Valencia floods prompt race for funds to boost Spain's climate resilience

By Corina Pons and Pietro Lombardi

Spain is seeking European approval to repurpose more than a billion euros of post-pandemic recovery funds to make Valencia more resilient against climate change after the Mediterranean region suffered catastrophic heavy rains last year.

The talks started a few weeks after torrential rains caused floods in October that killed over 220 people in commuter towns to the east of Valencia. Experts say the disaster was worsened by patchy flood defences, many of which had been earmarked for improvement works decades earlier.

Reallocated EU funds would be a small part of what companies such as Spain's Acciona, Sacyr and Cox Group expect to be a new wave of investment in the water business in Spain.

Such companies have largely been active in countries facing water stress such as Saudi Arabia and Morocco, but now finding solutions for the problems at home presents opportunities for growth - as well alleviating some of the misery wrought on communities.

Water investments have moved up the political agenda at a local and national level, industry insiders, corporate officials and experts told Reuters.

Prime Minister Pedro Sanchez said in December that "Spain is one of the countries most vulnerable to climate change".

The European Commission has determined that extreme weather events in Spain have cost it 7.7% of GDP over the last 40 years - three times the European average - with risks to critical sectors such as agriculture and tourism.

Economy Minister Carlos Cuerpo said the EU funds Spain was seeking permission to repurpose would be used partly to repair damaged water systems in the Valencia region, as well as developing desalination plants in the face of prolonged droughts that damage its large agricultural sector.

Negotiations with the European Commission on the allocation of 1.5 billion euros ($1.56 billion) previously assigned to other projects are still ongoing with no set end date, the Economy Ministry said.

Spain has already allocated around 3 billion euros for water works out of the roughly 77 billion euros in European recovery funds disbursed by the bloc in the past four years, according to industry sources.

Environment and Ecological Transition Minister Sara Aagesen told a congressional committee last month that the government was committed to funding the rebuilding of Valencia's water systems and completion of urgent hydrology works in the area.

She also announced that her ministry would create a water consumption observatory and planned to double the budget for works to increase water supplies through reuse and desalination plants in the country.

Aagesen's ministry declined to provide Reuters with further details of the projects, how they will be funded or their timeline for completion.

COMPANIES EXPECT MORE INVESTMENT

A PwC report in 2024 focused on Spain's investment in urban water systems found it had underspent by 5 billion euros a year due in part to limited state budgets, trailing other European countries such as Portugal, Italy, France and Germany. The urban water cycle is mainly related to the purification, supply, sewerage, treatment and reuse of water in urban environments.

Eduardo Campos, who leads Sacyr's water business, said he expected the Valencia flood to be a turning point, adding of hydraulic and flood mitigation works like clearing riverbeds of debris: "These are necessary projects, (even if) they're expensive and not pretty."

Sacyr is already evaluating works to restore sewage and water treatment networks damaged in the Valencia flood, Campos said, estimating that just the most urgent repairs will cost more than 350 million euros.

Campos also said there was a lot of growth potential in Spain amid the growing need for reuse of wastewater and the digitalisation of water management.

Manuel Manjon Vilda, chief of Acciona's water business, said there were plenty of potential water infrastructure projects in Spain. "What there hasn't been is the money or the political will to undertake an investment plan of 15 to 30 billion euros," he said, adding he expected these to become "a key concern ... executed as a priority".

Even with heightened political will, new projects will still take time to come to fruition.

Water projects generally take an average of at least three years to be approved, dragged out by slow coordination between national, regional and local administrations, according to the Spanish water company executives Reuters spoke to.

While Valencia was hit by floods, the Mediterranean Coast from Catalonia to Gibraltar is suffering from deepening water shortages.

In tourist hotspot Barcelona, authorities earmarked half a billion dollars last year for two desalination plants near the city's coast.

In the southern Andalusia region, the world's olive oil capital, the regional government launched a 400-million-euro plan in November to more than double the water the region recycles by the end of 2027.