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By Sonya Dowsett and Jose ElÃas RodrÃguez
MADRID, March 7 (Reuters) - The Spanish government isworking against the clock to reach a deal with builders over amultibillion euro bail-out for nine bankrupt motorways whichcould directly hit the country's deficit.
Talks that have dragged on for months were abandoned at theend of last year, but have now resumed in the hope of finding asolution before the first of the companies starts liquidationproceedings in about a month.
Negotiations are focused on how to create a state-ownedholding company to manage the motorways with the minimum impacton state coffers and without it constituting state aid.
"We are still working with the government on this," saidJulian Nunez, the chairman of Seopan, an association thatrepresents Spanish builders like ACS and OHL,many of which won concessions to build toll roads from thegovernment during Spain's construction boom.
"The solution has to be the best for public interest,minimising the impact on the state budget," he told journalistsat an event on Friday, adding that total debt associated withthe nine motorways was 5.1 billion euros ($7.1 billion).
The government hoped to reach a solution soon, he said, andnothing was ruled out. The Public Works Ministry and theTreasury Ministry declined to comment.
Under Spanish legislation, drawn up over 40 years ago, whena private motorway goes bankrupt the state has to repay theowners for the cost of the land and the construction.
Traffic on the nine toll roads, most of which connect Madridto outlying towns, has plunged during a recession. Many havefree national roads running alongside them meaning even fewercash-strapped Spaniards are prepared to pay.
Previous plans had centred on the creation of a partlystate-owned company to take on the debt as one long-term,low-interest loan, while builders took a hit estimated at 1.7billion euros on their investments.
With 20 percent of the equity held by the builders and 80percent held by the state, this structure could count as stateaid though and be difficult to tally with European competitionlaws, said one source with knowledge of the matter.
One model being considered now is a 100 percent state-ownedcompany that would assume the debt and add it to the nationaldebt, already expected to hit a record high of around 100percent of economic output this year.
Spain is desperate to keep its budget deficit, currently ataround 65 billion euros, within strict Europe-imposed targets.
BOOM AND BUST
Nearly all of Spain's builders -- Ferrovial, OHL,Abertis, FCC and ACS -- created joint venturesduring Spain's construction boom to win concessions from thegovernment to build the highways which account for around afifth of Spain's toll road mileage.
The joint ventures borrowed money from banks like Santander, Caixabank and Bankia. Buildershave since written off most of the investment in the highways.When they created the ventures the builders paid out about 1.8billion euros in capital in the motorway projects, Nunez said.
The concessionary companies have bank debt of around 3.6billion euros linked to the motorways, Nunez said. Banks havedeclined to comment on the situation. Also in play is thecompensation cost to landowners for the land the highways werebuilt on, which is over 2 billion euros, he said.
If the government shirks from bailing out the motorways bytaking on their debt, the construction companies will startlegal proceedings against the state that could end up costingthe same in terms of the effect on the deficit.
"I don't think the government will want this to go to thecourts, as it won't benefit anyone," said Nunez of Seopan. "Wehave around a month, maybe a little more ... This cannot gofurther than June."
A government source said if the motorways went intoliquidation it would hit the deficit by no more than 3 billioneuros.
If the government and the construction firms fail to come upwith a solution before the first of the nine companies startliquidation proceedings in about a month, it will complicatematters by triggering legal claims, lawyers and builders said.
Lawyers and investors said more doubt would also be thrownon the stability of Spain's legal and regulatory framework ifthe government did not honour the 42-year-old law.
"If the government starts to try to pull out of honouringthe state guarantees, international investors may start to doubtstate guarantees in deals across the board," said SantiagoHurtado, a lawyer at Deloitte Abogados in Madrid.
A generous system of subsidies for the renewables sectorcreated by the previous government led to a boom in investmentin solar and wind farms across the country. The government laterrowed back on the state support, angering investors.
