On the Wings of Hope

AVE at Sants Station

This essay ponders the interplay of risk, debt and optimism, with specific reference to the expansion of Spain’s high speed railway network. It summarises the renaissance of AVE expansion, reconciling different approaches to risk in the construction of transport infrastructure. The interaction of external finance within the Spanish societal structure is hypothesised as reliance on external debt with no internal counter-balances – a virtual economy characterised as Gross Domestic Optimism. The postscript asks what it means to invest in state, with reference to two evolving models – people and perception.

“On the Wings of Hope” is the final essay in a sequence of four titled, “The Art of Public Competition“, which together explore the competitive model underlying Spanish public transport. An anthropological analysis of the tension between this internal model and that of globalised economics, reveals the distortion of external finance on the internal workings of the art of public competition. The first essay in the sequence establishes the policy context for the liberalisation of public transport in Spain. The second explores the workings of the art of public competition using the example of interurban buses around Barcelona. The third examines how the art of public competition functions when one of its most important competitors is absent, using the case of post-Independència Catalunya.

AVE or Bust

Given all that has so far been described in this sequence of essays, it should be self-evident that grand public infrastructure, of the type Catalans and Spaniards came to expect in the early 2000s, can no longer be funded publicly. That the Generalitat de Catalunya’s post-Independència hiatus merely emphasised a reality first exposed by the 2008 Crisis. There is some evidence that the Generalitat, the regional government of Catalunya, had already shifted policy prior to the Referèndum, for example its 2017 proposal to replace the tolls levied on users of recently built strategic roads (those still under concession), with an annual “vignette” (tariff) paid by motorists for access to all such roads – which would generate a constant revenue stream with which to fund subsequent network development. With half these roads still administered centrally by Spain, Catalan policy would have to be shared with the Spanish government, which is itself deciding whether to maintain tolls when concession periods end. The 131st President of the Generalitat‘s personal commitment to the non-payment of tolls during 2012’s #NoVullPagar campaign, highlights how road tolls are a thorny issue in Spanish politics, not least in the wake of the recent financial failure, and consequent government rescue, of several high-profile highway concessions around Madrid. Funding the construction of new roads via private toll-raising concessionaires is broadly accepted (even if only by historic precedent), while perpetuating tolls on roads that are ostensibly already paid for resembles state taxation (even if the proceeds are hypothecated into transport projects). The resulting shift between private and public sectors has complex, long-term socio-political connotations. In the meantime, the evidence suggests that, unlike the Generalitat de Catalunya, the government of Spain has not accepted the “reality” that grand public infrastructure can no longer be funded publicly, and that it only need better risk management to achieve its pre-Crisis policies, as best illustrated by its current approach to high speed railways:

For several post-Crisis years Spain pursued ugly engineering compromises to maintain the illusion (in its Anglo-Castellano meaning of both ambition and deception) of a high speed railway building programme it could no longer afford. For example, by re-using historic railway alignments, even where those alignments mock “high speed”, as is the case for the ongoing integration of the 30 km/h Loja curves (on the line to Granada) into a network intended to reach 300 km/h. The “AVE” from Valencia to Castellón epitomised the problem: Implemented by dual-gauging (Iberian and International) one of the existing two tracks, (International gauge) AVE trains operated no faster than other trains on the same track, thus offered no additional utility beyond what could have been achieved by simply passing the AVE rolling stock through a gauge-changer. The claim that Castellón had been added to Spain’s high speed railway network was met with a good degree of Valencian cynicism, and did nothing to assuage the view that the government in Madrid ascribed a low priority to the Mediterranean Corridor (along the east coast).

2018 heralded a return to pre-Crisis high speed railway building, particularly in the north of Spain where none of the intended network had been completed beyond Valladolid – the Crisis having left an eclectic mix of disconnected infrastructure in its wake, from stations served by no trains, to depots maintaining no rolling stock. Works agreed in 2018 include Bilbao station, the most expensive railway station project in the history of Spain, a 720 million euro investment that makes the 240 million euros lavished on the temple to AVE that is Zaragoza Delicias, look cheap.

Compared to Castilla, the geology of northern Spain increases construction costs, as the Norte discovered in the 1860s – its route from Madrid to Irun cost around 550 thousand Pesetas per kilometre, compared to 208 thousand Francs per kilometre from Madrid to Zaragoza (the two currencies directly comparable because the Peseta and Franc maintained parity via the Gold Standard – although it should be noted that the Norte was actually dealing in “Reales de Vellón”, in a decade when the Spanish currency changed twice). Modern engineering techniques, such as the New Austrian tunneling method, may make many AVE route alignments possible, but such construction carries increased geological risk, as epitomised by the Pajares tunnels on the route to León and Asturias: Construction costs have more than tripled, to over 3 billion euros, as has construction time, from the five years anticipated in 2003 to perhaps twenty – while water leaks from punctured aquifers, and relentless landslides, raise doubts as to whether the line will ever open to its intended specification.

Risk is not necessarily so visual: For example, in the case of the failed highway concessions around Madrid, land purchases were budgeted on the assumption the land was categorised as rural, however that land was ultimately judged urban, greatly inflating the cost of acquiring it. Similarly, project management, even of relatively unambitious projects such as Girona’s concrete box of an AVE station, can get bogged down in local political disputes – not to mention the equivalent project in Barcelona, which was stalled for several years by anti-corruption audits. That ADIF-AV budgeted half a billion euros in 2017 to deal with litigation by its own construction contractors paints a dismal picture.

In 2017 the Spanish government legislated to moderate risk in public contracting: To spread risk across more contractors by encouraging the participation of smaller contractors through the contesting of more minor contracts, splitting large contracts, and measures such as ensuring prompt payment and improving transparency. And in parallel, to transfer risk to contractors, notably by limiting the modification of contracts with the private sector to no more than 50% of the original bid price. On genuinely risky projects, this dual policy of spread and transfer naturally tends to contradiction, since only larger companies can carry larger risks. Mid-sized construction companies remain unconvinced that the Spanish government’s approach to procuring transport infrastructure has actually changed. That the new legislation is simply patching up the cracks in the original (internal societally structured) model, is borne out by the counsel of the larger Spanish construction companies, who consider risk as a far more fluid, flexible component of project financing than the government: Shifting risk to reflect the capacity of each sector to manage it, adding value through the private sector management of projects over a longer period than the political electoral cycle, and conversely reacting faster than the public sector to offer short term flexibility. Not least because of their temporality, these are unmistakably lessons from the external, globalised environment in which these companies now operate.

Since the Crisis of 2008 Spanish construction companies have learnt to thrive in markets outside of Spain, their global dominance now second only to China: Their technical competence is not in doubt, nor is their ability to work effectively in different societal and administrative environments. Which makes their domestic environment all the more intriguing. Spanish national transport infrastructure is theoretically ripe for the application of externalised risk models:

  • The Spanish construction industry are both willing and able to adjust to more external organisational models. That adjustment does not necessarily suppose a radical change in epistemology. Rather that the internal societal model of knowable groups has the potential to be arranged differently, should it be exposed to a different environment.
  • The existing internal societal model has never worked well at the scale of national transport infrastructure, as described in The Expectations of Competition. Indeed the purpose of such transport infrastructure’s “presence” is precisely to bind groups that cannot know one another through the base societal “family” model.
  • The theological root of infrastructure presence – the boundary at which the state manifests the external (God) in nature – is surely just as capable of delivering alternative external concepts.

The inhibiting factor is elementary: The nation of Spain, by Westphalian definition, cannot be global. Spain, like other sovereign nations, is predicated on its ability to differentiate itself from the global whole. Since every element of the external that Spain accepts weakens itself as an entity, it is crucial that it uses external elements to strengthen itself as an entity. Since losing the European intellectual hegemony to the Dutch Republic, the question of what strengthens itself as an entity has plagued Spain, because its internal strength manifests in a different manner to the way the external (at least northern European) world measures strength. AVE is a contemporary example – its presence strengthens the internal idea of Spain, while its utility strengthens the external notion of economy. In practice a compromise between these internal and external assessments which perhaps satisfies neither adequately. A relentless tension – here between presence and utility – rather than a happy equilibrium be found, with respite ominously implying isolation. Given the stakes, exposure to externalised risk is moderated by the state: Unfettered external finance could weaken Spain more than it strengthens her, or might negatively alter the balance between presence and utility.

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Public Competition in Post-Independència Catalunya

Camp del Ferro

This essay examines how the art of public competition functions when one of its most important competitors is absent. The suspension of policy-making within the Generalitat de Catalunya, following the region’s failed bid for independence, provided an almost unique opportunity to observe the strategic processes and limitations of the art of public competition. The optimistic finances of metro line 9/10 set the context, followed by analysis of the reactions of the city and metropolitan area of Barcelona to the Generalitat’s hiatus. That analysis exposes vast differences in the funding models of higher and lower tiers of Spanish government, which can be traced to the availability of externally-financed debt.

“Public Competition in Post-Independència Catalunya” is the third in a sequence of four essays titled, “The Art of Public Competition“, which together explore the competitive model underlying Spanish public transport. An anthropological analysis of the tension between this internal model and that of globalised economics, reveals the distortion of external finance on the internal workings of the art of public competition. The first essay in the sequence establishes the policy context for the liberalisation of public transport in Spain. The second explores the workings of the art of public competition using the example of interurban buses around Barcelona. The final essay ponders the strategic interplay of risk, debt and optimism, using the example of Spain’s high speed railway network.

Beyond Line 9/10

Like many of Spain’s regional Autonomous Community governments, the Generalitat de Catalunya’s initial reaction to the 2008 financial crisis was to maintain many prior expenditure commitments by borrowing, with debts rapidly rising from a baseline of around 8% GDP to around 35% of GDP by 2014. Roughly half this borrowing now occurs through the nation of Spain, using a mechanism called the “Fons de Liquiditat Autonòmic” (Autonomous Liquidity Fund, FLA) which allows regional government to borrow on broadly similar terms as the parent country, and thus benefit from Eurozone rates, which in this period were close to 0%. FLA funds come at the cost of fiscal autonomy, since the autonomous community’s plans for debt reduction must be approved by the Spanish government. The other half of the debt is sourced directly, commonly from commercial banks, which in Spain have traditionally had a strong civic investment function. The biggest single debt within the Generalitat’s total is that of Ifercat, the Catalan agency tasked with new public transport infrastructure: 4 billion euros of debt, roughly 5% of the Generalitat total. Half Ifercat’s debt is owned by the European Investment Bank, a non-commercial EU institution.

Aside from a 45 million euro project to rejuvenate the Lleida-Pobla de Segur railway, a line historically notable as the epitome of politicised infrastructure, Ifercat’s only practical project was Barcelona’s Line 9/10 metro route. Over-ambitious from the outset, both technically and financially, the “longest metro line in Europe” followed an all too familiar pattern of costs spiralling out of control in an environment of inadequate risk management. Ifercat pursued increasingly desperate funding mechanisms to keep their project alive in the face of the worst global financial crisis in a generation. Instead of using the private sector to mitigate construction risk, or using the private sector to deliver the desired transport system as a single build-and-operate concession, Ifercat sought short term liquidity simply to keep construction underway. And ultimately the money still ran out, leaving an incompete tunnel right in the middle of the route – a tunnel which is still inhabited by a pair of Tuneladores (TBMs) that haven’t moved since 2011. Such an incremental approach to funding inevitably led to poorly structured debt, notably creating many “hidden” liabilities, above and beyond the headline of 4 billion euros.

In 2014 Independents de Qui attributed Ifercat with another 1.8 billion euros of future guarantees to public companies, but that value transpires to be a fraction of the total additional liabilities: Between 2008 and 2010 batches of Line 9/10 metro stations were sold as 30-year concessions, typically to consortia of those companies building the stations, with the money raised by the sale ostensibly used to keep paying the builders to build those stations. The concessionaires levy an annual charge for providing and maintaining their stations – totalling around 250 million euros annually, an anticipated 7.6 billion euros in total. That figure seems infeasibly high, equivalent to the fare revenue of the entire Barcelona metro system. For context, in 2016 (including the first 10 months of passenger service to the airport) Line 9/10 conveyed just 4% of all metro passengers. The exceptional cost of these concessions is partly explained by concessionaires funding their initial purchases through commercial banking – the rates of such loans were inevitably less favourable than the Generalitat might have achieved itself, had it been able to raise the money through the FLA. This difference was accentuated by the political vacuum in the wake of the Catalan independence process: FLA finance reflected the overall stability of Spain, while the commercial loans of the concessionaires reflected the future ability of the Generalitat to pay the concession fees: Not only was the Generalitat less politically stable (and thus more risky) than Spain overall, but its Line 9/10 concessionary payments were somewhat less integral to the institution of the Generalitat, hence more risky, than Spanish bonds to the nation of Spain. Concessionaires consequently found themselves unable to refinance their debts, adding to the overall precariousness of the Line 9/10 finances.

Operator “Ferrocarril Metropolità de Barcelona”, Transports Metropolitans de Barcelona’s (TMB) metro, also carries a significant burden – in so far as it clearly identifies in its accounts, 75 million euros annually for leasing trains and a further 53 million in Line 9/10 “fees”. The lease presumably includes all the 9000 Series trains built for Line 9/10, in spite of only 28 out of 55 trains currently operating there, so presumably only half of the lease cost should be apportioned to Line 9/10, giving a total of 90 million euros annually. As documented in Interurban Buses in Public Competition, TMB‘s budget is managed through ATM, which is funded from roughly equal parts fares revenue and government support, with about half of that government support coming from the Generalitat. Such accountancy primary serves to shift the Generalitat’s past capital budgetary excesses into the current revenue stream, and in the process makes TMB’s metro look far more dependant on government support than it would be if it hadn’t been saddled with Line 9/10. That arrangement surely serves wider political agendas, but as we shall highlight later, TMB metro’s dependency on the Generalitat is broader than just Line 9/10.

Belatedly Ifercat (as the Generalitat de Catalunya) has been reduced to barter, trading land with the Ajuntament de Barcelona (the city government) to raise the money to complete a handful of stations on the Zona Franca branch. Line 9/10 was the final grand project of Jordi Pujol, who dominated Catalan politics through the “Olympic” Golden Age of the 1980s and 90s. However, post-Crisis, the Pujol agenda of grandiose (“pharaonic”) Catalan ambition evolved into a quite different hope of Catalan Independence, and for Pujol’s successors Line 9/10 became a slightly unnerving ghost from the past – albeit one still pending the traditional Spanish political exorcism called the corruption trial. The post-Referendum political hiatus in the Parlament de Catalunya stalled even the fig leaf of a new bid to the European Investment Bank for another 750 million euros to complete the central section of the line. However judging by his subsequent media appearances the holder of that fig leaf, Ricard Font, who is a common thread between many government transport interests within Catalunya, was not idle following the Generalitat’s fall from grace in November 2017. And he was not alone.

Herein lay the shifting sands of post-Independència Catalunya, an administrative void hitherto controlled regionally by the Generalitat, suddenly contestable, perhaps for the first time since the 1970s. While it is convenient to categorise the exercise of power through discrete organs of state, it is common for leading individuals to serve in many organisations. Indeed it is common for such individuals to shift between political, administrative and academic functions throughout their careers, in a way that, for example, the British civil service would not tolerate. It is therefore more instructive to understand the role of these individuals as an extension of Catalan society. Catalunya’s administrative institutions strongly reflect Catalan society, not least because they require their staff to be able to communicate in Catalá – which is not widely spoken outside Catalunya, so (for better or worse) affords substantial protection. At its higher echelons, Catalan society is virtual – where being seen to, to be in control of, these are the rewards – a monetary salary is almost incidental. The longer the Generalitat remained paralysed, the less important its civil service positions became within Catalan society, regardless of whether wages continued to be paid. And thus perhaps without even analysing their motivation, senior individuals within the Generalitat logically sought somewhat similar roles through other institutions. Given the pre-existing tendencies to switch and accumulate roles, their search was perfectly intuitive. That starts to explain why this sequences of essays is subtitled the art of public competition: For what at first looks like a power battle between institutions is far more subtle, far more human – and that in turn makes it harder to analyse and understand from an external perspective, especially an objective one.

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