Infrastructure: Austerity leaves major projects hanging
4 August 2010
The battle to curb public deficits has forced EU member states to cut back on investments, and in particular on infrastructure projects.
On Monday 2 August, the Spanish government announced it would reduce the rate it pays for photovoltaic electricity by 45%, a decision that will pose serious difficulties for the 600 solar operators in the country. The wind energy sector has also been affected, but possibly the severest blow of all was delivered on 22 July by the Minister for Public Works José Blanco, who announced that more than 200 infrastructure projects, including 112 for roads and 87 for railways, will be postponed for one to four years.
Spain – deep cuts putting 115,000 jobs at risk
The discreetly named "adjustment plan" will postpone 17% of programmes and 40% of financing, which amounts to a cutback of 6.4 billion euros in 2010 and 2011. A further 32 projects for which contracts had already been awarded will simply be cancelled. Twelve of these will be transformed into public-private partnerships, but more cancellations could be announced soon. The only projects that are certain to receive a green light are proposed developments of ports and airports, and a number of high-speed rail links.
The deep cuts in the public works sector will put at risk 115,000 direct jobs and 1.1 million indirect jobs. And regional authorities, while struggling to cope with a huge decline in revenues prompted by a plunging property market (stamp duty which amounted to 16.7 billion euros in 2006 will only be 1.8 billion in 2010) are unable to provide alternative funding. Nor is there any hope of obtaining further assistance from Brussels, where structural funding has now dried up. The sole remaining options for Spanish motorways are a tax on trucks and the introduction of tolls: two strategies that could be combined with an average 22% reduction in construction costs.
12 public works scrapped in UK
In the UK, another major EU state to fall victim to unprecedented austerity measures, Treasury Secretary Danny Alexander has announced the cancellation of 12 public works projects worth a total of two billion pounds sterling (2.4 billion euros) and the suspension of 12 others worth 8.5 billion pounds.
The heterogeneous list of initiatives to be shelved, which was announced on 12 July, includes a hospital in Wynyard, northeast England, a heritage centre at the historic site of Stonehenge, and a court in Birmingham – all of which will be extremely bad news for the construction and public works companies involved. Even the budget for the construction of five new prisons, which was announced as a priority by the Conservative government, will now be cut back to two buildings.
It is a disaster!
Other infrastructure budgets have emerged intact, although plans to expand the London airports of Heathrow, Gatwick and Stansted have now been abandoned, much to the delight of environmentalists. The school building programme, which is to be reduced by 1.2 billion euros in 2010, will also suffer. Today, 58 projects for 715 establishments have been abandoned and an audit has yet to rule on plans for several others.
Major construction industry groups, which had anticipated that there would be cutbacks, have been surprised by the scale of the measures: "It is a disaster! Several builders spent millions obtaining these contracts. All the major names in the sector will be affected," explains a senior executive at one company. In France, major projects, and in particular plans for future high speed rail links, have been spared. Although they have yet to be officially suspended, some other programmes are now considered less likely to fly.