Spanish Toll Motorways Concessions: New Regulations Regarding the State's Liability in the Event of Liquidation

Spanish Toll Motorways Concessions: New Regulations Regarding the State's Liability in the Event of Liquidation

On January 24, the Spanish Council of Ministers approved Royal Decree-Law 1/2014 to introduce certain changes in several administrative regulations with respect to the State's liability in the event of the termination of an administrative concession.

Two specific regulations were amended in order to clarify the role of the State if it is obligated to compensate concession companies upon the termination of a concession. The first regulation affected is Law 8/1972 of May 10, 1972, which governs the construction, maintenance, and operation of toll motorways under the concession regime. A new second paragraph in article 17.2 has been introduced to clarify that if (i) a sponsor fails to pay for expropriation procedures and (ii) the State, by virtue of any judicial determination, is obliged to indemnify parties for liabilities related to such expropriation procedures, the State will be subrogated to the claims of the expropriated beneficiaries. In addition, if the State is not reimbursed by the concession companies (e.g., in any bankruptcy proceeding), the State will be entitled to set off its liability against any amounts otherwise payable to the concession companies arising from termination of the concession.

The other affected regulation is Legislative Royal Decree 3/2011 of November 14, 2011, in which the Rewritten Text to the Public Sector Agreements Act was approved. This regulation has been altered to introduce a new section 7 in article 271 (governing the effects of termination), which in substance replicates the amendments made by article 17.2 of Law 8/1972.

The amendments were motivated by recent Spanish Supreme Court rulings construing the role of the State in expropriation procedures in the aftermath of the controversial toll motorways' concessions for Madrid (Radiales), whereby the State was declared liable (upon default of the concession companies) for the payment of expropriation liabilities.

The amendments have also been enacted in the context of the State's proposed rescue project for failed toll motorways. In accordance with the rescue project, it has been proposed that the failed motorways be integrated into a new holding company in which the State and the former shareholders will hold an interest. The proposal has raised doubts about the new role of the State as an obligor for the expropriations and regarding the impact on the State's liability under administrative regulations in the event of the termination of a concession (i.e., if a concession company is liquidated). The amendments have clarified these issues. Even so, it remains to be seen whether this "express regulation" opens the door to applying the same approach to reducing the State's liability in scenarios (i.e., damages and losses incurred by the State, PPLs or subsidies granted to the concession companies, etc.) not expressly contemplated by the current regulations.

The new regulations may presage the potential outcomes of some bankruptcy proceedings currently pending before Spanish courts. As a consequence of recent Supreme Court rulings, it is likely that the State will be adjudicated responsible for significant expropriation liabilities. As a result, the State will likely be forced to assume the liabilities of the bankrupt companies to the beneficiaries. In the event that concession companies are liquidated, the only source of recovery for the lenders will be the State. As a consequence of the setting-off of the expropriation liabilities, recoveries to lenders that financed the concessions are likely to be reduced.

The new changes were effective as of January 26 (the day after the RDL 1/2014 was published in the State's Official Gazette, the Boletín Oficial del Estado, or BOE. It is anticipated that the amendments will be retroactive.

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Juan Ferré

Fernando Lillo

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