Spanish companies scramble for billions from EU stimulus fund

Spanish blue chips, including Telefónica, Iberdrola and Seat, are positioning themselves for tens of billions of euros in European aid against coronaviruses which they hope will transform their industries and benefit their bottom line.

Spain expects to receive some 140 billion euros from the EU’s € 750 billion coronavirus recovery fund, which leaders approved last week, making Madrid one of the main beneficiaries of the program, with countries like Croatia, Bulgaria, Greece, Portugal and Romania.

Spanish companies have drawn up proposals for projects co-financed by the aid, which will prioritize clean energy and digitization, in anticipation of a one-time transfer of resources. However, as companies across Europe explore the potential benefits of the massive infusion of public funds, some officials warn against being overly optimistic about aid effectiveness.

According to the Spanish government’s draft legislation on the management of new funds, the Ministry of Industry will establish a register of interested groups that will benefit from preferential consideration for the realization of projects, the receipt of grants or participation in consortia. . EU stimulus funds are expected to be disbursed between 2021 and 2026 and split roughly evenly between grants and loans.

Telefónica, one of the groups seeking to be on the government’s list, has proposed that EU funds be used to help make Spain the first country in the bloc with 100% fiber optic coverage. – by 2025 and at a cost of around 4 billion euros. Current coverage is 75 percent. The operator says the aid could also help deploy an autonomous 5G network covering 85% of the country by then.

“Spain could become the digital ‘Heathrow of Europe’, the destination for cables arriving in Europe from the United States, Latin America, Asia, anywhere,” said José María Álvarez -Pallete, CEO of Telefónica, at FT. “We can provide an ecosystem for Nokia, Huawei, Ericsson, Samsung and the dozens more that may come.”

Iberdrola, the renewable energy group, would also like to be included in the government register for the management of EU funds.

Chairman and CEO of Telefónica José María Álvarez-Pallete © Bloomberg

The € 71 billion company suggests aid be used to accelerate the country’s efforts to cut carbon emissions by investing in electricity storage, “clean hydrogen”, replacement of domestic gas boilers and the installation of charging stations for electric cars on the country’s motorway network. the largest in the EU.

“This is a wonderful opportunity to transform our productive model into a more sustainable and competitive one,” Ignacio Galán, President and CEO, told FT.

While stressing that his multinational group has already pledged to invest 75 billion euros over the next five years, Mr. Galán argued that some green priorities still need help to become more economically viable and that incentives accelerate the electrification of energy-intensive industries.

Line graph of GDP at constant prices, annual% change showing that the Spanish economy has struggled to keep pace with Europe this year

He added that public funds would allow Iberdrola to complete a € 1.8 billion project to use hydrogen to make fertilizers “well ahead” of its current target date of 2027, as well as to accelerate another large-scale equipment manufacturing project to extract hydrogen from water.

“These are concrete projects that will need public support to be carried out,” he said.

Seat, the wholly-owned Volkswagen subsidiary, also called for European co-financing of projects to deploy electric charging points and provide infrastructure for fully wired factories.

“This is a unique opportunity for Spain,” said Josep Maria Recasens, Seat’s chief strategy officer. “We must make a bold effort to identify the most promising sectors. . . so that they can be transformed through the intelligent use of these funds.

Prime Minister Pedro Sánchez’s government wants to launch EU-funded projects as soon as possible to overcome what it predicts will be a GDP contraction of over 11% this year.

Carmaker Seat calls for co-financing of electric charging station deployment projects © Bloomberg

Cristina Herrero, chair of Spain’s Independent Authority for Fiscal Responsibility, the country’s spending watchdog, said private sector expertise could play a vital role given the “demanding” deadlines involved.

But she warned that previous national and European plans had “hollowed out” private investment by offering incentives for projects that would have gone ahead anyway. She also argued that in areas such as digitization and training, Spain lags behind other European economies “so much so that we cannot hope that the EU plan will suffice on its own” .

Nonetheless, the government hopes that public-private collaboration will create a large multiplier effect.

“Analysts say every euro of public money invested could bring in an additional four euros [from private investment]”, María Jesús Montero, Spanish Budget Minister, told FT in an interview.” This is the ratio expected from this investment.

Ms. Montero argued that universal access to high-speed Internet would encourage businesses to locate across the country. “If we manage to extend broadband to 100% of our national territory, the possibilities are almost endless,” she said.

She also stressed that the modernization of Spain’s large cohort of small and medium-sized enterprises was a top priority for the stimulus fund. But it was also likely to involve larger groups.

Sales column chart, rolling 12 months (in billions of euros) showing that sales have recently declined at Iberdrola and Telefónica

For example, Telefónica says its outlets could be used to help train SMEs to move procedures and services online – and suggests that its experience running a large-scale “recycling program” could help. to identify the training deficit of the Spanish population as a whole.

But Ms. Herrero of the Independent Fiscal Responsibility Authority said the government’s plans to attract private sector “co-investors” deviate from “traditional procedures in which government designs projects and companies carry them out.” .

As a result, she said, it was all the more important to provide sober assessments of risks and likely demand, and to ensure that projects were assessed by an independent agency.

“Experience shows that we have to be careful and avoid being overly optimistic,” she said. “We have to learn from the mistakes of the past.