A driving force in road construction

MADRID — Taking a stroll down the streets of Madrid, wading through dust and talking over the drone of jackhammers at construction sites, one would never guess at the lull in Spain's construction sector.

Optimism, too, seems to be the word of the day for infrastructure giants with their sights on prospects abroad — specifically in the United States, where stimulus money is ripe for the picking.

For months, construction workers have been busily widening sidewalks and revamping plazas around the capital of Madrid in a push to prep the city for what they hope will be the 2016 Olympic Games. Madrid is one of four cities worldwide currently vying to be the host of the 2016 summer games. The International Olympic Committee will select a winning city in October.

“The games are a catalyst,” said Antonio Fernandez Arimany, managing director of Madrid’s 2016 Candidate City program.

The official bid lists $23 billion in projects to be completed before the Olympics, though it has taken an additional, one-time injection of nearly $47 billion this year to first bring the construction sector back to life. The cash infusion has been dubbed “Plan E” — E for employment — by the administration of Spanish Prime Minister Jose Luis Rodriguez Zapatero, and large billboards sporting the slogan can be seen around the country.

And it’s not just on their home turf that Spanish infrastructure companies stand to benefit from a cash infusion. Many have set their sights on U.S. President Barack Obama’s stimulus plans, something many believe the Spanish are in a unique position to benefit from given the recent history of their infrastructure expertise — and the fact that they've already got their foot in the door. “[The U.S.] is potentially the largest construction and infrastructure market in the world, head-to-head with China,” said Mauro F. Guillen, director of the Wharton School’s Lauder Institute, which is a dual-degree program combining business and international studies at the University of Pennsylvania. Guillen foresees the U.S. spending more than $500 billion a year for the next two decades on public works.

“Spanish firms stand to benefit from the [U.S. government’s] spending because they have a demonstrated record of success,” he said, adding that many Spanish companies surpass their American counterparts.

Boston’s Big Dig took nearly two decades to complete at five times the intended cost of $2.6 billion, he mentioned, while a project of similar scale was undertaken in Madrid less than five years. “It would be foolish for the U.S. not to benefit from [Spanish companies’] expertise,” he concluded.

Spanish companies represented more than half of the world’s top 12 transportation developers in 2008, according to trade magazine Public Works Financing. SEOPAN, which is the Spanish construction sector’s export group, reported that Spanish companies’ combined annual revenues from abroad leaped from 3 billion euros in 2004 to 8 billion euros in 2007. U.S. earnings — from projects such as roads, bus stop shelters and recycling centers — represented 9 percent of the Spanish sector’s 2007 revenues from abroad.

The Chicago Skyway Bridge — gateway to another city on the shortlist of 2016 Olympic host hopefuls — was the first existing U.S. toll road to be privatized in 2005. Ferrovial group’s Concesiones de Infraestructuras de Transporte Ferrovial (CINTRA), which is one of Spain's leading infrastructure companies, formed a Spanish-Australian partnership called the Skyway Concession Company that paid the city of Chicago $1.83 billion in exchange for the rights to manage the project according to a 99-year lease. As part of the deal, it gets all toll and concession revenues. Spaniards are also managing highway concessions in North Carolina and Texas.

Another Spanish infrastructure giant, Actividades de Construccion y Servicios (ACS) President Florentino Perez told stockholders last May that he expects big things in the U.S. As Real Madrid soccer president, Perez is famous for pumping the big bucks into players like David Beckham and Cristiano Ronaldo in the hopes of proportionate turn around. Like many of his colleagues, he believes big up-front investments in infrastructure are similarly likely to turn around proportionate rewards. In highway projects, for which the upfront costs can be in the billions, rewards take the form of toll revenues.

In October 2008, ACS paid about $1.4 billion for a 35-year contract that put its American subsidiary to work upgrading Florida’s I-595. ACS put up some of the capital and arranged for the rest to be financed by federal funds and a number of banks including Spain's Banco Santander and Banco Bilbao Vizcaya Argentaria. Though ACS considers profit projections confidential, Guillen said he thinks it’s reasonable for investors to expect a 10- to 15-percent return.

Spaniards learned to navigate the construction business from the ground up when they sought financing abroad to rebuild their dilapidated roadways in the 1960s. By the 1990s, about 40 percent of all European construction and new infrastructure projects were carried out in Spain, according to the Lauder Institute’s Guillen. Thanks to decades of experience, Spain has become a pioneer in public-private partnerships — which are particularly attractive in the U.S., where public funds often come up short.

“The innovation on our side has been to develop a way of proving to the market that it’s a very good business,” Nicolas Rubio, CINTRA business development director, is quoted as saying in a publication issued by Spain’s Foreign Trade Office.

U.S. state politicians faced with the prospect of raising gas taxes to finance infrastructure projects may find the immediate windfall of highway concessions a soft sell on voters despite the appearance of tolls and the occasional charge that Spaniards are out to re-conquer the North American territory they first mapped five centuries ago.