Several Spanish civil society groups have sent an open letter today to the European Investment Bank (EIB) and the European Commission (EC) questioning the Castor Project in Spain because of its environmental impact and the potential costs involved for Spanish tax payers.
The Castor Project is a €1,634 billion gas storage project in Spain. The project is known as the first project that has been financed by the Project Bond Initiative, a financial instrument set up by the EC and the EIB aimed at leveraging private sector money to finance large infrastructure projects .
The bond was launched in the summer  and was hailed as a success after it raised €1.434 billion on the financial markets of which EUR 300 million came from EIB direct funding. The Bank also approved a credit line of 200 million to provide additional liquidity to investors.
Meanwhile however, the project had to be halted after a series seismic activity was measured caused by injections of natural gas to prepare Castor for use. This resulted in 600 mini earth quakes reaching 4.2 on the Richter scale. Currently huge uncertainty exists as speculation is mounting that the projects might be stopped for good.
In case the project won’t go through, it is of major concern for Spain’s beleaguered taxpayers that the Spanish government is obliged to take over the net value of the underground storage from the operator of the project . The government stepped to the Supreme Court in an attempt to have this clause removed from the contract but its request has been rejected last week.
“Project Bonds have been promoted as a ‘cheap’ way to finance infrastructure projects but when push comes to shove the Castor project risks weighing heavily on Spain’s budget which is already under extreme pressure due to the financial crisis and public debt. In the end it will again be the public taking up the losses for private failures. This is the same old story we are sadly familiar with since the beginning of the crisis”, says Monica Guiteras from Observatorio de la deuda en la Globalización (ODG).
“We have been denouncing the environmental and health risks for the population for years now. The series of earthquakes in an area which counts three nuclear plants and the reported risks of gas leakages proves we are rightly worried”, says Tom Kucharz from Ecologistas en Acción. “We are left to wonder how the support for such a project can be aligned with the high environmental standards the EIB claims to follow.”
Elena Gerebizza, infrastructure finance expert for Counter Balance/Re:Common: “We have been warning of the financial risks related to the Project Bonds Initiative ever since the idea was launched. Mechanisms such as these are hardly ever beneficial for the public interest as they are especially designed to use public funding to limit the risk for private investors and provide cheap capital for the borrower. Project Castor proves that in case things go wrong, it will be EU citizens taking up the risk. We fear similar scenarios for other projects that will be financed through project bonds . Therefore we call on the European Commission and the European Investment Bank to stop the pilot phase of the Project Bond Initiative and reassess its impact on EU citizens.”
Notes for editors
 The Project Bond Initiative works as a credit enhancement mechanism for project bonds. By providing a guarantee the EIB is able to improve the credit rating of poorly rated bonds with the aim to attract more institutional investors and lower the rate at which the promoter can issue debt.
 Watercraft Capital S.A., is the Luxemburg registered special purpose vehicle that was created to issue the Project Bonds for the Castor Project.
 The operator of the Castor Project is Escal UGS, owned by Spain’s ACS and Canada’s Dundee Energy.
 Several transport and energy projects on the controversial list of Projects of Common Interest which was launched by the Commission last week will be financed by using the Project Bond Initiative.
For more information contact:
Elena Gerebizza - +39 340 6705319 - firstname.lastname@example.org
Mònica Guiteras - +34 646415272 - email@example.com