Country Watch – Spain


Spain’s PPP market has been limping along since it bore the brunt of the global financial crisis. Dan Colombini reports on how the municipalities are at the forefront of a resurgence


In April 2012, four years on from 2008’s global recession, foreign minister José Manuel García-Margallo described Spain’s predicament as a “crisis of huge proportions”.

Official figures showed that unemployment had hit almost 25%, with concerns that the banking sector may need a €120bn (£98bn) bailout before the year was out. In addition, the country was suffering a housing crisis that had brought its economy and banking system to the brink of collapse. To say that Spain was badly affected by the crisis would be an understatement almost as large as the crisis itself.

Naturally, in such a climate, the PPP market slowed to a crawl as the country battled crippling debt, meaning procuring infrastructure and attracting the necessary investment remained a tall order – with the market reaching its lowest level since 2005, despite solid legislation dating back to the mid-nineties and reinforced in the early noughties.

“The budget cuts following the crash in Spain severely reduced the PPP pipeline, with the economic crisis affecting newly awarded PPPs as well as PPPs in operation and under construction,” says Antonio de Santiago, head of concessions at Spanish construction giant FCC.

As a result, many infrastructure projects were scrapped by a government forced into wholesale austerity. Despite this, the PPP model still maintained a presence as the government battled to reduce the crippling deficit, with a few projects dotted across the landscape.

Notably, the €430m deal to develop the Catalonian toll road Túnels de Barcelona e Cadí that signed in December 2012. In addition, the Vigo Hospital PPP eventually reached financial close in August 2013, after it appointed a Spanish consortium, including Concessia, as preferred bidder back in March 2011.

But anything resembling a pipeline was simply too much to ask in such critical conditions and it has long been acknowledged in Spain that the road to recovery remains long and rocky.

“When the property bubble burst in 2008 large construction companies were hit very hard, losing up to 80% of their domestic market, and both private and public funding for infrastructure projects was dramatically cut,” adds De Santiago.

However, the second half of last year revealed tangible evidence that Spain may now be over the worst of it. Between July and October last year, the economy grew by 0.5%, representing its fifth consecutive quarter of growth and the highest annual rate of growth for six years.

“Midway through 2014 the Spanish market started to recover, in view of Spain’s improving credit ratings, reduction in sovereign CDS spreads and low government bond yields,” says Laughlan Waterston, deputy head of infrastructure at SMBC Europe.

The economy further picked up in the fourth quarter of 2014, driven heavily by steady consumer spending. According to the Banco de España, growth will continue to accelerate this year, making Spain currently the best-performing large eurozone economy in terms of growth.

“For 2015, we believe the recovery will continue, and the anticipated growth would be at 2%,” the bank said. Buoyed by this news, the market is now also hoping for a resurgence of the country’s fledgling PPP sector.

Key to that growth will be the ability to bring investors in from outside Spain. “Investor confidence has returned and lender appetite is also returning,” says Waterston. “Infrastructure investment is still running significantly below the levels it was prior to the crisis, but investors are attracted by the high yields Spanish infrastructure currently offers versus primary infrastructure in northern Europe.”

Mark Bradshaw, senior managing director at Macquarie Capital Europe, agrees. He also confirms that interest in Spain never fully dwindled, despite its woes. “With the Spanish market, we think it is returning,” he says. “We were there before and during the recession and will continue to be so now.”

So, after years of turbulence, Spain is once again on the radar of the international investment community. But what sectors are likely to see activity over the next year and is the country capable of attracting the investment required to build a real pipeline of deals?

Yes, according to Waterston, particularly at municipal level. “There are various opportunities emerging in the healthcare, waste, water and transport sectors as the municipalities seek to restart procurements that stalled during the eurozone crisis,” he says.

In September last year, the University of Almeria (Universidad de Almería) re-tendered a deal to construct and operate a student residence in the region of Andalusia. The new deal is for a design, build, finance, operate and maintain concession for 40 years and will require an investment of €9m.

The project was originally launched in 2009 after the university received the site from the City of Almeria, but was suspended due to the economic crisis. However, the project became the second university accommodation PPP to be launched in Spain in September, after the University of Cantabria PPP in northern Spain also released a tender for a similar 40-year concession.

In addition, new social deals to develop the Hospital de Alcañiz in Aragón and the Ciudad de la Justicia in Madrid could be the first projects to hit the market this year, according to sources close to the deals.

And there are likely to be more on the horizon. “This will primarily be through greenfield projects, but there are expected to be some brownfield opportunities also,” adds Waterston.

A significant proportion of the investment in public works over the last 15 years in Spain has been allocated to improving roads and high-speed railways. In this respect, Spain matches any other country in Europe, meaning opportunities will continue to play a major role in the rejuvenation of the market.


Despite the positivity surrounding the market, however, the nature and size of Spain’s problems over the past few years has naturally had an effect on investors as they look to capitalise on the renewed opportunities.

Therefore, it is not all plain sailing for governments, as they seek to attract new money into the country. “Barriers to entry now tend to relate to higher risk perception since the financial crisis,” says De Santiago. “Lower leverage ratios, harder to reach financial closes, shorter term financing and demand risk no longer being acceptable all act as entry barriers.”

And there is more. “On the regulatory side, Spain is still regarded as high risk,” adds Waterston. “Especially by energy investors since the regulator retrospectively reduced the feed-in tariff payable by the government to renewable energy projects.”

Nonetheless, it is clear that Spain has made up significant ground over the past few years. With government budgets likely to remain tight for the foreseeable future, private financing and new PPPs could be a vital tool in continuing growth. 

While investing in Spain remains relatively high-risk at this stage, many will be encouraged by a resurging economy and a government that is willing to procure new deals.