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Europe in Crisis: Spain - A Resilient PPP Market?

06-29-2011 09:38 AM CET | Business, Economy, Finances, Banking & Insurance

Press release from: InfraNews

http://www.infra-news.com/

http://www.infra-news.com/

InfraNews’ feature by Miguel Peña Azpilicueta, BBVA's Executive Director of Project Finance

Little doubt remains as to the profound effect that the financial and sovereign debt crises, triggered by the problems in the US sub-prime market, have had on the Spanish economy. And the PPP market has been no exception. But its intrinsic strength and consistent rate of growth throughout the past decade to become one of the largest in the world have allowed it to weather the storm.

That said, it is important to highlight that the country’s demand driven PPP market has almost ground to a halt, giving rise to the virtual predominance of availability-based PPP transactions, together with an increase in debt margins.

As a result, it is generally accepted that recently the market has not seen (and it is very unlikely to see in the near future) levels of activity for demand driven PPP schemes anywhere near to that experienced in the 2002-2006 period when, through the implementation of the “Radiales”, Spain became a standard for this type of transaction.

However, even in the middle of the crisis, the market managed to successfully close projects which, although a far cry from the structures of the now “notorious” Radiales, successfully dealt with a number of inherent challenges – in particular, those challenges associated with projections of future traffic growth. Projects included the €170m ACS-led A-2 Pyrenees highway, the €232m Acciona/FCC led Zaragoza Urban Tramway and the €900m Bidegi toll operator. The latter being a 100 % subsidiary of the AA+ sub-sovereign Guipuzcoa provincial government.

Public Sector Support
The resilience of the toll-road sector can be partially explained by the support offered from the public sector given prior to the financial crisis. However, despite the fact that the Cuenta de Compensación (a compensation mechanism to off-set losses in toll revenue) failed to solve the problem of underlying traffic levels, it has helped to stabilise the market by providing much needed breathing space. In addition, it shows an unequivocal commitment from the state to the toll road sector.

The impact of pricing, however, may have more lasting effects if the terms and conditions currently available in the market are anything to go by. The combination of an upsurge in the risk premium for Spanish sovereign risk and the virtual disappearance of foreign banks have prevented a reduction in credit margins equivalent to those seen in neighboring countries such as France or Germany.

Regardless of some timid efforts from a few selected players, a wholesale return of foreign banks to the Spanish market continues to be largely absent, meaning an overwhelming dominance of Spanish financial institutions. In addition, the commitment of all parties involved (sponsors, financial institutions and the public sector) has ensured an activity level which has consistently remained well above the average in Europe.

The emergence of several positive trends in the PPP market belies the notion, which some analysts still cling to, that there is time for it to become yet another victim of the crisis.

But despite the obvious constraints faced by all market participants, including sponsors, financial institutions, and the public sector, the market is proving to be very resilient as proved by a flurry of projects which have just come to market.

National Infrastructure Plan
In addition, the launch of a national infrastructure plan, the “Plan Extraordinario de Infraestructuras”, is another step in the right direction. And despite some uncertainties regarding timing, size, project choice and final conditions, the Plan highlights the government’s commitment to PPPs, its willingness to switch from demand-led projects to availability-based ones and the renewed weight given to rail projects, compared to a past that focused more on road schemes.

To read the full article, click here: http://www.infra-news.com/analysis/opinion/876123/europe-in-crisis-spain-a-resilient-ppp-market.thtml

For more information about InfraNews (www.infra-news.com) and find out if you are eligible for a free trial call Ken McAllister on + 44 (0) 207 786 9282 or e-mail at subscriptions@infraresearch.com. Please remember to quote your reference: INPR19OPR.

InfraNews is the most relevant, timely & accurate provider of news, analysis & research about the latest greenfield & brownfield infrastructure projects & deals across the European and global infrastructure communities.

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Contact: Celine Brissay

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