The Meca-Medina Project: Poverty Breeds Discontent

meca medina
History is repeating itself. In January 2014, Spanish firm Sacyr revealed that the extension of the Panama Canal had produced a cost overrun of 1.2 billion euros and the solution to this situation is now in the hands of international arbitration courts. And now it’s the turn of the consortium handling the Meca-Medina AVE high-speed train project. Yet again, it has presented the Saudi government with a considerable budget overrun which the local authorities have not accepted.
This comes at a time when S&P has cut its rating for Arab country to A- from A+, maintaining a stable outlook, citing the negative impact from the fall in crude prices on Saudi’s public finances.
The Meca-Medina project had an initial budget of 6.7 billion euros, and the deviations are not only creating tensions between the consortium and the Saudi authorities but also within the consortium itself. If the claims of the Spanish companies involved in the consortium are not accepted, this would not only reduce their contribution margins, but might also result in some contractors posting losses.
The Spanish consortium is formed by Renfe (26.9%), Ineco (1.4%) and Adif (21.5%), with ACS, OHL, Indra, Copasa, Siemens, Imanthia, Abengoa, Talgo, Al Shoula and Al Rosan sharing the remaining stake in the project.
The consortium’s participants all have different characteristics. Some of them are builders and others consultants, or in charge of rolling stock and installations, some are private, others public etc. This means that disputes are, unfortunately, inevitable. To the extent that OHL, owned by Juan-Miguel Villar, actually questioned the management of the consortium’s current CEO, due to the fact that OHL saw a 16% rise in total revenues to 2.242 billion euros from its civil construction business in the third quarter of 2015.
Although this type of situation is reasonably common in international projects, there is no doubt that the importance of both the Panama Canal and Meca-Medina projects could pose a threat to the image of Spanish companies. Sector analysts believe that they are fast losing the levels of technological competitiveness reached before the crisis, when there was investment in public works and big infrastructure projects in Spain.

About the Author

Carlos Díaz Guell
Editor at and, Carlos began his career in financial journalism as founding member of El País. He's been communications director of Bank of Spain, member of the ECC at the European Central Bank, Institutional Relations director at Iberia and editor at La Economía 16 magazine.