Spanish infrastructure operator Ferrovial has made a provision of £208m to cover the fall-out from a £2.7bn highway contract between its Amey subsidiary and Birmingham council, the largest PFI roads deal in UK history. The decision has led to a €161m loss for the first quarter of 2018.
The loss took the shine off what would otherwise have been a highly profitable first quarter for the Madrid-based company, based on soaring returns on roads in North America and Heathrow airport in the UK.
It follows a four-year-long dispute between Amey and Birmingham council over what the project agreement obliged Amey to do. In particular, the dispute centred on whether Amey had to update a computer record of the current state of Birmingham’s road network.
The road network around the UK’s second city have long been a byword for their extent and complexity, including the famous Gravelly Hill interchange, otherwise known as "spaghetti junction" (pictured).
The dispute led to an adjudication, which Amey lost, then a court case, which it won, and finally a hearing in the Court of Appeal earlier this year that reinstated the adjudicator’s findings and ordered Amey to carry out work on the basis of a regularly updated "project network inventory".
The judgment added that in an agreement of this length, there were bound to be "infelicities and oddities", but that parties should not "latch onto" them to maximise their own gain.
Ernesto Mozo, Ferrovial’s chief finance officer, said Amey had brought forward capital that has been earmarked for later in the contract. He added that the loss included "performance deductions that will be challenged", suggesting that the war is not yet over.
Mozo said the company’s main revenue generators performed well. First-quarter earnings from the King’s Highway 407 toll road in Toronto grew 14% despite traffic increasing by only 2.5%. At Heathrow, dividends increased 21%.
In Texas, the North Tarrant Express Managed Lanes scheme showed revenue growth of 22% on traffic growth of 9.1%, and LBJ Expressway grew 22% on traffic growth of 9%.
In Ferrovial’s last full-year results it announced a €454m net profit on revenue of €12.2bn, a 21% increase compared with 2016.
Image: Spaghetti junction, where the M6 meets the A38 (Creative Commons)
Further reading:
