Spain to stop energy companies from raising prices in response to tax hikes

After announcing new taxes on banks and energy companies, the Spanish government has reassured the public that the cost won't be passed onto consumers and given regulators the teeth to bite back against companies that try to do so.

Spain to stop energy companies from raising prices in response to tax hikes
Spain's Minister of Finance Maria Jesus Montero arrives prior the weekly Cabinet meeting at the Moncloa Palace in Madrid, on July, 13 2021. Photo: PIERRE-PHILIPPE MARCOU/AFP)

Spain’s Minister of Finance, María Jesús Montero, promised the Spanish public on Thursday that the government will not allow a new set of temporary taxes levied on energy companies and financial institutions to be passed onto consumers.

Speaking to the Spanish press, Montero said that Spain’s independent competition regulator, the Comisión Nacional de los Mercados y la Competencia, (CNMC), “will be provided with all the functions to monitor and apply sanctions in case any company separates from the law.”

READ ALSO: Why is electricity in Spain more expensive than ever?

The energy tax, announced by Prime Minister Pedro Sánchez this week during the ‘State of the Nation’ debate in the Spanish Congress, is targeted at what he called “the extraordinary profits” of big energy companies. It is hoped it can recoup €2 billion a year over the next two years.

According to Sánchez, this “exceptional” tax will be implemented during 2023 and 2024 and “will affect the extraordinary profits made in 2022 and 2023 by the dominant groups in the electricity, gas and oil sectors.”

But energy companies are not the only target of the temporary taxes. Financial institutions “that are benefiting from interest rate increases” as Spaniards across the country feel the financial pressures of inflation are also in the government’s crosshairs.

The tax on financial institutions will also run for two years and, Sánchez added, will be worth around €1.5 billion per year to the public coffers.

In total, the taxes will raise around €3.5 billion per year over two years for a total of €7 billion.

Sánchez’s announcement this week, although viewed as welcome and progressive by some, did cause others to worry that the increased rates would be passed down to consumers already struggling to pay skyrocketing utilities bills. 

But on Thursday Montero was keen to allay fears about the possibility of consumers footing the bill, and assured Spaniards that prices would – could – not go up as a result. “It is called redistributing the social burden and that, therefore, those who earn the most are the ones who contribute the most to the common stock market,” she said.

This temporary tax measure on profits is just one of a whole host of measures Sánchez’s PSOE-led government coalition have tried to ease the burden on Spaniards struggling with the highest level of inflation in 37 years and crippling price increases in fuel, food, and energy bills.

In June the government cut VAT on electricity bills in half, from 10 percent to 5 percent, after previously cutting it from 21 percent to 10 percent last year.

READ ALSO: Spain to cut electricity tax by half to ease inflation pain

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Spain’s PM hopes European gas link will become a reality ‘soon’

Spanish Prime Minister Pedro Sánchez said Tuesday he hopes a gas pipeline linking the Iberian Peninsula to central Europe through France could soon become a reality.

Spain's PM hopes European gas link will become a reality 'soon'

Europe is currently undergoing an energy crisis as it struggles to rapidly reduce its dependence on Russian gas following the invasion of Ukraine.

Russia has reduced deliveries and nations are scrambling for supplies to avoid a possible shortage this winter, while prices for gas and electricity have soared.

“Spain has a lot to contribute to help Europe reduce its energy dependence on Russia thanks to our immense regasification capacity,” Sánchez said on a visit to La Palma in the Canary Islands.

Spain currently has six liquefied natural gas (LNG) terminals for processing deliveries made by huge sea tankers back into gas and injecting them into its pipeline network.

But the country has only two low-capacity links to France’s gas network, limiting its current ability to act as a conduit to boost EU gas imports.

Last week, German Chancellor Olaf Scholz said a pipeline bringing gas from the Iberian Peninsula through France to central Europe could make “a massive contribution” to easing the supply crisis, in remarks hailed by Madrid and Lisbon.

Madrid has for years championed the idea of a pipeline across the Catalan Pyrenees with France to significantly increase transfer capacity and insisted such link could be built within months.

“This is something the Spanish government has been demanding from Europe for a long time now… and we hope we can soon make this dream into a reality,” Sánchez said.

Spain is already showing solidarity with its European partners by exporting energy “and we will do so even more when we improve the energy interconnections”, he added.

The pipeline would be similar to the defunct MidCat project, which sought to link Spain to France, but which was halted in 2019 over opposition from environmental groups and a lack of funding.

Spain’s gas network operator Enagas said last week it could have the Spanish section of the pipeline ready within “eight or nine months”.

Sources familiar with the project said it would initially transport natural gas, but would ultimately switch to hydrogen.