The never-ending story

Spain’s government, through its public works minister, announced in June 2009 that an Extraordinary Infrastructure Plan (PEI) would be presented at some stage that year in order to stimulate its construction sector, so damaged both by the global economic crisis and the national investment cut down.

The plan was finally released in April 2010, with a €17bn budget for 2010 and 2011. It included almost 30 PPP projects; and around 70% will be railways and 30% highways.

The ministry did its work properly, signing an agreement both with the European Investment Bank and the Official Credit Institute on institutional funding for forthcoming projects; they also discussed with commercial banks the most proper PPP model to use. They were all convinced that availability income contracts were an ideal option to minimise the demand risk – the biggest fear for Spanish banks. With these agreements and a starved private sector, the plan’s success was not in doubt.

But surprisingly, the PEI has been continuously delayed by politicians. Each speech ended with the same word: "imminent". The plan was "imminent", the tender for a high-speed railway from Madrid to Galicia was "imminent", the closure of the A-66 roadway was "imminent". But instead nothing transpired, except the PPP contract for the logistics centre in Aranjuez, with just one bidder.

In December 2010, it was announced – again "imminently" – that a high-speed rail PPP contract from Madrid to Galicia would be tendered during the first half of 2011 and the A66 during the first quarter. None of this has come true.

After this initial exposure, what can investors expect from the PEI?

Well, the Spanish government will change in 2012, and the incoming team will have to put order to the public budget before deciding on new infrastructure investments. Prior to elections, the current government is not thinking any more about the PEI, but instead how it can gain an electoral win.

It seems unlikely there will be any new PPP tenders for the rest of 2011, although the A66 contract, from Benavente to Zamora, is fully developed and could be tendered right now. The delay for this contract seems to be with the Treasury, which is reining back investment as much as it can. When government income is reduced, it is quite logical to cut spending; but productive investment must be held even in a crisis situation such as the current one.

In spite of this pessimistic view, I think that the PPP projects that could be tendered soonest are:

Railways

Access to the Algeciras station

Access to the Alicante airport

A66 from Benavente to Zamora

A8 in Cantabria

Another fact that must be mentioned is that banks are quite reluctant to fund PPP projects in Spain, mainly because of the as yet unsolved contracts of the radial highways and the reform of the first generation roadways. If we add the general instability to the mix, we finally get to a very expensive financing – spreads over 325 basis points – and plenty of corporate warranties, which usually make projects less attractive for private investors.

So where does this leave investors? I think the Spanish infrastructure market will rise again and become a power engine for the Spanish economy. I truly believe that PPPs will end up succeeding as the fair and effective models they are. But I also think that the PEI will not have good news until summer 2012 – and this is hardly what can be called "imminent".