Financing Infrastructure in Port Concessions Through Financial Leasing Under Spanish Law: Overview and Potential Obstacles

The evolution of infrastructure financing models has brought real estate financial leasing to the forefront as a potential solution for funding infrastructure, including port concessions. This method presents a unique opportunity for port operators to fund their investments through third-party financing in the development and expansion of port infrastructure. However, it also introduces several legal and financial challenges that must be carefully navigated.

Financial leasing involves a financial entity (the lessor, usually a bank) providing the necessary capital for the construction or development of a project – such as industrial warehouses or machinery. In return for the financing, the borrower/lessee agrees to lease the financed object for its use for a set period while the lessor keeps its ownership, with the option to acquire said ownership at the end of the lease term. This arrangement allows lessees to leverage private capital without the immediate burden of substantial capital expenditure.

In the context of financing infrastructure in port concessions the scheme remains similar. The lessee, in this case a port operator with an administrative concession granted by the Port Authority, finances key unmovable assets to be built within the land of the port’s administrative concession with capital provided by a financial entity. However, similarities disappear once we start considering the particulars of port concession law.

Under the Royal Legislative Decree 2/2011, passing the Consolidated Text of the Law on State Ports and the Merchant Marine (hereinafter “TRLPEMM” due to its Spanish initials), the port’s terrain is considered public domain. Hence, it is not owned by the concessionaire/lessee, who simply gets granted a right to use the land to deploy a specific economic activity for a set period of time (notwithstanding any time extensions that could be granted) and is subject to limitations according to its public nature.

Additionally, both the TRLPEMM and the Decree FOM/938/2008, which approves the general conditions for the granting of concessions in the state port’s public domain (hereinafter, the “Decree”), mandate that the use of a port’s public domain can only be granted through concession or authorisation to subjects sufficiently qualified to carry on the activity that justifies the transfer of its use (ie, the specific port activity covered by the administrative concession or authorisation).

Consequently, we can see that unlike standard financial leasing operations, ownership of the built infrastructure cannot be held by or transferred to a financial entity that is not a port operator.

As the lessor will not grant the financing under the real estate financial leasing without receiving ownership of the built asset, creative solutions are required in order to fit the financial leasing into the particular abovementioned limitations, among which one of the cleanest is using the legal structure of the “surface rights in rem”, regulated in the Spanish Civil Code, as well as in Article 53 of Royal Legislative Decree 7/2015, passing the revised text of the Law on Land and Urban Rehabilitation, and in certain regional civil law regulations depending on which “Autonomous Community” the land is located in (eg, in the region of Catalonia, surface rights in rem are regulated in Law 5/2006 of the Fifth Book of the Civil Code of Catalonia).

A surface right in rem is a property right granted by the holder of an immovable asset (ie, the port operator/lessee) to the surface right in rem’s holder, where the former maintains ownership of the land while granting the latter separate ownership of anything built over it. That is, ownership of the immovable property is perfectly split between ownership of the land and ownership of anything built over it.

By granting a surface right in rem over the port concession to the lessor/financial entity, the former problems regarding the requirements for being the holder of the land disappear, and the lessor gets a security for the financing by means of ownership of the infrastructure built on the land.

As can be seen, financing port infrastructure through real estate financial leasing must be navigated carefully, and the financial entity involved in the lease must understand the unique requirements and limitations that exist regarding ownership of port concessions.

It is not less important that the port operator/lessee is well-aligned with the Port Authority and consults the authorities beforehand, as the grant of a property right over the port concession can be legally construed to be an encumbrance over the port concession, which is always subject to the prior approval by the Port Authority.

Financing port concessions through real estate financial leasing presents a viable, yet complex, approach. It offers a promising avenue for port development, providing access to private capital and innovative financing structures. However, it requires careful consideration of legal frameworks, and financial and operational factors to ensure that the arrangement is executed properly, and all parties (lessor, lessee, and Port Authority) are aligned. As this financing model continues to evolve, port authorities and private entities must work collaboratively to navigate these challenges and harness the full potential of financial leasing in port infrastructure development.