Spain builds inroads into eastern Europe

In the FT today:

Spain builds inroads into eastern Europe

By Leslie Crawford in Madrid

Published: August 22 2007 03:00 | Last updated: August 22 2007 03:00

On the banks of the Danube in Bulgaria, Spanish engineers have begun work on a two-kilometre bridge linking the resort of Vidin to Calafat, its sister town on the Romanian side of the river.

FCC, a Spanish building and infrastructure services group, won the €100m (£68m, $135m) project, to be part-financed by the European Union, against stiff competition from German and French construction groups.

Spanish groups have be-come specialists in big infrastructure projects thanks to 20 years of generous EU support. Since Spain joined the EU in 1986, it has received more than €90bn in European aid to build high-speed train links, dams, bridges, wind parks, sewerage plants and 11,000km of motorways.

But now that the EU bonanza is shifting to east and central Europe - with Spain set to become a net contributor to the EU budget in 2010 - Spanish companies are following the money.

As a result, the bridge over the Danube is not just another project for a budding Spanish multinational; it has become a symbol of what Spain can teach new member states about making the most of EU funds to modernise their economies.

"When I travel to eastern Europe, and see the huge need for infrastructure pro-jects, it reminds me of where Spain was 20 years ago," says José Mayor Oreja, FCC's construction chief.

José Luis de la Torre, who directs FCC's environmental and municipal services division, adds: "Spanish companies are experts at tapping EU funds. We can teach the new member states how to do it. We want them to . . . put the funds available to the best possible use."

Spanish companies are going about this in two ways. Some have established a foothold in the region by acquiring local construction groups. Ferrovial, a big infrastructure conglomerate, was the pioneer, acquiring control of Budimex, Poland's largest listed builder, in 2000. "We saw a country that was similar to ours in size, in population, and with the same huge infrastructure deficit that Spain had prior to joining the EU," says one Ferrovial executive.

FCC, for its part, acquired Alpine, an Austrian builder with a lot of business in eastern Europe, four years ago.

Spanish direct investment in the region has soared since the accession of new EU member states in 2004. Ferrovial has €1.2bn worth of assets in Poland. Telefónica, the Spanish telecommunications group, bought Cesky Telecom in the Czech Republic in 2005. In Hungary, Spaniards have invested €3.5bn since 2004.

Other Spanish groups have set up consultancies that are teaching east European bureaucrats how to navigate the EU labyrinth.

"East Europeans don't think we're arrogant," says one Spanish executive. "Spain doesn't have the historical baggage that Germany has in the region."

In Poland, where Ferrovial has just completed a €200m terminal for Warsaw airport, Spanish groups are concerned by what they regard as a lack of forward planning. Poland is slated to receive €67bn in EU money between 2007 and 2013, but the Warsaw government has yet to publish a master plan that sets out its infrastructure priorities for the period.

"There is a wall of money coming towards Poland," says one Spanish executive. "But without a master plan, much of it will go to waste, or not be tapped at all."

Spanish executives also hope that Warsaw will overcome its suspicion of infrastructure concessions - an area in which Spanish companies have built considerable expertise.

Last year, Ferrovial acquired BAA, the world's biggest airports operator. It also owns toll roads in the US, Spain and Latin America. "Building airport terminals is fine," says one Ferrovial executive, "but we'd much rather be operating concessions."