EU debt crisis and Spanish PPPs
Spain is under stress. The European sovereign debt crisis has lead to a significant rise of capital costs, with EURIBOR interest rate premiums soaring from 150 basis points (b.p) to a maximum of 420 b.p., thanks to the downgrades of PIG countries and the recent S&P downgrade of the U.S. The market pressure on Spain has been due to the lack of control of public finance and the expected deficit, the official number for which is 6% of GDP. Public debt is not a problem, as it is quite low by EU standards at around 65-70% of GDP, while Italy´s is well above 100%. That is why Italy, relatively, is under more pressure than Spain.
Rebalancing PPP projects
PPP projects must rebalance their economic and financial plans (EFP), which are agreed upon in the tenders. When a company tenders, usually the governments publishes an EFP and the company sets a discount in the fees to be the best offer, following the Law of Public Contracts (7/2010). Currently, companies are re-negotiating with governments to upgrade fees for tolls, for instance, in orer to regain a balance of financial profitability, or to extend the number of years of parking facility or toll roads concessions.
Latin America is the natural backyard market for Spain
As the private sector is facing higher capital costs which, in order to make PPP deals more profitable, push the IRR requirements above 10-15%, banks are also raising covenants such as debt service coverage ratios by more than 20%. Spanish developers are thus seeking more projects outside Spain. Latin American countries ar>.....
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