International Funds Launch Offensive Against Possible Cuts In Spain’s Gas Distribution Remuneration

Ministry of Ecological Transition answers CNMCMinistry of Ecological Transition answers CNMC

The cuts which the Economy Ministry want to implement in the distribution of gas to networks could amount to over 1 billion euros in three years. And this has set off the alarm bells amongst the big financial institutions and international funds, which have invested a lot in this sector in Spain over the last few years. These include GIP, JP Morgan, Goldman, CPPIB, Allianz and China and Abu Dhabi’s state funds. CVC is also on the alert, given that it is currently in negotiations with Repsol to buy its 20% of Gas Natural.

In the last two years, funds have invested over 10 billion euros to position themselves in Spain’s big gas distribution networks. The funds assumed their investment was low risk as revenues were subject to stable regulation. The Ministry now plans to cut the gas system remuneration established in the Law 18/2014 of October 15. It wants to modify specific remunerative concepts of the natural gas sector’s regulated activities. Amongst them, the revenues which companies get for the network of gas pipelines and for the distribution network (the tubes which go right to clients). The government has started talks with the groups in the Senate to change this networks’ remuneration. In gas distribution, the planned annual cut would amount to 285 million euros. The remuneration which was established based on this regulation was going to last until 2021. The Energy Ministry plans to implement these regulatory changes via an emendment in the Senate.

According to Bankinter, it is bad news for the sector if regulated remuneration is finally cut. Furthermore, the government is using the deficit in the gas system to justify this.

Companies affected would be Gas Natural, Naturgas, Madrileña de Gas, Redexis and Enagás. The sector holds the view that the responsability for the deficit lies mainly with the Castor Project (gas storage on the Mediterranean coast). Funds which have invested in the sector maintain that the cut in remuneration is a violation of the principal of legal security and regulatory stability essential for regulated activities.

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