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Follow TURFSpain's rush to privatize falls flat, toll roads empty
The finger-pointing over road privatization has commenced, but perhaps the best assessment below is this: "bad planing and excessive spending." The drumbeat for taxpayer-funded bailouts for this infrastructure mess that'll be deemed too big to fail begins...
June 24, 2011
Spain’s Building Spree Leaves Some Airports and Roads Begging to Be Used
By RAPHAEL MINDER
New York Times
MADRID — In March, local officials inaugurated a new airport in Castellón, a small city on Spain’s Mediterranean coast. They are still waiting for the first scheduled flight.
To justify the grand opening, Carlos Fabra, the head of Castellón’s provincial government, argued that it was a unique opportunity to turn an airport into a tourist attraction, giving visitors full access to the runway and other areas normally off-limits. This Sunday, it will be used as the starting point for part of Spain’s national cycling championships, featuring the three-time Tour de France champion Alberto Contador.
Castellón Airport, built at a cost of 150 million euros ($213 million), is not the only white elephant that now dots Spain’s infrastructure landscape. Spain’s first privately held airport — in Ciudad Real in central Spain — was forced to enter bankruptcy proceedings a year ago because of a similar lack of traffic.
Across the country, nearly empty toll roads are struggling to turn a profit. Other projects are surviving only with continued public financing, which has been cast into doubt by Europe’s sovereign debt crisis.
Over the last 18 months, Spain has been in investors’ line of fire after permitting its budget deficit to balloon during a long property bubble, which finally burst alongside the worldwide financial crisis. To clean up the mess, the Socialist government of José Luis Rodríguez Zapatero introduced austerity measures last year that, among other things, shrank spending on infrastructure. That has left some projects in limbo, despite political pledges to keep them alive.
Over the last two decades, Spain built transportation networks at a rate that few other European countries approached.
Having opened its first high-speed train connection between Madrid and Seville in 1992, Spain overtook France last December as the country operating Europe’s biggest high-speed rail network, covering just over 2,000 kilometers, or 1,200 miles.
Growth in road and air transport has been just as spectacular. Between 1999 and 2009, Spain added over 5,000 kilometers of highways — the biggest road construction endeavor in Europe. And its 43 international airports handle more cross-border passengers than any other country in Europe.
Such expansion has been a source of intense national pride. It has also brought major economic benefits to some previously isolated and impoverished regions.
Yet like Castellón Airport, not all the projects were necessarily well thought out. Some experts suggest that Spain’s approach to development during the boom years placed speed ahead of risk assessment.
Joseph Santo, logistics and transportation director in the Iberian subsidiary of the consulting firm Booz & Company, said there were differences between Spain and Britain, for example, when it came to forming so-called public-private partnerships in transportation.
“In the U.K, they try to get everything into the agreement ahead of time and think of every contingency, so that it can take years to negotiate the deal,” Mr. Santo said. “In Spain, they do the reverse. They make the deal in six months and then if something comes up, they see how they can fix it.”
In separate interviews, the heads of some of Spain’s largest construction and infrastructure management companies conceded that spending had gotten out of control before the crisis. But they also predicted that most building projects, particularly in transport, would eventually yield profits.
“The problem is that such projects are generally conceived at a time when everything seems bound to succeed — even sometimes badly conceived projects — and there were no doubt some planning problems,” said Salvador Alemany, the chairman of Abertis, an infrastructure management company that is based in Barcelona. “At the same time, such projects have to live with the realities of an economic cycle that brings lows as well as highs, and there are plenty of examples of highways around the world that had difficult takeoffs.”
Baldomero Falcones, chairman and chief executive of FCC, a builder, recalled the painful opening of toll roads in the region of Catalonia in the 1970s — roads that have recently required expansion to cope with soaring traffic.
“I have never seen any transport infrastructure that at the end of the day has not proved profitable,” he said.
To help raise money, the government has recently intensified efforts to privatize some state-owned infrastructure, including the country’s two biggest airports, Barajas in Madrid and El Prat in Barcelona.
In May, the Spanish secretary of state for transportation, Isaías Táboas, said the government would sell operating concessions for the two airports by the end of the year. Iñigo Meirás, chief executive of Ferrovial, said his company was “seriously considering taking part in the tender process,” with Abertis also expected to be among the bidders.
With a general election coming in March, the issue of public spending has also fed political tensions.
José Blanco, the industry minister, has accused the previous center-right government of José María Aznar of “bad planning and excessive spending,” telling Parliament that Mr. Aznar’s government paid four times as much as it should have to expropriate land on which additional roads were then built.
Things have become so bad that the private operators of one of the roads, which links the Spanish capital and Toledo, started litigation last year against the government, seeking changes to the terms of its concession that would permit it to collect tolls for a longer time.
Mr. Alemany from Abertis noted that the Madrid-Toledo case was not the only one of its kind. “There are certainly a few other projects where a solution needs to be found to avoid a crisis outcome,” he said.
But he expressed optimism that most disputes would be settled out of court.
“I do think that something can be negotiated that would avoid legal conflicts that could certainly prove costly and lengthy,” he said.
Mr. Blanco suggested in November that the government would overhaul the toll road system to help operators of unprofitable roads, notably by extending their concessions.
Mr. Blanco also has pledged to keep on schedule certain projects that have turned into significant electoral pledges for the governing Socialists in some regions of Spain, like extending the high-speed rail network to the southeastern cities of Alicante, Murcia and Cartagena by 2014, as well as adding a link to the northwestern region of Galicia.
Mr. Falcones of FCC suggested that the biggest problems were likely to come from other types of underused infrastructure that do not stand the test of time as well as roads. The debt crisis and the slump in construction have also left Spain with several half-built or deserted museums, stadiums, public libraries, administrative offices and shopping malls.
Still, when it comes to transportation infrastructure, even Castellón’s deserted airport could have a future, Mr. Falcones predicted, as a gateway to some of Spain’s most popular beaches.
“It’s not worked out so far, but a flight from Castellón to Manchester or Frankfurt is quite imaginable,” he said.