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>.....
More in this section:
Private sector engagement and the Brazilian myth of fast paced growth
Ulisses Gagliano & Gustavo Leal Gondo As Lula´s government was so successful in reducing Brazil´s social inequality, Dilma´s government had not only the challenge to build up her name apart from her predecessor, but also to keep the economic growth pace, cheer up voters, host the World Cup Soccer Championship and the Olympic Games. Heir of a boosted Brazil´s, last November Dilma economic policy was harshly criticized by the Economist, as all prospects came into a do... Read Full Article
Ecuador: Infrastructure pushed from the top
As one of the most popular presidents in Ecuador during recent years, Rafael Correa began 2011 strong. His referendums on constitutional reforms showed without a doubt that there ispopular support for an extension of his mandate, which has August 2013 as a horizon, with the option of being re-elected until 2017. Correa therefore has time to deliver one of the main concerns of the population: infrastructure investment. As we mentioned in a previous article in LIQ, economic development cannot be ... Read Full Article
The Impact of Regional And Local Elections in Spain: A new outlook for Infrastructure?
Interesting opportunities lie ahead for infrastructure players in Spain in light of the results of recent regional elections in May 2011. There has been a marked swing in favor of parties who are more positive about the involvement of the private sector in infrastructure. Moreover, regional government finances are in a poor state, which bodes well for an future increase in PPP projects. Partido Popular (PP) scored a resounding victory in the regional elections, winning regional in Cantabria, ... Read Full Article