The Castor project, a gas storage platform in Spain might be on hold for ever after a scientific report proves it is responsible for hundreds of earthquakes in the region of Valencia in autumn last year. If no solution is found by the end of November 2014 the Spanish government is obliged to take over the project and the related debt of €1.4 billion.
The Castor project is the first project financed through the pilot phase of the European Project Bond Initiative (PBI), a new financing mechanism led by the European Commission and the European Investment Bank (EIB) to attract private investors for large infrastructure projects around Europe. As part of the deal the Spanish government agreed to guarantee the Castor project in case it can’t be operated. What was presented as a project to spur growth may further worsen the debt burden of the Spanish tax payers.
The report linking the gas injection in the Castor platform to the earthquakes was leaked last week. However the Spanish government already received it in December last year but still did not communicate how it will further deal with the project. The government’s passive approach provoked strong reactions in the Spanish media. The delay [by the government] could be explained by a single reason: the data and conclusions were not to the liking of those who had requested the study”, wrote one Spanish newspaper.
But also other institutions involved, the European Commission and the EIB, refuse to take responsibility. Civil society organisations claim the seismic risk was known in advance and should have been investigated better and public participation in the project was lacking. Additionally, the financial risk related to the project will be entirely carried by the public.
“First the earthquakes caused damage to the local communities in the area and now the project risks to affect tax payers in the entire country. Citizens will have to pay for a questionable project which has been managed incredibly poorly by all institutions involved”, says Monica Guiteras of the Spanish NGO ODG.
“Without a proper technical assessment, one cannot make a proper financial assessment. The EIB has misjudged the risks related to the project. The PBI is not the right mechanism to finance these kinds of projects and should be reconsidered before similar disaster happen elsewhere”, says Xavier Sol, Director of Counter Balance.
Everybody is waiting now for the Spanish government to take a final decision whether to close Castor or not. On the basis of the geological report the closure seems logical but the government says it is awaiting additional studies. However, it remains unclear who is carrying them out, what additional information they can add and when it can be expected.
Notes for editors
1) The pilot phase of the Project Bond Initiative was launched jointly by the European Commission and the European Investment Bank in 2013. It enables infrastructure projects promoters, mostly through Public Private Partnership where a private company develops the project and a public institution provides an additionally guarantee to cover possible losses, to attract additional private investors via issuing bonds on the financial markets. The EIB takes up part of the subordinated debt of promoters and uses its AAA rating to enhance the rating of the bond.
2) The pilot phase of the PBI runs through 2013 and 2014 to test the concept in order to roll it out for the remaining period of the 2014-2020 Multi-annual financial framework (the EU budget). So far, three projects have been financed through the PBI, and all projects supported should reach financial closure by the end of 2016. The final evaluation of the pilot phase will take place in 2015.
3) For more information on the Castor project click here
For more information contact