Catalan Government takes Spain’s €1.35 billion bailout of the failed Castor Project to the Constitutional Court
On Friday, the Spanish Government approved the €1,350 million compensation to Escal UGS, the company behind the controversial Castor Project, a submarine facility built to store 1.3 billion tonnes worth of gas reserves off the Ebro Delta coast. This project failed after it was found to have caused almost 1,000 small earthquakes. This amount will be financed through increased tariffs to gas consumers over the next 30 years, resulting in public compensation for a private investment. The Spanish Government is obliged to pay the developer Escal UGS, because of a clause in the 2008 Royal Decree whereby the State would agree to compensate the company should the project be unable to be completed. An appeal of this law was rejected by the Spanish Supreme Court last October. The Spanish Government has argued that this solution is cheaper than operating the project. The Catalan Government however, which had opposed the project from the start, has appealed this decision to the Constitutional Court.
Barcelona (ACN).-The Catalan Government has appealed against the payment issued this week of €1,350 million from the Spanish Government-owned Enagás to Escal UGS, to compensate the latter for the Castor Project. This business project failed after causing almost 1000 small earthquakes off the coasts of Valencia and Catalonia's Ebro Delta. The amount will be paid over a period of 30 years, through an increase in the gas tariffs to consumers in Spain, and the total could amount to more than €4,700 if you include interest, costs of maintenance and decommissioning. According to the Spanish Government, this solution is cheaper than operating the project. Castor was financed through the issuance of debt (bonds) of €1.400 million, which was approved by the European Investment Bank with a credit line of €200 million. However, the Spanish Government is obliged to compensate Escal UGS (66.7% of which is owned by Spanish construction company ACS and the remainder by Canadian Dundee Energy) due to a clause in the 2008 Royal Decree whereby the state would be responsible in the event of the project failing to be completed. The Catalan Government has appealed this decision to the Constitutional Court in Spain. Before the project was approved, the Catalan Government requested a report on seismic hazard, which the Spanish Executive rejected. The Catalan Government has also already asked the European Commission to analyse the financing granted by the European Investment Bank (EIB) towards funding the project. Furthermore, it has announced it will take the bailout to the Constitutional Court.
Spanish Minister of Industry claims there was "no opacity" in compensation agreement
The Spanish Industry Minister, José Manuel Soria, denied on Friday that the Spanish Government acted with any "opacity" regarding the compensation of €1.35 billion to the company Escal UGS. He also denied that it acted with any speed regarding the compensation, which was made on 11 November, three days before the deadline. The Spanish Government commissioned Enagás Transportation, technical manager of the gas system, which manages the facility. Thus, the compensation to the Escal UGS behind the Castor project will be charged through the gas bills to consumers over the next 30 years, making individual citizens pay the private-business' bailout. The total cost of the operation could exceed €4,700 million, according to estimates by the Spanish Organization of Consumers and Users (OCU).
Nevertheless, the Spanish Government has defended their decision; "The savings from 2017 is estimated at over €110 million a year," said the Minister in a statement. According to the Ministry, operating the off-shore oil storage facility would cost €210 million annually.
Project managed with "possible negligence" bailed out with "with unexpected speed"
The Catalan Minister for Business and Employment, Felip Puig, feels it is out of place that the developer should receive 100% of the investment for a project that was "negligent" in its handling and is based on a contract detrimental to consumers' general interests. Puig also regrets the "unexpected speed" with which the compensation payment has been made. For this reason, the Catalan Government has already asked the European Commission to analyse the financing granted by the European Investment Bank (EIB) as well as its appeal to the Constitutional Court.
The decree fixing the compensation and the corresponding burden on gas consumers can be challenged before the Constitutional Court until next January 3, 2015. The appeal announced by the Catalan Government on Friday was backed by several social organizations and environmentalist groups similarly opposed to the compensation of the Castor Project, as well as by the Catalan Parliament.
The Castor Project fiasco: failure of the pilot ‘Project Bond Initiative’
The Castor Project is a submarine facility built in 2008 to store 1.3 billion tonnes worth of gas reserves off the Ebro Delta coast, which was shut down last October after it was found to have caused almost 1,000 small earthquakes in Southern Catalonia and northern Valencia. Before the project was approved, the Catalan Government had requested that a report on possible seismic risk be carried out, but this was rejected by the Spanish Government. After the gas facility was shut down, the Spanish Ministry of Industry commissioned further reports from a consultancy firm, Det Norske Veritas (DNV), to perform a technical and financial audit of the Castor project. The details of the final report, a total of 500 pages, was finalized in January 2014 but has still not been made available to the public. The Castor offshore submarine facility, meant to store 30% of Spain’s daily gas consumption, was the first project to be financed under the new Europe 2020 Project Bond initiative, whereby credit of up to €200 million was made available by the European Investment Bank.
"New proof that the Spanish Government thinks of the interests of big business and big banks and forgets people in fuel poverty"
The outcome of the Castor Project fracas is that ordinary consumers will be bailing out the failed investment by the companies involved, the Spanish Government and the European Investment Bank, through increased energy prices in their gas tariffs over the next 30 years. Catalan Minister Felipe Puig sees this as "new proof that the Spanish Government thinks of the interests of big business and big banks and forgets people in fuel poverty" and regrets that the Government in Madrid did not take greater care to avoid the cost impact to citizens.