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Spain to work with big utilities on tariff debt relief

Source: Reuters - Wed 4th Dec 2013
Spain to work with big utilities on tariff debt relief

Spain agreed on Wednesday to work with big utilities to relieve them of €3.6 Bln of debts the companies have been racking up this year from selling energy at regulated prices that fail to cover the system's costs.

The government surprised the industry last week when it pulled funds it had earmarked to plug the gap as part of a signature reform to end years of electricity tariff deficits.

The companies had accumulated a combined deficit of €26 Bln by the end of 2012 and the government had allocated the €3.6 Bln to stop it widening further in 2013.

The decision to pull the funds could help the government limit its own fiscal shortfall as it struggles to meet budget targets imposed by its EU partners.

But it has stoked the fury of power companies such as Endesa and Iberdrola, which will have to hold the debt on their balance sheets until it is securitised.

By 14:15, shares in Iberdrola, Endesa and Gas Natural were marking a third consecutive day of declines.

The Treasury Ministry said in a statement on Wednesday it would create a working group with utilities and the Industry Ministry to thrash out a plan similar to a previous bond-buying programme that transferred the companies' debt to a state-backed fund known as FADE.

The announcement followed a meeting between Treasury Minister Cristobal Montoro and the heads of Spain's 5 biggest utilities, who had warned of a rise in bills for consumers.

The government's volte-face on the energy reform brings further uncertainty to a sector that has been plagued by successive failed attempts to close the tariff deficit, equivalent to 3% of Spain's GDP.

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