s busiest toll roads, some built as far back as the late 1960s, are about to end. To the companies’ horror, the government has repeatedly stated that the tolls will be abolished once the contracts run their course.

This has prompted frantic lobbying efforts from Spain’s biggest construction lobby, Seopan. The group has urged the government to renew the toll program for the AP-1, which crosses a well-traveled section of Northern Spain and whose concession ends on November 30. The lobby argues that it would be wrong to force cash-strapped taxpayers to pay for the maintenance and upkeep of a road that is used frequently by non-Spanish drivers. As part of a road network that links up Spain’s two main territorial neighbors, France and Portugal, the motorway averages daily traffic of 20,000 vehicles, of which some 30% are estimated to be foreign.

Instead of forcing taxpayers to pay for the road’s maintenance, the government should draw up a new concession, Seopan helpfully suggests — one that would be slightly cheaper given the road’s initial construction costs were paid off long ago. That way, cash strapped taxpayers would be spared unnecessary additional expenses while one or more of Seopan’s members could continue to cream off guaranteed juicy profits from the tolls for many more years to come.

The government could even take advantage of “current favorable conditions” in the financial markets to strike new long-term public-private partnerships (PPPs) with concessionaires. These deals are all the rage in “the most advanced economies,” Sepoan enthuses. Everywhere, that is, except in the UK, the country where PPPs, or PFIs (Public Finance Initiatives) as they’re locally termed, were first pioneered. PFIs have lost much of their lustre there following the collapse in January of the country’s PFI king, Carillion.

PFI deals effectively allowed (and continue to allow) the British government of the day to harness big sums of private capital to invest in public projects without paying any money up front — thus keeping the level of current public debt relatively low — but at the cost of mortgaging everyone’s future. For the construction firms, outsourcers, and banks, the deals provide a guaranteed source of funds over an exhaustively long period, with usurious rates attached. Taxpayers in the UK are estimated to owe a mind-watering £121.4 billion on public projects that are worth just £52.9 billion. And the compound interest continues to grow.

Now, some of Spain’s construction firms want similar deals for the toll roads — but only the really profitable ones! For instance, they’re no longer interested in the nine loss-making toll roads that were built at the turn of this century, largely at the construction firms’ own insistence, to cover routes around Madrid that were already amply covered by “free” public highways. Experts at the time warned that the scheme would backfire since most people would continue to use the free roads, but their warnings were ignored in the mad dash for quick, easy, publicly subsidized money.

The end result was a €5 billion financial black hole on the concessionaires’ books, at least part of which was filled by a taxpayer-funded bailout that could end up costing anywhere between €2 billion to €5 billion. The alternative would have been for six of Spain’s biggest construction firms — Sacyr, Ferrovial, FCC, Acciona, Abertis and OHL (all members of Seopan) — to be hit by a whopping 50% haircut on their initial investment. The banks that had financed the doomed projects would also have been left out of pocket, which is also a definite no-no!

The story is a familiar one in Spain: a massive infrastructure project is conceived, often by a construction company (or companies) which, as a slew of scandals have revealed, may be paying illegal kickbacks to senior representatives of the respective local, regional or central government that ends up paying for the project. The project gets built, is inaugurated, spectacularly fails, and is then rescued by the government’s state guarantees. So common is this practice in Spain’s construction sector, it’s safe to say that if Carillion had been a Spanish company, it would probably have avoided the chop.

Through Seopan, some of Spain’s biggest construction companies, starved in recent years of the large-scale public infrastructure projects that helped fuel their growth, are now desperate for the government to let them enjoy just a few more decades operating the most profitable freeways, at significant extra cost to drivers, hauliers, and the end consumers of the products transported along the roads.

And they’ll probably get it. One of the most important toll roads, the AP7, which stretches the entire length of Spain’s Mediterranean coast, is currently operated by Catalonia-based Abertis, which was taken over in March in an €18.2 billion joint-bid by Italian rival Atlantia and Spanish construction giant ACS. It’s highly unlikely that one of the most valuable jewels in the acquired company’s crown will be allowed to be transferred into public management after such a costly deal.

The Rajoy government is already walking back some of its original commitments, made when memories were still fresh of the controversial bailout of the companies involved in the Madrid toll roads. Instead of pledging to return the roads to public management as previously promised, the new official line is that “all options are back on the table,” which really means there’s only one option: to keep things just as they are. By Don Quijones.

UK regulators may be on the verge of doing something right, but doubts remain over how genuine their stated intentions are. Read…  After a String of Corporate Scandals & Collapses, “Big Four” Accounting Giants Face Breakup in the UK 
 

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  12 comments for “Construction Giants in Spain Panic over Prospect of Losing one of their Biggest Rackets

  1. martin bendelow
    Apr 11, 2018 at 4:02 pm

    Not only in Britain….France,the master of massive off books hidden debt dived like a rat down a drain after PPPs when they discovered the scam. Check out the crazy story of the new public hospital in Corbeil Essonne. First the object of a war for its siting between now ex PM Valls when he was mayor of neighbouring Evry, and the mayor of Corbeil,Monsieur Dassault. Dassault won and the hospitals projected costs leaped since the land he allocated overlooking a motorway was on an unstable steep slope reqiring huge cost overuns. Then the PPP club of crony capitalists of whom the French are masters built the hospital with some expensive delays. Then the disputes over costs went to courts and are still not entirely resolved.

    Then the cronies decided that they reqired yet more money. The state then bought out the angry cronies with large compensatory payments. All along the way the Banks creamed off their fees. Then there is the case of the French Autoroutes. The Sarkozy government needed cash. They sold the autoroutes to the cronies at advantageous rates and the cronies borrowed more than 100% of outlays at the near zero interest rates engineered by the gosplan central banks. Then following secret deals made with the government they began a yearly and sometimes twice yearly ramp up of the toll charges which are now eyewatering.,,,and still rising.

    One of the first acts of the ‘private’ companies was to automate the toll booths,liberating them from that French ‘Profession’ of peagiste. The state had never dared to do that since the resulting outcry would have been a vote loser.

    Part of the effort of the state to reduce its costs on roads and shift them onto the regions and departments was the abandoning of the ROUTES Nationales. These became Departmental with deviations,more and more restrictions and thus forced traffic onto the autoroutes. The costs becoming so high resulted in the trucks going back to the difficult and slow old roads. To compensate,tolls on cars were ramped up faster. The old roads are crumbling under the load of the trucks and the departments are screaming for more money to repair them and demanding that the trucks be forced back to the autoroutes. You cannot parody reality in this totally administered state….but you will pay the taxes.

  2. Tony Mike
    Apr 11, 2018 at 4:17 pm

    Wean them carefully off the government teat and they should be ok. They may even learn to walk on their own.

  3. Gary
    Apr 11, 2018 at 5:06 pm

    I don’t understand these articles at all. How do these economies keep functioning if they are being constantly drained like this? How are these European countries still counted as “First World” if they are always bankrupt??

    I have visited used-book stores, and I’ve found magazine articles, novels, etc., going back to the 1960’s or even longer, and everything said in the article was being said back then (corporate fraud, bankrupt governments, taxpayers on the hook, etc. etc. etc.)

    I really must know even less about economics than I think.

    • Manuel Baltodano
      Apr 11, 2018 at 10:42 pm

      I’m curious to hear others on this as well. I feel the same way.

    • robt
      Apr 12, 2018 at 11:26 am

      You could go back 5000 years and read the same stuff.

    • fajensen
      Apr 12, 2018 at 11:52 pm

      How do these economies keep functioning if they are being constantly drained like this?

      I think it works because what matters to the health of an economy is that there is a constant flow of money. This means Fraud to some degree can replace taxation as a way of forcing expenditure, or flow.

      As long as the frauds spend most of their ill-gotten gains on “local” goods and services, then the economy still functions in a fashion. Usually, the government ensures that money

      One of the reasons reason it goes wrong in places like Greece and Venezuela is that the robber elites lose confidence in the system and begin to place their loot in Switzerland or in property in London.

      When this happens, the money stops circulating and the economy goes down the drain, while the government has to resort to deficit spending and increased taxation to try and keep the ship afloat; this rarely works because a government that is getting ripped off enough by frauds and cronies to get into trouble, is also an incompetent government – poor at taxation, poor at procurement and useless at enforcement.

      The difference between 1’st and 3’rd world is the states ability to control the looting and whether the nation produces goods and services that the looters want to spend their money on.

  4. unit472
    Apr 11, 2018 at 5:20 pm

    There is a very famous bridge between San Francisco and Marin. It was a toll bridge ( 50 cents) until in 1968 or 69 the bonds that financed it were paid off. After that it was supposed to become toll free.

    Of course that could not be allowed to happen as the directors of the Golden Gate Bridge District ( composed mostly of politicians who had lost their seats in Sacramento) would lose their lucrative sinecures along with a few dozen toll collectors. So, the Golden Gate Transit District was formed that ran empty buses around Marin County all day long and nice, but money losing, ferry boats to shuttle affluent commuters and tourists into the city were funded with tolls ( now $5 ). See how it works?

  5. Martin
    Apr 12, 2018 at 2:03 am

    There is a deal of ruin in a nation said Adam Smith. Wealth dilapidation steadily sucks previously created wealth and presently created also…As the weight on the gosplanned donkey’s back grows and the wealth creating is increasingly corralled and pillaged the machine slows and the distortions grow. A USSR future awaits.

  6. raxadian
    Apr 12, 2018 at 2:16 am

    Catalonia you say? Maybe they won’t get it because they are based on Catalonia. Unless they move away first of course

  7. MC01
    Apr 12, 2018 at 8:14 am

    I really hope Atlantia doesn’t teach the good people of Spain how to obscenely overcharge for outdated and poorly kept toll roads, an art they perfected in Italy.

  8. raoul
    Apr 16, 2018 at 4:09 pm

    ‘mind watering’=new trope coined by sr. quijones.

    bravo!

Comments are closed.