First EU ‘project bond’ in Spain halted

Castor gas storage.jpg

The building of a large offshore submarine gas storage facility in Spain has been halted due to earthquakes detected in the area. The so-called Castor Project is the first in Europe to issue ‘project bonds’ for a total of €1.4 billion.

Spain said yesterday (10 October) it had asked its Supreme Court to cancel a legal clause obliging the state to pick up the bill for any closure of the EU-backed Castor gas storage plant off the eastern coast of Valencia.

The Spanish government has halted activity at the undersea storage facility after more than 200 minor earthquakes were detected near the area. The government has ordered a detailed report on the seismic activity around the plant.

Spain wants the court to cancel a clause in a 2008 Spanish law drawn up to clarify the administrative rights of the Castor facility that says the state would have to compensate owners ACS of Spain and Dundee Energy of Canada if the €1.7 billion project had to be wound down.

Spanish Industry Minister José Manuel Soria said the clause was clearly against the public interest.

"We will abide by whatever the court says, but we believe [the clause] is clearly damaging to the general interest," Soria said at a parliamentary hearing.

Soria said he did not know when the seismic activity report from the National Geographic Institute would be ready, but said it was possible normal activity could resume at the plant if the study showed there was no danger.

The Castor offshore submarine gas storage facility, meant to store 30% of Spain's daily gas consumption, was the first in Europe to issue so-called "project bonds" (see background) and is one of the country's biggest investments in its gas system.

The plant stopped injecting gas on 16 September.

The facility, which takes gas from the national grid storage and pumps it back into the grid when it is needed, is meant to store 1.3 billion cubic metres of gas.

In his 'State of the Union' address to the European Parliament in September 2010, Commission President José Manuel Barroso spoke of an initiative to establish EU 'project bonds' issued in conjunction with the European Investment Bank (EIB).

The idea of using bonds to finance the European budget was launched for the first time by former European Commission President Jacques Delors with his 1993 plan for growth, competitiveness and employment, the predecessor of the Lisbon Agenda.

But the majority of member states opposed the idea, fearing it would ultimately increase their expenditure on the Community budget.

In October 2011,Barroso mentioned a figure – €50 billion – to be raised for projects in the transport, energy and telecoms sector, using project bonds.

On 22 May 2012, the EU institutions agreed to launch the first ‘project bonds’ as a pilot project to boost investment in energy, transport and the digital economy. It was decided that the EU will set aside €230 million in guarantees and will focus on encouraging capital market investment worth more than €4 billion for transport and energy investment.

>> Read: ‘Project bonds’ launched as an experiment

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