Infrastructure Plans in Spain: a strategic outlook vs. political cycle. Can an agreement be reached?
In July 2017, the Spanish President, Mariano Rajoy and the Minister of Public Works, Iñigo de la Serna, announced the launch of the so-called “Extraordinary Highway Investment Plan”, also known as PIC from its initials in Spanish. The plan anticipated tendering through public/private collaboration for action on over 2,000 km in the next four years, with an estimated investment of around 5,000 million euros. This initiative would allow the Government to reduce the public deficit and multiply the expenditure capacity permitted under the year’s budget by six.
Almost at the same time, in August 2017, the direct management agreement between the Ministry of Public Works and the State Overland Transport Infrastructures Company (SEITT) was published in the Official State Journal, which regulated operating management and preparation of calls for bids in tenders for State owned motorways in liquidation processes. This group of motorways includes the four ring-roads around Madrid (R-2, R-3, R-4 and R-5), the Ocaña – La Roda toll motorway (AP-36), the Airport Axis (M-12), the Madrid – Toledo toll motorway (AP-41), the Alicante Ring-road and the section of the AP-7 motorway between Cartagena and Vera. Publication of the agreement was the kick-off for a process that had been on the political agenda for years, as many of the Concessionaire companies holding concession contracts had gone bankrupt and had entered liquidation. From February to June 2018, all those motorways have been returned to the State, with the exception of the AP-41 which was still pending resolution on the date this article was written.
Furthermore, at that time the Ministry of Public Works needed to make decisions about concession contracts that were nearing their ends, and returning them to the State, such as the case of the AP-1 from Burgos to Armiñón, the AP-4 Seville to Cadiz, or some sections of the AP-7, such as the one between Tarragona and Alicante. There is a wide range of open options including the possibility of extending the deadline, relaunching the concession, calling for bids only for maintenance and operation with the State receiving the income from the tolls, or removing the tolls from the motorways and the State taking over maintenance.
With these three milestones on the table of the decision-makers, Rajoy’s Government put forward the possibility of reaching a long-term political consensus on future investments in infrastructures and opened the eternal debate on infrastructure tariffs and their impact on the country’s economy. The search for this consensus is something that is apparently obvious, but it is something that has never been a common factor in investment policies in Spain. Each Administration has launched its own investment plan (often using projects by previous governments and only changing the name), using them in their election campaigns. As a result, Spain has never had the orderly, planned infrastructure investment plan that it should have had.
With the arrival of the new Socialist Government in June this year, the immediate consequence has been a delay in the execution of these plans:
The PIC has been momentarily put on standby when it appeared that the bidding documents for the first two actions in Murcia were about to be officially published.
Re-launching bailed-out motorway concessions has been indefinitely postponed, with the subsequent direct effect on the deficit, as the economic liability of the Administration (the amount the grantor has to reimburse the concessionaire for investments made) was assigned to the 2018 budget.
Finally, the current Minister of Public Works, José Luis Ábalos, has announced the Government’s decision not to extend the concession of the AP-1 motorway between Burgos and Armiñón (which ends in November this year), which will be returned to the Administration, to become a toll-free motorway waiving the toll fees of around 70 million euros per year. This decision is a milestone for upcoming returns of concessions, establishing a scenario that places the State’s budget balance in danger. Concerning this matter, we should reply to a number of questions before making such important decisions: Does it make sense allowing free transit on an infrastructure where between 30% and 50% of the vehicles are foreigners? How will the traffic congestion be managed on this motorway that will with traffic from the current free alternative, which is a lower specification highway? How will investments be made to extend it if the minimum levels of service are not met?
In other words, the fact that there has been a change of Government in Spain, has directly affected the plans defined by the previous administration. This, far from being s surprise for the general public, is something that has been considered normal in this country in recent years. That is exactly why the debate on the viability of the plans launched by different governments must be opened, who have not been backed by majorities in the Lower House; plans with short-term horizons and commitments that go beyond the legislature which passes them.
A transport Plan must be a long-term agreement between the State and its citizens, capable of surviving several legislatures, even if the political parties in power change. Political cycles are shorter than the lives of infrastructures, shorter than the construction time of some of them and shorter than the timeline of most of the infrastructure plans. The politician who makes the decision to execute a project is very rarely the same person who attends the official opening. Although benefits are long-term, the expenses are usually short or mid-term. In view of the foregoing, for the Transport Infrastructure Plan that Spain needs to prosper (i.e. a Plan spanning four or five legislatures), an agreement between the main Government parties outside the subject of political debate: what has come to be known today as a “State Pact”.
At the end of the day a Plan is all about the distribution between earnings (taxes and fees) and expenditure in different sectors worthy of attention. That is precisely why the sources of income, budgets and extra-budgets need to be defined. This is not to be confused with a master plan, as the latter is only the part of the Plan that depicts the final image of the fieldwork (sometimes called “the letter to Santa Claus”). These items are mixed up fairly commonly, as was the case with the last two infrastructure plans before the PIC (the Socialist PEIT and the Conservative PITVI): where the final scenario was given priority over the details of when and how the planned action would be carried out (schedule) and how it would be paid for (financing).
To sum up, not only does a long-term “State Pact” need to be reached on the Transport Infrastructure Plan, but the approved Plan must have a stable schedule and secured financing.
Miguel Ángel Parras – Senior Investment Director