I. Banking Law and Oil & Gas Stranded Asset Risk in Spain

1. Meaning of stranded-asset risk

A stranded asset is an asset that loses substantial economic value before the end of its originally expected useful life.

In oil and gas, this may occur because of:

• decarbonisation policies;
• carbon pricing;
• restrictions on fossil-fuel production;
• renewable-energy substitution;
• falling demand for hydrocarbons;
• environmental regulation;
• technological change;
• litigation or environmental liability;
• premature closure of infrastructure.

For banks, the problem is not limited to the energy company itself. A bank may have financed:

• oil and gas exploration;
• refineries;
• pipelines;
• LNG infrastructure;
• gas-storage facilities;
• power plants dependent on gas;
• corporate acquisitions involving fossil-fuel companies;
• project-finance structures secured against energy assets.

If the underlying asset loses value, the borrower's repayment capacity and the value of collateral may simultaneously deteriorate.

The Banco de España expressly treats climate-related risks as including physical risks and transition risks, with transition risk arising from the costs associated with moving towards a more sustainable economy. It also states that banking supervision must ensure that credit institutions can identify, measure, manage and disclose climate-related financial risks.

2. Banking-law significance in Spain

Spanish banking regulation does not create a separate legal category called "stranded asset risk." Instead, it enters banking law through established concepts such as:

The Banco de España's research specifically examines how energy-price volatility and climate-transition policies can transmit risk into bank loan returns. Its research concludes that sectoral capital requirements can be relevant to exposures particularly vulnerable to energy risks.

3. Main sources of Spanish legal regulation

The relevant framework is a combination of:

A. Spanish banking legislation

Important legislation includes:

• Law 10/2014 on the regulation, supervision and solvency of credit institutions;
• Royal Decree 84/2015, implementing aspects of Law 10/2014;
• Banco de España supervisory rules and circulars;
• applicable EU prudential legislation, especially the Capital Requirements Regulation (CRR);
• EU banking-supervision requirements;
• environmental and energy legislation affecting the financed project.

Thus, the bank does not merely examine whether an oil company is profitable today. It increasingly has to consider whether the project's cash flows remain sustainable under plausible future scenarios.

4. How an oil/gas asset becomes stranded

The process can be illustrated as:

Climate policy → lower fossil-fuel demand / higher compliance cost → lower project revenue → lower asset value → weaker borrower → higher probability of default → bank loss

For example, suppose a bank finances a €1 billion gas infrastructure project.

Originally:

• expected project life = 30 years;
• expected cash flow = €80 million annually;
• collateral value = €1 billion.

If energy-transition policies substantially reduce utilisation after 15 years, the project's economic value may fall substantially.

The consequences could include:

1. impairment of the bank's loan;
2. increased probability of default;
3. reduced collateral coverage;
4. restructuring of the loan;
5. higher provisions;
6. increased capital requirements.

5. Castor Gas Storage – an important Spanish example

The Castor underground gas-storage project is particularly relevant to banking-law analysis because it demonstrates how an energy infrastructure project can generate complex interactions between:

• infrastructure financing;
• government intervention;
• compensation;
• regulatory risk;
• decommissioning;
• banking claims.

The Spanish Supreme Court dealt with the financial consequences of Castor. In STS 1404/2020, 27 October 2020, the Court recognised the right of banks to receive from the Administration amounts relating to financing associated with the Castor gas-storage project.

This is highly relevant to banking law because the project illustrates that the termination or restructuring of an energy infrastructure project can directly affect the rights of financing institutions.

The Supreme Court subsequently dealt with the legality of measures concerning the end of Castor's hibernation and its decommissioning. In 2021, the Court declared inadmissible Escal UGS's challenge to the Council of Ministers' decision concerning the decommissioning process.

6. Castor and stranded-asset risk

Castor demonstrates an important principle:

A technically or economically impaired energy asset can create financial consequences extending beyond the project's owner to lenders and the public sector.

The asset can become economically unusable or severely restricted while financing obligations continue.

This creates a maturity mismatch:

Long-term bank loan → energy asset loses economic usefulness → project cash flow falls → repayment risk increases.

Therefore, banks financing oil and gas infrastructure should consider:

• expected regulatory life;
• decommissioning costs;
• environmental liabilities;
• alternative-use value;
• government intervention;
• insurance;
• termination provisions;
• guarantees;
• collateral value after regulatory closure.

7. Banco de España's climate-transition approach

The Banco de España explicitly recognises that climate transition can produce financial risks for banks.

Its research on climate transition and bank capital requirements models an economy where banks finance both fossil and low-carbon energy and where loan-return volatility is connected with energy-price changes.

The important banking-law implication is:

Banks should not assess fossil-fuel exposure only through historical financial performance.

They should also consider forward-looking transition scenarios.

8. Legal duties of bank management

Bank directors and senior management should establish systems for:

Identification

Identify:

• oil and gas borrowers;
• fossil-fuel collateral;
• carbon-intensive borrowers;
• geographical concentration;
• long-duration project finance.

Measurement

Estimate:

• probability of default;
• loss given default;
• collateral impairment;
• cash-flow sensitivity;
• carbon-price sensitivity.

Stress testing

Possible scenarios include:

Scenario A: gradual energy transition.

Scenario B: accelerated transition.

Scenario C: sudden regulatory tightening.

Scenario D: severe oil/gas price decline.

9. Case law / legal authorities relevant to stranded-asset risk

Case 1 — STS 1404/2020, 27 October 2020 — Castor

The Spanish Supreme Court addressed claims involving bank financing connected with the Castor gas-storage project and recognised the banks' entitlement to receive relevant amounts from the Administration.

Banking significance: infrastructure-project failure or restructuring can directly affect lender rights.

Case 2 — Supreme Court, 7 November 2018 — Castor regulatory framework

The Supreme Court considered the legal framework surrounding the Castor gas-storage facility and the government's response to the project's exceptional circumstances.

Banking significance: regulatory intervention can materially change the economic assumptions underpinning infrastructure financing.

Case 3 — Supreme Court, 2021 — Escal UGS / Castor decommissioning

The Supreme Court declared inadmissible Escal UGS's challenge concerning the termination of the Castor hibernation arrangement and decommissioning measures.

Banking significance: decommissioning decisions can affect the residual value of project-finance collateral.

Case 4 — Supreme Court, November 2018 — Castor gas-tariff arrangements

The Supreme Court annulled aspects of the 2014 gas-toll order relating to payments to Enagás connected with Castor.

Banking significance: regulated revenue mechanisms are important components of infrastructure credit analysis; changes to them may affect project cash flows.

Case 5 — Banco de España climate-transition research, 2024

Although not a judicial case, the Banco de España's Working Paper 2410 is an important regulatory/economic authority. It models how energy-price volatility and transition policies can affect bank lending risk and capital requirements.

Case 6 — Banco de España climate-risk supervisory framework

The Banco de España identifies climate transition risk as a financial-stability concern and supports identification, measurement, management and disclosure of climate-related risks by credit institutions.

Important: Cases 5 and 6 are regulatory/research authorities rather than judicial case laws. This distinction matters in a law examination.

II. Banking Law and Olympic-Related Financing in Spain

1. Meaning

Olympic-related financing refers to the financing required for:

• stadiums;
• Olympic villages;
• transport infrastructure;
• roads;
• telecommunications;
• security;
• accommodation;
• sports facilities;
• urban redevelopment;
• event operations;
• broadcasting and commercial infrastructure.

Spain's most important historical example is the Barcelona 1992 Olympic Games.

The Barcelona model is particularly valuable for banking law because financing was organised through a combination of:

• central-government funding;
• municipal funding;
• public companies;
• borrowing;
• subsidies;
• special-purpose structures;
• infrastructure revenues.

2. Barcelona Holding Olímpico (HOLSA)

A central institution was Barcelona Holding Olímpico, S.A. (HOLSA).

It was created to obtain and manage financing and control infrastructure and equipment works associated with the Barcelona 1992 Olympic Games. The State and Barcelona City Council participated in its capital.

The legal framework was established through agreements between the Spanish State and Barcelona City Council.

The 1990 Law 15/1990 granted an extraordinary credit of 3.0441 billion pesetas to complete the State's contribution to HOLSA. The law expressly connected HOLSA with the financing and management of Olympic infrastructure.

3. Structure of Olympic financing

The structure can be represented as:

Spanish State + Barcelona City Council

↓

HOLSA

↓

Financing / borrowing

↓

Infrastructure subsidiaries

↓

Olympic infrastructure

This resembles a form of public-sector project-finance structure, although it should not be equated mechanically with modern private project finance.

4. Government support and banking risk

Government support was important because Olympic infrastructure had:

• large upfront costs;
• uncertain direct commercial revenues;
• fixed construction deadlines;
• political and public-interest objectives;
• significant post-event infrastructure risk.

The financing model therefore relied substantially on public-sector commitments.

The 1990 legislation expressly provided for financing the extraordinary credit through the Banco de España or public debt, demonstrating the connection between Olympic expenditure, public finance and monetary/public-debt mechanisms at that time.

5. Olympic financing and credit risk

A bank financing Olympic infrastructure must analyse:

Construction risk

Will the facility be completed before the event?

Cost-overrun risk

What happens if construction costs exceed the original budget?

Revenue risk

Will post-event revenues repay debt?

Government-support risk

Are government contributions legally binding?

Refinancing risk

What happens after the Olympic event?

Residual-asset risk

What is the value of the facility after the Games?

This last issue is particularly important.

An Olympic stadium can have high social value but comparatively low commercial cash flow.

Therefore:

Social value ≠ necessarily debt-service capacity.

6. Post-Olympic debt

Barcelona's financing experience demonstrates the importance of the post-event phase.

After the 1992 Games, the financing structure had to address:

• outstanding debt;
• financing of subsidiaries;
• additional obligations;
• restructuring;
• repayment;
• liquidation or restructuring of HOLSA.

The Spanish Parliament's documentation records that, after the Games and completion of the infrastructure, the financial framework of HOLSA had to be reviewed and the company was to assume financing obligations of its subsidiaries as part of the process towards dissolution or transfer.

7. Tribunal de Cuentas and HOLSA

The Tribunal de Cuentas conducted a specific fiscalisation of HOLSA and its subsidiaries.

Its audit examined:

• legality;
• efficiency;
• economy;
• financing activity;
• debt-amortisation fund;
• temporary financing credits;
• subsidised debt;
• capital subsidies;
• additional borrowing;
• subsidiary companies.

This is extremely useful for a banking-law answer because it shows that large event financing requires financial accountability beyond the initial borrowing stage.

8. Olympic security expenditure

Olympic financing was not restricted to stadium construction.

Spain enacted Royal Decree-Law 2/1992, providing 21.67 billion pesetas in supplementary credits for extraordinary security expenditure connected with the Barcelona Olympics, the Seville Expo and Madrid's European Capital of Culture activities.

The law expressly stated that the credits would be financed through the Banco de España or public debt.

The measure was subsequently validated by Congress.

This demonstrates how major sporting events can generate contingent and unexpected public financing requirements.

9. Six important Spanish authorities/cases for Olympic financing

Here it is important to distinguish judicial case law from authoritative legislative/audit materials. There is not a large body of Spanish Supreme Court banking jurisprudence specifically deciding "Olympic project finance" disputes.

Case/Authority 1 — Law 15/1990 concerning HOLSA

The Spanish Parliament authorised an extraordinary credit of 3.0441 billion pesetas for the State's contribution to HOLSA.

Principle: Government commitments can be legally structured to support major-event infrastructure financing.

Case/Authority 2 — Royal Decree-Law 2/1992

Provided supplementary credits of 21.67 billion pesetas for extraordinary security expenditure associated with the 1992 events.

Principle: Major sporting events can generate unforeseen public expenditure requiring legally authorised supplementary financing.

Case/Authority 3 — Resolution of 30 April 1992

Congress formally validated the 1992 Royal Decree-Law.

Principle: Extraordinary event-related expenditure must remain within constitutional and parliamentary budgetary mechanisms.

Case/Authority 4 — Tribunal de Cuentas, HOLSA fiscalisation

The Tribunal de Cuentas examined HOLSA's financing, debt-amortisation arrangements, subsidised debt, temporary financing and additional borrowing.

Principle: Publicly supported Olympic financing remains subject to legality, efficiency and economic-control requirements.

Case/Authority 5 — HOLSA financial restructuring framework

Parliamentary documentation concerning the post-1992 restructuring records the transfer/subrogation of financing obligations and the revision of HOLSA's financial framework.

Principle: Event-financing structures must contain mechanisms for debt management after the event has ended.

Case/Authority 6 — HOLSA debt and later public-finance treatment

Later parliamentary documentation records the treatment of obligations associated with HOLSA's debt within public-sector indebtedness, with HOLSA debt ultimately cancelled in 2007.

Principle: Publicly supported event financing can have long-term consequences for public-sector debt accounting and financial management.

Again, these six are not all "case laws" in the strict judicial sense. They are Spanish legal authorities, audit findings and parliamentary materials directly connected to Olympic financing. It would be legally inaccurate to label all six as Supreme Court judgments.

10. Banking-law principles derived from Olympic financing

A. Special-purpose financing

A major sporting event may use a special-purpose company to isolate and administer financing.

HOLSA provides a historical Spanish example.

B. Government guarantee/support

Banks may lend more readily where repayment is supported by legally enforceable public contributions.

However, the precise legal nature of the commitment must be examined.

C. Cost-overrun risk

Construction delays and cost increases can produce:

higher project cost → additional borrowing → higher debt service → increased public/private credit risk.

D. Revenue risk

Olympic facilities can experience substantial differences between:

• expected event-period revenues; and
• long-term post-event revenues.

E. Refinancing risk

A loan structured around the Olympic event may mature after the Games, requiring a separate refinancing strategy.

F. Public-law constraints

Where government entities participate, the financing structure must comply with:

• budgetary law;
• public-debt rules;
• public procurement requirements;
• state-aid rules where applicable;
• constitutional principles;
• public-company governance rules.

11. Comparison: stranded assets vs Olympic financing

12. Examination conclusion

Oil and gas stranded-asset risk is increasingly a banking-law issue in Spain because climate-transition policies can affect the value and cash flows of energy assets that serve as the basis for bank lending. Banco de España explicitly recognises climate transition as a source of financial and banking risk, while the Castor litigation demonstrates how difficulties surrounding major gas infrastructure can affect lenders, government compensation and asset decommissioning.

Olympic-related financing, particularly the Barcelona 1992 experience, demonstrates a different aspect of banking law: large infrastructure projects may require sophisticated combinations of public capital, borrowing, special-purpose entities and government commitments. HOLSA's financing and subsequent debt-management arrangements show why lenders and governments must consider not only construction and event-period financing but also post-event debt, asset utilisation and long-term repayment capacity.

Key legal takeaway

Spanish banking law increasingly requires a forward-looking approach to financial risk: for fossil-fuel assets, the critical question is whether transition will impair future cash flows and collateral; for Olympic infrastructure, the critical question is whether the financing structure remains sustainable after the event and whether public commitments and debt arrangements are legally and financially robust.