Spain's growing network of bankrupt toll roads

Spain was once lauded for having a large network of first class privately financed toll roads.  Now it looks like many of those roads were commissioned by government, and built by the private sector based on overly optimistic forecasts of growth off of the back of Spain's property led boom, that was a bubble which has popped.

Phys.Org reports from AFP on the debacle of the roads heading for bankruptcy, and it isn't just rural highways, but big urban highways near Madrid:

Two highways, Radial 3 and Radial 5, opened in 2004 at the height of Spain's construction boom. Now the company owes 660 million euros ($850 million) to the bank, 340 million to the builders and 400 million to residents evicted to build it.

Six toll roads have entered bankruptcy proceedings since May 2012, when the Madrid-Toledo (AP-41) toll road was the first.  It was managed by  Grupo Isolux Corsan SA, Comsa SA, Azvi and Banco Espiritu Santo SA, and owed over US$646 million in debt. 

Many more more are also heading for bankruptcy.

It isn't just roads, as Spain built high speed railways and airports, with some of both of those now looking like woeful investments.  

The craze drove Spain to break records: it became the country in Europe with the most kilometres of motorways and the most commercial international airports, and was second only to China in the world for the length of its high-speed train lines.

Meanwhile, the government already upgraded existing roads as well, untolled roads.  At a time of deep recession, it is clear that Spaniards are preferring to save money over time, so are avoiding the toll roads in favour of the untolled government roads.  

Motorway traffic is now at levels not seen for over 15 years. 

The report continues:

On the Accesos de Madrid roads, "where there were supposed to be 35,000 vehicles a day, there are 10,000," said Jose Antonio Lopez Casas, director of Accesos de Madrid, the company that manages two major highways around the capital.

What is the lesson?  

That road projects should be driven not by political imperatives, but commercial ones.  The private sector assumed that perpetual growth would continue and that forecasts of growth were robust, but ignored the bubble economy (like so many others did).  Instead of project let concessions, it may have made more sense to commercialise parts of the network, letting the private sector manage existing highways and decide on the merits of upgrading them instead of building new tolled roads.  

However, there is a bright side in that the risk has been born by the private sector.  The roads are built, and the cost to maintain them is a fraction of the capital cost to build them, which in most cases will be wiped out and born by the creditors.

Spain is obviously "overbuilt" for toll roads, and bankrupt toll roads may see prices cut to encourage demand, but may also put pressure on government to change how it charges its untolled network (through fuel tax).  The bigger issue is whether the sheer scale of this bankruptcy overwhelms, and is likely to create mergers and require more fundamental reform of the highway sector, or if government feels pressured to nationalise the roads (unnecessary and unwise in my view).

Ratings news: LBJ Express, Madrid-Toledo, SANRAL, North Carolina Turnpike Authority, Manila

Note:  Apologies some of these have been delayed a couple of months as it was a draft article I forgot to post.

LBJ Express Lanes - Texas

Fitch Ratings affirms LBJ Infrastructure Group’s infrastructure bonds issued in 2010 at 'BBB- The bonds were issued to finance the LBJ Express lanes project in Texas.

Key comments are:

- Strategic location of the project “located in a highly congested area north of Dallas and near the Dallas-Fort Worth International Airport. The solid economics of the service area have benefited from considerable population and employment growth over the last decade” 

- Pricing flexibility will be retained to competitively price tolls against the demonstrated congestion which exists at peaks, interpeak and in weekends in both directions. 

- However, managed lanes do bring considerable uncertainty around revenue, given free parallel lanes and the sensitivity of demand with economic conditions. 

The LBJ freeway (IH-635) project is currently in the second year of a five-year construction period. The construction project upon completion will include an eight-lane general purpose freeway, a four- to six-lane managed lane facility, and a continuous two- to three-lane frontage road system with access ramps. As of March 2012, the total value of work completed for design and construction is $494.9 million, approximately 23.9% of the $2,074 million total project cost. Construction activities in the first quarter of 2012 included roadway demolition, utilities, earthwork, structures, and noise walls.

New express lanes will always carry considerable risk, based on demand for existing untolled capacity.

AP-41 Madrid-Toledo, Spain

Bloomberg reports that the highway between Madrid and Toledo, which is managed by companies including Grupo Isolux Corsan SA, Comsa SA, Azvi and Banco Espiritu Santo SA, has declared itself bankrupt at the Albacete court. The AP-41 toll road has over 500 million euros (US$646 million) of debt. It has faced financial ruin due to the collapse of the Spanish economy, as demand has dropped well below forecasts.

The road's profile is summarised below:

The new Madrid-Toledo (AP-41) toll road makes it possible to travel comfortably and safely from the Spanish capital to the imperial City, declared a World Heritage Site by UNESCO, in approximately 30 minutes. The 71.5 kilometre-long motorway, which passes by some of the most interesting and historical towns in the Community of Madrid and Province of Toledo, has new interchanges and a service area. This is a modern, fast alternative to the current A42 motorway, providing a trip without traffic back-ups and at a low cost. 

It's certainly without congestion, as it is following the news last year about the Alicante ring road's lack of demand.  Of course, the bankrupt road will continue to operate with tolls, with the creditors receiving the revenue.  However, given Spain's overall banking crisis, it would appear that this road will simply be another bad asset for some time, until its value is substantively written down.

SANRAL, South Africa

BusinessTech reports:

Moody's reduced the credit rating of the South African National Roads Authority Ltd following the North Gauteng High Court’s decision on 28 April 2012 to block the implementation of electronic tolling on the country’s largest toll road, the Gauteng Freeway Improvement Project (GFIP), pending a final court resolution on the matter.

The road agency’s global scale, local and foreign currency issuer ratings have been downgraded to Baa2/P-3 from Baa1/P-2, and the South African national scale issuer ratings has been downgraded to A2.za/P-2.za from Aa3.za/P-1.za.

More recently, the government agreed on a significant reduction in e-toll rates, in return for which the authorities extended a R5.8 billion budget allocation. Thus far, the delayed implementation of e-tolls has resulted in revenue losses of approximately R2.7 billion for SANRAL, which is a sizable 40% of its estimated 2012 annual budget.

These losses will grow by an estimated R100 million each month that the delay continues and will gradually erode the company’s cash buffer.

It has since reported that Sanral will experience significant financial pressure post October 2013 in the event that e-toll revenues are still not earned by the entity

Tolling the Gauteng project is now subject to court proceedings which are underway based on challenging the legality of using fully electronic free flow tolling.

For SANRAL's sake, it can only hope that the case is dismissed and it can get on with introducing tolls on the upgraded highways, but if it fails then South Africa may well need to look at a new approach to tolling and taxation of motor vehicles.

North Carolina Turnpike Authority

Marketwatch reports that "Fitch Ratings affirms the 'BBB-' rating on the North Carolina Turnpike Authority's (NCTA) approximately $294.5 million Triangle Expressway System senior lien revenue bond"

The Triangle Expressway will serve as a major alternative to congested free roads and as a key route to the main employment center in the region, the Research Triangle Park (RTP). Solid historical county and corridor population and employment growth is expected to continue and should support assumed traffic growth rates. 

Low Initial Toll Rates and NCDOT Planned Annual Increases: There exists the potential for lower traffic and revenue given uncertainty with perceived value of time savings and potential sensitivity to toll rates given the limited number of toll roads in the area. In Fitch's opinion the road has moderate economic ratemaking flexibility given higher-than-average wealth levels and a 2013 toll of approximately $0.15/mile. 

Significant state support for the project will be in the form of a $25 million annual payment from the state of North Carolina, which will support debt-service payments, after paying debt service on state appropriation bonds (rated 'AA?' by Fitch) (largely on the back-end of the toll revenue /TIFIA loan debt amortization), a construction assurance agreement, an operations and maintenance guaranty agreement, and a guarantee on the renewal and replacement reserve.

The Triangle Expressway will be an all-electronic road payable by either a transponder or video toll. A video will take a picture of a license plate and a bill is mailed to the driver. The NCTA currently has a tolling policy associated with the road. Two toll rates will be set: one for transponders and one for video tolling. The rates will differ across vehicle type. Initial toll rates are estimated to be around $0.15 per mile (2013 dollars). Given wealth levels of the greater Raleigh-Durham MSA and potential time savings, Fitch views the rates as reasonable. Should traffic levels not materialize as expected, Fitch believes there is some, albeit limited, flexibility to increase rates.

Manila Cavite Toll Road Finance Co

According to Reuters:  On May 22, 2012, Standard & Poor's Rating Services lowered its rating on the outstanding US$15.06 million Series 2010-1 notes (due 2022) issued by Manila Cavite Toll Road Finance Co. (MCTFC) to 'CCC' from 'CCC+'

Key points:

- the traffic of 11,000-11,500 vehicles a day on the extension road continued to be below the expectation of closer to 20,000 vehicles a day by the end of first quarter 2012.
- We believe traffic on the existing road is already reaching historical steady levels of 76,000-77,000 vehicles per day, and that traffic on the extension road is not likely to drop below its existing level of about 11,000 vehicles per day. However, it is the delay in the traffic ramp-up on the extension road that continues to hurt the project's performance. We believe traffic growth on the extension road has been affected by factors such as its relatively high toll rate, higher fuel prices, lack of awareness among potential road users, and road users getting comfortable with alternate routes.
 

Abertis sees credit rating drop due to Spanish toll road demand

Spanish toll road investor Abertis and its French subsidiary SANEF have both had their credit ratings cut to BBB by Standard & Poors according to Reuters.

Abertis has a network of 1500km of toll motorways in Spain via 8 subsidiaries (59% of toll roads in Spain by length), and a minority stake in another 200km of toll roads in Spain. It also has a nearly 15% share of Portuguese toll road operator Brisa, and 25% ownership of RMG (company holding non-tolled concessions on two UK roads). It also owns or partly owns companies responsible for around 700km of Chilean toll roads, has a part share in concessions over 89km of roads in Puerto Rico and has a controlling stake in the concession of one road in Argentina.

SANEF has a network of 17570km of almost entirely toll motorways in France, in the north and east.

The reason given for the downgrade is “of volatility in traffic volumes experienced by its Spanish toll road network operators”

Interesting statistics from the press release:

- Average daily traffic declined by 24% between 2007 and 2011 on Abertis's Spanish toll roads;
- In 2012, S&P forecasts a further contraction by 9% on Spanish toll roads;

- This is driven by very high unemployment, weak economy;

- Abertis's Spanish toll roads have greater exposure to competition from untolled roads than similar roads in France or Italy.

- 80% of dividends in past three years originated from Spanish toll roads, with concessionaire Acesa (541km of road) contributing 70% of that. This decline will be partly offset by good performance on toll roads elsewhere, and expected tariff increases and cost savings.

However, S&P sees risks in the proposed acquisition of the Brazilian and Chilean toll road operators of Obrascon Huarte Lain (OHL) which includes over 3100km of roads in Brazil and around 340km of roads in Chile because it Brazil is:

-- An emerging economy, with a soft currency that could suffer  depreciation vis-a-vis the euro. 
-- A relatively dynamic regulatory environment in Brazil, where the bulk of the operations to be integrated are located. Unilateral changes to concessions are allowed in Brazil, although appropriate remuneration must be provided to the toll road operator to restore the concession's economic
balance.
-- A greater proportion of heavy vehicle traffic, which we view as more volatile than light vehicle traffic. Heavy vehicle traffic volumes account for more than 30% of total traffic volumes on the roads to be integrated, compared with 15% on average on Abertis' network.

On SANEF, S&P says:

Sanef operates the third-largest interconnected toll road network in France. Although the company is exposed to variations in traffic volumes, it benefits from a strong competitive position; favorable concession agreements, including yearly inflation-linked tariff increases; high profitability, and positive free cash flows. We consider the risk of acquisitions and diversification to be low. These strengths are partly offset by Sanef's high indebtedness, and its relatively rigid dividend policy.

Conclusion

Even a casual observer of Spain's economy can see the crash of property and construction dramatically affecting overall demand, and it appears far too many concessions were predicated on forecasts of demand that now look unattainable in the medium term.  Abertis may be big enough to hold onto most of what it has, but it is likely this sector will remain tough for some time, and there is pressure to have consolidation and refinancing so that such roads can be on a sustainable footing.  There is rumour that the Spanish government is considering how to address these problems, and it may even think about having some form of charges on existing roads.

News briefs - Canada, Italy, Namibia, Spain, Uganda, USA (3 states)

Connecticut

Tri-State Transportation Campaign reports that Connecticut is engaging a US$1.4 million study of congestion pricing along the I-95 corridor between Greenwich and New Haven. An additional US$800,000 study will examine road pricing along I-84 in Hartford. Both studies, funded by the federal government, will take approximately 18 months to complete and will look at congestion pricing in the two corridors, which is expected to focus specifically on the feasibility of high-occupancy tolling (HOT) lanes.

The Milford-Orange Bulletin reports on some interesting background to tolling this stretch of highway:

Connecticut abolished its tolls in the 1980s, in part as a result of a horrific 1983 crash on I-95, in which a truck plowed into a line of cars at the Stratford toll station, killing seven people. The federal government also threatened to withhold transit money if the state did not remove the tolls.

Commuters who pass through the Interstates 91 and 95 interchange in New Haven experience a total of 5.7 million hours of delay per year, while commuters who pass through the Bridgeport-Stamford corridor suffer 16 million hours of delay per year, (Bureau of Policy and Planning Bureau Chief Thomas J.)Maziarz said.

The average length of the southbound I-95 traffic congestion at 8:30 a.m. on a weekday, which the DOT has identified as the peak time for traffic, is 20.3 miles, he said. Congestion is defined as an area where traffic moves at 30 mph or less. 

 

Just another Interstate highway which might get tolls introduced to provide a congestion free option, with additional revenue.

Italy

Dow Jones reports that toll road operators Atlantia has said that highway traffic on its Italian toll-road network declined 8.7% in the first three months of the year from the same period in 2011.

Namibia

The Namibian Economist reports that the Namibian government now has the facilities to collect road user charges at its national border crossings.   Why is this interesting?  Because Namibia has a VMT (vehicle mileage tax) system, or rather a weight-distance road user charge for all vehicles over 3.5 tonnes.  The rates are here.   Starting at N$0.07 per km (US$0.009) it appears to work by prepaying in 100km increments, correlated to odometers.  All of the revenue is dedicated to a roads fund which is required to prioritise spending on maintenance and renewals above everything else.

Nevada


The Las Vegas Sun reports that the state is considering options to allow toll lanes and roads. This includes "added lanes in Clark County on Interstate 15 from Sahara Avenue to Rancho Drive at an estimated cost of $400-$500 million".  These would be toll lanes, with existing lanes remaining untolled. Bill Hoffman, assistant director of engineers for the Nevada State Transportation Department said "allowing a private firm to do this project could cut the cost by $100 million, create 4,100 construction jobs and get the project completed more quickly. He said firms that design, build and maintain projects due a better job since they know they are on the hook for the maintenance costs."

Orange County, California

The LA Times reports that operators of toll roads in Orange County are planning to convert to fully electronic free flow tolling in the next 16 months.  The plan is for all users to have accounts, either with tags or number plates, with occasional users having to pay within 48 hours of usage or face being fined.   The roads affected are route 73, 261, 241 and 133 toll roads.

Toll prices were increased on 1 July already, and the drive to eliminate manual tolls is intended to reduce operating costs, as well as improve flow by eliminating stopping at tolling points.

Spain

Spanish toll road operator Abertis is interested in new PPPs with the Spanish government as the latter seeks private sources of finance to kickstart new infrastructure projects due to a lack of public funding. An article from Reuters make a number of interesting points about the presence of Abertis in the tolling market:

- There appears to be low interest in refinancing debt stricken toll roads in Spain as “Chairman Salvador Alemany played down the possibility of extending its Spanish motorway concessions -- two of which expire in 2019 and 2021 -- in exchange for helping the government resolve highly indebted Spanish toll roads”;

- The US, Brazil and Mexico are key target markets for growth;

- Portuguese operator Brisa is no longer a strategic asset, but Abertis will “not sell at current market prices”.
It is undoubtedly a difficult time for any investor in toll roads in the south of Europe, but also an opportune time to diversify, as long as there are decent prospects for growth, a steady core business and a stable business environment.

Toronto

The Star reports that the Toronto City Council has voted to “develop a long-term funding strategy" that would outline “a diverse array of public and private revenue tools” to finance rapid transit expansion.” This includes the role of tolling including options to introduce road pricing on existing roads.

In parallel, “Metrolinx, the province’s regional transportation authority, is also working on a strategy to pay for a massive public transit expansion throughout the Greater Toronto Area and Hamilton… Metrolinx has until June next year to develop a funding framework. Options under study include road tolls and other forms of congestion pricing, a levy on commercial parking spaces, a regional fuel tax, express lane fees and a regional sales tax.”

Here is hoping that it takes a wide strategic view of how to proceed, because for people to accept any form of road pricing on existing roads, they tend to need to see that at least part of the money goes on roads or offsets other taxes.  However, it's clear that one big issue will be governance.  What happens if the city and Metrolinx want conflicting approaches?

Uganda

China Daily reports that the Chinese Government is providing a four year loan for a 37km highway (with a 13km spur) from Entebbe Airport to Kampala that is estimated to cost US$350 million to build. It is described as a “world class superhighway”, and will have manual tolling. One criticism has been the condition that construction contracts be granted exclusively to Chinese companies. The existing route is regularly congested.
Vancouver


According to North Shore Outlook North Vancouver District Mayor Richard Walton supports introducing road pricing as a sustainable source of future income to replace property taxes:

Tolling stations, Walton said, could be located every five kilometres — not just at bridges — or at highway onramps and offramps. And incentives can be built into such plan. For instance, trucks transporting goods over the Port Mann Bridge after 10 p.m. could be exempt from any charges, therefore making night travel more attractive and lessening traffic congestion during the day.

It would take, Walton admits, some time to implement a comprehensive road-pricing arrangement and motorists would need time to make any alternate plans.

But it could mean a move away from using property taxes as a way of funding transit shortfalls, a crutch mayors are clear they will not entertain any longer.

Of course it raises the wider political issue as to whether motorists are happy paying a charge which is used to subsidise alternatives. I would argue strongly that if it is about replacing existing taxes and also helping to fund at least maintenance of the roads concerned, then it will be far more acceptable.  

Series of toll road investor results: Ferrovial, Atlantia, Transurban, Metro-Pacific

Ferrovial

Construction News reports Spanish infrastructure investor Ferrovial reporting a 312 million euro in net profit in the first half of 2011, contrasting with losses of 164 million euro in the same period of 2010. Notable was how the EBITDA on the Toronto 407 ETR rose by 8% in part due to higher tolls and lower operating costs. The Airports division contributed 62% of EBITDA, Services 14%, Toll Roads 14% and Construction 10%.

Ferrovial owns its toll roads through its subsidiary CINTRA.  Its highway assets (whole and partial) are:

- 407 ETR Toronto, Canada;

- Santiago-Talca Highway, Chile;

- Talca-Chillan Highway, Chile;

- Forest Route Highway, Chile;

- Collipulli-Temuco Highway, Chile;

- Temuco-Rio Bueno Highway, Chile;

- M-203 Madrid (Alcala-O'Donnell), Spain;

- AP36 Madrid-Levante, Spain;

- AP7 Costa del Sol Highway (Malaga-Guadiaro), Spain;

- Autema C16-E9 Highway (San Cugat del Vallés to Manresa), Spain;

- R4 Madrid-Ocana, Spain;

- Chicago Skyway, Illinois, USA;

- Indiana Toll Road, USA;

- LBJ Express Toll Lanes, Dallas, Texas, USA;

- North Tarrant Express toll lanes and road, Dallas-Forth Worth, Texas, USA;

- SH130 Austin-San Antonio, Texas, USA;

- E65 Central Greece Motorway;

- Ionian Roads (Antirio to Ioannina, Athens to Skarfia), Greece;

- M3 (Dublin-north of Kells), Ireland;

- M4 (Kilcock-Kinnegad), Ireland;

- A22 (Portimao - Vila Real de Santo Antonio), Portugal;

- Euroscut Azores Highway, Sao Miguel Island, Portugal; and

- A27-A28 North Coast Highway, Portugal.

Atlantia

Reuters reports that the Italian toll road investor company had a 41% increase in profit for the first six months of 2011 compared to 2010. This reflected sale of a stake in one road and increased toll revenue, despite declining traffic volumes (with a 0.5% decline in volumes on Italian toll roads).

"Excluding the sale of an investment and charges related to impairments, profit rose 12 percent over the period."

Atlantia's highway assets are:

- Autostrade per l'Italia SpA (2854.6 km of network of Italian motorways);

- Società Italiana per Azioni per il Traforo del Monte Bianco (5.8 km), which manages the Italian section of the Mont Blanc Tunnel;

- Raccordo Autostradale Valle d'Aosta SpA (32.3 km), which manages the road linking Aosta and the Mont Blanc Tunnel (Italy);

- Autostrada Torino-Savona SpA (130.9 km), which manages the motorway linking Turin and the Ligurian coast (Italy);

- Società Autostrada Tirrenica SpA, which holds the concession for the entire length of the Livorno-Civitavecchia motorway (240 km) and currently manages the Livorno-Rosignano section (36.6 km) (Italy);

- Tangenziale di Napoli SpA (20.2 km), which manages Naples' orbital motorway (Italy);

- Società Autostrade Meridionali SpA (51.6 km), which manages the Naples-Pompei-Salerno motorway (Italy);

- A4 Krakow-Katowice motorway (Poland);

- Pune Solapur Expressways (50%) in India, which holds the concession (expiring 2030) for 110 km motorway in the state of Maharashtra;

- 135 km toll motorway serving the cities of Rio Bueno and Puerto Monttt in Chile;

- 442 km toll motorway in the state of San Paulo in Brazil;

- 23.5 km southern section of the orbital toll motorway serving the city of Santiago del Chile;

- 79 km toll motorway serving the cities of Algarrobo, Casablanca and Cartagena in Chile;

- 43 km of road network in the city of Santiago in Chile;

- 21.5 km north-eastern bypass in the city of Santiago del Chile; and

- Urban motorway linking the city of Santiago with Arturo Merino Benitez International Airport.

Transurban

The Herald Sun reports that Australian toll road company Transurban has reported a 90% increase in full year profit.  An 8.8 per cent rise in traffic on Melbourne CityLink, which netted A$434.6 million (US$424 million) in revenue, was a key contributor to total toll revenue of A$891 million (US$870 million) - up 10 per cent.  It carries a reported A$5.8 billion of debt behind its assets. 

The Australian reports an interview with Transurban chief Chris Lynch who said "Our roads are very robust ... There's not a lot of discretionary travel on our roads, it's largely people getting to work or the airport."

It was also noted that the Melbourne CityLink, it gained from an additional lane on the western approach to the toll road network allowing for greater use of its capacity.

The Australian also noted that:

"The acid test of an infrastructure company is the ability to pay generous distributions funded by real cash rather than debt. The "wedge of free cash" -- $390 million in all -- enabled Transurban to declare a 27c per security full-year payout, with management promising "at least" a 29c distribution this year."

Adelaide Now reports that Melbourne Citylink grew faster than the average 10% "with an increase of 12.8 per cent to contribute $434.6 million. Transurban said the completion of the upgrade on its southern link, adding lanes on CityLink between both tunnels and Toorak Rd, had been important in boosting traffic."

Transurban said traffic growth on the Lane Cove Tunnel, purchased nearly a year ago, had initially risen 6 per cent but had declined to 2.8 per cent this calender year due works on the M2.

Transurban's highway assets are:

- Melbourne Citylink (Australia);

- Hills M2 motorway, Sydney. Australia;

- Lane Cove Tunnel, Sydney, Australia;

- Eastern Distributor, Sydney, Australia;

- Westlink M7, Sydney, Australia;

- M5, Sydney, Australia;

- Pocahontas 895, Virginia, USA; and

- Capital Beltway HOT lanes, Virginia, USA

Metro Pacific Tollways Corporation (Philippines)

The Filipino toll operator was reported by the Business Inquirer as saying:

earnings slipped 4 percent in the first half of the year to P725 million (US$17 million) due to lower-than-expected traffic growth and higher tax payments during the period. “Though traffic demand could be lower given sharp increases in fuel prices and the expiration of MNTC’s (Manila North Tollways Corp.) income tax holiday, MPTC still expects a strong financial performance this year with the increase in toll rates and modest traffic volume growth,” MPTC president Ramoncito Fernandez said in a statement.

The company's latest road is the Subic-Clark-Tarlac Expressway. Its portfolio also includes the North Luzon Expressway.

Spain's gloomy economy affecting toll road demand

Euro Weekly News reports that the Alicante Ring Road is experiencing its lowest levels of traffic since it opened, and that other Alicante toll roads are at volumes of traffic not seen since 2000.

Last year, traffic on Alicante Province’s toll roads fell by five per cent against 2009 figures which had already dropped 15 per cent against the previous year. The drop is mainly on Alicante’s second ring road between El Campello and Elche, according to the Ministry of Development.

The ring road is the AP7, as seen below, providing a major bypass to the holiday city with has a normal population of over 770,000. 

View Larger Map

All of this doesn't bode well for any of Spain's private toll road concessionaires, which are facing severe challenges to their own viability as many are facing chewing up significant reserves whilst demand is well below forecasts (and what is necessary to service their debts).

Spanish government seeking to assist private toll road companies

Reuters reports that the Spanish government is encouraging the biggest Spanish toll road operators, Cintra and Abertis to take over poor performing toll roads owned by other concessionaires in the country.   

Spain's economy has been hard hit by the recession, with significant property speculation bubbles popping and property prices dropping by as much as 30% in some places.  Unemployment is over 20% and the budget deficit has been a concern.  As a result, there appears to be drops in traffic on some roads affecting revenues.   

The alternative option being floated is a bailout which would cost the government hundreds of millions of euro, although one must ask why this should be necessary.  After all, the road remains and tolls can be set to maximise revenues (and as a result utilisation is optimised).  If a toll road defaults then the banks will pick it up, refresh the finances and sell it on.   However, it is likely that Spain's current socialist government prefers some form of state intervention.   Clearly the scale of the economic crisis is affecting sectors of the economy traditionally fairly immune to economic cycles.