Spain Launches Reform of Gas to Tackle Deficit

The Spanish government on Friday took the first step to reform the gas sector with the main objective to prevent the emerging imbalance between costs and revenues will become the financial head pain ensued in the electricity sector.

"Measures to ensure economic and financial sustainability of the system are established, and the emerging problem of the tariff deficit is addressed to prevent problems like those in which we solve in this term," said the vice president Soraya Sáenz de Santamaría on Friday press conference after the Council of Ministers.

As with electricity, the Spanish Ministry of Industry has chosen to address reform in phases, devoting the first to fix the remuneration of individual items regulated by applying cuts to the regulated costs totaling 238 million euros, said in a meeting with journalists by Energy Secretary Alberto Nadal.

The new regulation is part of a royal decree on urgent measures for different areas approved Friday by the Executive of Mariano Rajoy.

Distribution companies bear about half the set (110 million), while transport their annual allowance be reduced by 97 million euros, the regasification plants in 23 million and 8 million underground storage.

's Gas system, the regulated costs or tolls amounted to 3,350 million euros, ended 2013 with a deficit of cumulative rate of close to 330 million and Industry estimates that the deficit this year will be between 600 and 700 million on account of developments gas demand, depressed in recent years by the economic crisis and the under-utilization of combined cycle power plants.

"Failure to take action would have reached a deficit of 800 million euros," Nadal said, adding that the deficit is generated this year will be funded by all the companies with regulated activities in the gas sector, recovering the amount said through the consumer gas bill over 15 years.

Energy Secretary explained that the measures of the first phase of the gas reform also included, as in the electricity sector, mechanisms that establish a ceiling for future imbalances: the annual deficit may not exceed 10 percent of the tolls (about 300 million) and accumulated may not exceed 15 percent of income from next year.

Nadal said another novelty of the new legislation is that it establishes a financial reward of 5.2 percent for each asset of all gas activities, supplemented by a variable part linked to the demand for gas.

Moreover, all automatic price updates, as linked to Oil Price Index (HPI), which is implementing the first law of general indexation that the Government has still pending are removed.

NO TOLLS WILL RISE BY STORE GAS CASTOR

The new compensation includes the estimated cost of the controversial Castor underground gas storage (about 200 million per year), although the future of the plant is now very uncertain day in the absence of new reports about his relationship with hundreds of small earthquakes occurred in northern Castellón last September.

Scales UGS, the storage company operating in two-thirds controlled by the ACS construction, recently applied waive the grant and it is expected that the Government has to pay to the company many of the 1,700 million euro project has cost European funding.

Nadal refused to reveal the strategy to be adopted if the concessionaire Industry Castor obtained approval from its lenders to waive the project, but said that tolls will not rise as a result of eventual compensation Scales.

"If the official resignation is submitted, I will do an analysis (...), but there will be no increase in tolls in any case," he said.

The measures announced Friday are the first phase of a broader reform that industry wants to develop this year and will address issues such as the creation of a wholesale gas market.

At 1505 local time, shares of Enagas rose 1.1 percent and Natural Gas 0.02 percent against an Ibex-35 was down 0.6 percent. (Reporting by Jose Elias Rodriguez; edited by Andres Gonzalez)