More cuts hit Spain's energy sector

The Ministry of Industy is preparing a new round of energy reforms in an attempt to keep the tariff deficit from growing higher and adding to 28 billion euros of accumulated debt. It will try to create a stable regulatory framework that makes adjustments over time and in relation to the economic climate.

Even though the government, companies and various power producers face different criteria, everyone agrees that Spain needs to revitalize its energy model so that power production becomes an active instead of a passive resource for the national economy. The work involved is complicated, because it requires first that many agreements will be lopped off. In some sense, this would handcuff the government because it made political decisions to choose a certain mix of power production.

For now, the reforms being carried out will in fact change current agreements. The Ministry of Industry is asking for the reforms to happen quickly, and the government is starting to bend toward the most suitable energy system. But it has met some initial resistance from companies that are counting on agreements made within their sectors. The goal is to eliminate 4 billion euros of tariff deficit each year and avoid any further increases to the deficit in the years ahead. To achieve this goal, the reforms will add 2 billion euros of new cutbacks, which will be added to the national budget if the Ministry of Finance approves. The Ministry of Industry argues that these 2 billion euros will be countered by revenues once the economic situation levels off. The plan seems sound. But we'll have to wait to see where, when and how the cutbacks have any effect.