Enel's Chief Executive Luigi Ferraris said Thursday that the Italian
utility--owner of Spain's Endesa--expects to receive this year about EUR1
billion as the first reimbursement installment from Spain's so-called tariff
deficit bond issue. To which one can only say--good luck with that.
As Ferraris said, Spain's government is looking to issue EUR2 billion-EUR3
billion this year, to cover part of what it owes the country's power companies,
the result of years of subsidies for renewable energy development that went
unpaid, and yet ended up in the companies' balance sheets.
Instead of pushing for higher power prices for end users, a no-no for
successive governments seeking re-election, the companies accepted promises
that the deficit would be eventually paid. In fact, a small part was paid years
ago. Now, there's only, ahem, between EUR15 billion and EUR20 billion to go.
The plan is that Spain's government will guarantee bonds issued to cover the
expense, as if those were sovereign bonds, including that first tranche
Ferraris cited. In fact, power utilities have been telling the government that,
as things stand, such an issue this year and a similar one early next year
would be the bare minimum needed.
That may happen yet--bond markets are notoriously skittish about taking Spanish
paper, but Spain may yet decide that paying a high enough yield is a worthy
sacrifice at this point.
Also, markets may go quiet soon, for whatever reason, creating a relative
window of opportunity. In Spain's debt agency, the official line is that the
issue, already green-lit by everyone involved, may move ahead any day now,
despite media reports saying the bankers coordinating the issue are less
optimistic.
Then, there are other things that can happen too. One course of action appears
out of the question--that Spain's government takes on part of the tariff
deficit and adds that to the country's overall budget deficit. This is clearly
not the time for Spain to say it may overshoot its 9.3%-of-GDP deficit ceiling,
even if it's by 0.1% only.
The remaining option, of course, is that Spain's government folds and waits for
a better moment to raise those billions, avoiding the bad headlines generated
by super-high yields and, possibly, fairly tepid demand. The tariff deficit has
been growing for about a decade now, with the utilities getting used to adding
unrealized revenue to their accounts each quarter. Perhaps in Madrid they may
come to the conclusion that this the utilities', and not the government's
problem.