The Spanish project finance market has been active since
1993 when the first non-recourse financing took place
(Elcogas). Now a mature market, Spanish project finance covers
a wide range of areas and structures which have benefited from
very positive developments in case law concerning the validity
and enforceability of securities and new regulation. Since
1997, for example, there has been no doubt that the pledge over
rights is fully valid under Spanish law.
Despite some doubts on the performance of some projects
previously and the uncertainties arising from the draft Basel
II Accord, the market is strong and growing.
Project finance techniques are now widely used in fields
which had not benefited from this kind of structures and this
particularly the case for environmental infrastructure. Water
projects such as channels, dams and transfers ike the ones
handled by the state owned companies Hidroguadiana, Acusur or
Segarra / Garrigues are financed in this manner for a global
amount of approximately €1.700 million ($1.8 billion).
Theme park financing is also booming through projects like the
€250 million financing of Xanadu.
Although most foreign independent power project (IPP)
developers are now pulling out of Spain, the traditional area
of power finance is still very active in the country. Spanish
utilities are acquiring projects like this and most of them
will be off-balance-sheet financings. 2003 has already seen the
financial close of Bahía de Bizkaia Energía, the
first IPP in Spain and a wholly-owned subsidiary of Electricity
Supply Board of Ireland, and Bahía de Bizkaia Gas the
first gas infrastructure project in Spain which involved a
liquid natural gas plant owned by BP, Repsol, Iberdrola and the
Basque government. Project finance in the renewable energy
sector is reaching record levels after the 2001 €800
million financing of Energías Eólicas Europeas
(EEE), the largest wind farm financing in the world. New
regulation has tried to encourage construction of combined
cycle plants by allowing the electricity tariff to be increased
if the gas price has risen in the previous year.
Bank debt continues to be the more usual source of
financing, though some bond finance is being structured, as was
the case with part of the Nuon refinancing of the windfarm
portfolio acquired by Abengoa. Syndication under the Spanish
law is becoming very frequent after EEE and the refinancing of
the highway operator Avasa. Securitization status will be
enhanced after new regulations are passed.
The European Investment Bank is becoming the main source of
financing for many infrastructure projects and monoline
insurers are required to participate in most of the projects,
playing a very influential role in the structuring of the
Regulatory and administrative law advice has become an
essential part of the structuring of a project.
The Spanish government has approved a very ambitious
infrastructure plan to be carried out in the year 2010 and due
to budgetary constraints, private initiative will be entrusted
with providing financing for at least one third of the
programme. Some projects have already been closed, like the
second radial Madrid highway, or the two tranches of the
Barcelona tramway. Many others are in the pipeline, like the
third and fifth radial Madrid highways, the Barcelona, Seville
and Malaga underground systems and the Figueras-Perpignan
A consequence of the February 2000 implementation of the new
Eurostat accounting criteria is that the Spanish model, which
involves using a wholly state-owned company as sponsor of a
project whose financing is not considered as public deficit or
debt, is no longer viable. Instead the government has announced
new legislation which tries to offer a more attractive and
secure legal framework for sponsors and financiers of
infrastructure. The main reform affects the Public Works Law
which regulates public concessions. Concessions will now be
offered for Public Private Partnerships (PPP) / Private Finance
Initiative (PFI) development in Spain.
The reform will be approved before summer 2003 and will have
a number of features. Private initiatives to build
infrastructure will be recognized. The traditional principle of
risk and venture (riesgo y ventura) which meant that
the concessionaire built at their own risk will be mitigated by
the new law which will try to secure the concessionaire's
sources of income.
The new law also provides for the possibility of the
administration contributing (in cash or in kind) to the project
both during the construction and exploitation phase and even at
the end of the concession. It also establishes the possibility
of securing a minimum income to the concessionaire in the
conditions to bid.
The income of the concessionaire could come from the payment
of the tariff by the users of the infrastructure, and from the
use of the commercial zones adjacent to the infrastructure such
as hotels and gas stations, the exploitation of which is also
granted to the concessionaire.
Additionally, the reform states that the concessionaire
might be paid in kind through the granting of an exploitation
of other public works or part of a concession which has a
functional relationship with the project they have been
contracted to work on such as a road. The concessionaire might
also be paid through the granting of a public domain concession
in the influence area of the concession such as the
exploitation of a parking lot.
The changes also make the tariff a maximum and adjustable
depending on the demand for the use of the infrastructure and
on the benefits of the commercial zone. The possibility of a
canon por demanda or shadow toll payment of the tariff
by the administration is established as a possibility available
for any kind of concession.
These advantages are compensated by the establishment of the
progress clause, implying the obligation to maintain the
infrastructure in the best available technical conditions and
by the fact that the principle of the maintenance of the
balance of the concession becomes bilateral. Until now, this
principle allowed the concessionaire to request an improvement
of the tariff conditions or an extension of the term of the
concession if such concession was not performing in accordance
to what had been foreseen. This is maintained, but the
principle will be also applied the other way round: if the
concessionaire is obtaining more income than forecasted it will
have to return it.
The financiers are granted the right to collect the payment
of their credits with preference to other creditors if the
concession is terminated. The new law also establishes new
means of financing. Revenue bonds representing a participation
in the income arising either from the tariffs, the exploitation
of the commercial zone or contributions from the government are
permitted. Securitization of these revenue bonds or of the
direct source of income is permitted and the bonds issued will
not be part of the bankruptcy state of the concessionaire.
Title holders of revenue or securitization bonds will be
heard by the granting authorities in order to fix the amount of
their credits when the concession is terminated. If termination
arises for a reason not attributable to the concessionaire, the
creditors are guaranteed a minimum value for the repayment.
The mortgage of the concession is reformed in order to make
sure that enforcement of the mortgage is possible. Prior to
enforcement, the mortgage creditor is entitled not only to
request that the Administration take the necessary measures to
maintain the infrastructure, but also to offer to the
Administration its subrogation instead of the concessionaire,
if the concessionaire was not performing adequately. Mortgage
creditors could also demand that the Administration assign
concessionaire income directly, as well as directly exploit the
commercial zone, if an event of default occurs.
Acquirers of a mortgage structure have to be approved by the
Administration. If no bidder appears, the mortgage creditor can
propose a new concessionaire. If the concession is terminated
the mortgage creditor will receive a minimum
This very positive and long-awaited reform will create a
more secure framework for the financing of infrastructure. It
is expected that after the approval of the new law, the Spanish
project finance market's growth will accelerate.