Risk Allocation in Toll Highway Concessions in Spain: Lessons from Economic Recession

Abstract

Spain has a long tradition of encouraging toll highways by granting concessions to private companies. Concessions in Spain have been characterized by a willingness to transfer considerable risk to the private sector. Traffic demand, acquisition of the right-of-way, and financial risk have often been allocated to the private sector. From 1996 to 2011, 16 toll highway concessions, covering a total distance of 835 km, were awarded by the central government of Spain with this approach. Some of those highways started their operations just before the economic recession began. The recession had negative consequences for Spain's economy. The gross domestic product per capita plummeted, and the unemployment rate increased from 9% to 20% of the working population in just 2 years. The recession also had severe consequences for the economic performance of toll highway concessions. Traffic levels declined at a much greater rate than did the gross domestic product. In addition, the conditions imposed by the financial markets on borrowers became much stricter because of the liquidity crisis. This study analyzes the impact that the economic recession ultimately had on the performance of toll highway concessions in Spain and the actions that the government adopted to avoid the bankruptcy of the concessionaires. It was found that the economic recession helped identify some deficiencies in how risk had been allocated in Spain. The measures that both Spain and the European Union are adopting so as to improve risk allocation are discussed.