Friday, June 30, 2006

Spain: Leader in Infrastructure Development

Continued from Page 1

Why Spain?

The Spanish Civil War at the end of the 1930s left the country extremely poor, a situation that persisted for decades. In the 1960s, the government realized that building infrastructure such as roads was crucial for tourism and for the development of the country.

“At the time, we could only use peseta [the Spanish currency before the Euro] loans for investment, and peseta loans were limited to the accumulation of taxes,” says Fernando Gutierrez de Vera, chairman of the concessions commission for SEOPAN, the major association of Spanish contractors. “But Spaniards were very poor with a very low income per capita. So this meant that there was not enough money in the system to be invested into the country’s development.”

In response, the government authorized the companies that would become the concessionaires to dip into the pockets of partners in richer countries. Those foreign loans provided the capital for the toll roads, with a backing from the Spanish government assuring a return on the investment if the toll income did not meet expectations.

“At the time, it was a daring decision, but it ended up working out very well,” says Gutierrez. “The roads were paid off from the tolls themselves, and this contributed a great deal to the development of the country.”

The process of using toll roads to build infrastructure began in the 1960s and 1970s, not only in Spain, but in other Mediterranean countries as well. Unlike Spain, however, France and Italy chose the model of having state-owned companies develop the roads, as opposed to the primarily private Spanish model.

According to Nicolás Rubio, business development director of Cintra, a leading toll road operator, another factor contributed to the strength of Spanish companies in the world market. The government awarded the first road contracts at the end of the 1960s, which meant that the roads would be built and open to the public in the early 1970s—then in 1973, the oil crisis struck.

“If you look at traffic development on those roads at the time, it was a tough start,” says Rubio. The government came to the construction companies and offered to buy back the shares. “We looked at this business as a long-term investment,” he continues. “Today it may not be performing, but this was a 35-year contract.” Companies held onto their roads, despite the oil crisis. When the crisis ended and the market improved, the roads provided a solid return on the companies’ investments.

Says Rubio, “We were looking at the future, and we saw value. And somehow that spirit and that strategy shaped the industry in Spain.”

The early years of concessions, and the strength of the Spanish construction market, left the companies with a great deal of capital and decades of experience in building and operating toll roads. This has placed them in a strong position to take a leading international role as the market grows in Spain and around the world.