Greece: re-setting the concessions

Steer Davies Gleave is working as part of the roads advisory team supporting the HRDF – the body set up to lead the privatisation of Greece’s important infrastructure assets.

In the road transport sector, the concessions for the development of much of the national network were initially let some ten years ago. With each of these projects now facing severe financial difficulty – the first challenge for the Fund is to re-set the concessions to allow the final delivery and ongoing operation of the schemes. This re-set has to ensure the revenue streams which the international lenders and equity holders require, while maintaining the risk allocation initially incorporated within the concession structure, all within the context of the very adverse financial position in which the Greek Government finds itself.

This is a problem that will be faced across many European studies – immediately in Spain where some five road concessions have effectively moved into bankruptcy. Here it is important to note that, while undoubtedly the economic recession has indeed impacted heavily on traffic volumes, the problems facing these concessions stem as much from the hopelessly over-optimistic traffic assumptions on which the initial financial models were based. In this context, we cannot really anticipate that - even when the economy begins its recovery - the traffic volumes on these roads will grow to match the levels originally forecast. Under these circumstances, it will be a long time before the enterprise value of the projects matches its original estimates.