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White Elephant Inc: This is What I Love about Spain

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No risks, all rewards – the perfect business model! By Don Quijones, Spain & Mexico, editor at WOLF STREET.

December 22 was Christmas Lottery day in Spain. The so-called El Gordo (the fat one) is a landmark event in which thousands of people up and down the land win thousands – or even hundreds of thousands – of euros, while many others quietly curse their misfortune and slightly lighter wallets and purses, promising never to do it again, until next year!

Yet while the general public is barely able to contain its excitement over the tiny prospect of winning a few thousand euros, most people are blithely unaware that the Rajoy government is about to leave them holding a tab estimated to be worth €4.7 billion.

White Elephant Inc.

When it comes to squandering public money on white-elephant projects, Spain is in a league of its own. Its ill-fated infrastructure projects include ghost airports (including one that boasts Europe’s longest runway), high-speed-train stations located slap bang in the middle of nowhere, Valencia’s fast-crumbling City of Arts and Sciences, and hundreds of kilometres of empty toll roads. One way or another, taxpayers end up paying the price, sometimes twice.

Spain’s latest, and arguably most costly, white elephant project is the Castor Project, a madcap scheme to convert an abandoned oil field off the country’s Eastern coast into a natural gas storage facility. Many experts warned that the idea would not work and that the risks were too great, but they were summarily ignored.

The project was owned and developed by Escal UGS S.L., a Spanish company majority owned by Actividades de Construccion y Servicios SA, Spain’s biggest construction and infrastructure group. The funds used to finance the project included a €200 million letter of guarantee and €300 million in senior bonds provided by the European Investment Bank.

In 2013, Escal drilled 12 offshore wells and completed construction of offshore and onshore facilities. The problems began in September of that year when a series of small earthquakes was detected in the area surrounding the Castor Project. In total more than 500 tremors, the largest measuring 4.2 on the Richter scale, were felt in towns across a 125-mile stretch of coastline from southern Catalonia to the northern Valencia region. Under local pressure, the Spanish government eventually decided to suspend the project. In July 2014, Escal exercised its right to relinquish the concession to the Spanish authorities.

The government was more than happy to take the worthless gas storage facility (that hardly ever has, and almost certainly will, store any gas) off the company’s hands. It even changed Spanish law to ease the process. Once the law was changed it took just a week for Escal to get all its money back – all €1.35 billion of it.

ACS’s billionaire owner (and Real Madrid president) Fiorentino Perez was no doubt…