The Enron of Europe?
Spain's Electric Utilities Bailout
Courtesy of Pater Tenebrarum
There was a small detail in Spain's new budget that requires a little bit of additional comment. It is really too funny. Does anyone remember Enron's fancy accounting? The company inter alia booked funds as revenues even when they were really just 'receivables'.
It turns out that Spain's electrical utilities have done the same for many years – with the government's blessing. As in the case of the banks, the economic tide going out has meant that they have now run out of rug to sweep things under, and so here we are: the power system must be bailed out too.
After Spain’s rescue of its banks and cash-strapped regions, the 2013 budget reveals a bailout of the power industry to cover 25 billion euros ($32 billion) of debt accumulated by the electricity system.
The spending blueprint released two days ago adds 100 billion euros to the nation’s debt from the rescue packages by the end of 2012, driving its ratio to gross domestic product up 16.8 percentage points to 85.3 percent of total output.
Power companies such as Iberdrola SA (IBE) and Gas Natural SDG SA (GAS) booked more revenue than they received from their clients for most of the past decade — the difference between government-set prices for buyers and sellers — with the shortfall booked as receivables on their balance sheets.
“Politicians have failed to keep an appropriate distance from the industries they are supposed to regulate and when you look at the budget you see the impact,” Jose Ignacio Torreblanca, head of the Madrid office of the European Council on Foreign Relations, said in a telephone interview. “The government is taking on a whole series of debts and the power industry is a prime example.”
Spanish energy companies have recruited politicians from both main parties. Gas Natural has former Socialist Prime Minister Felipe Gonzalez on its board. Endesa SA (ELE)’s owner Enel SpA has former Finance Minister Pedro Solbes. Solbes’s successor Elena Salgado joined Endesa Chile (ENDESA) as a director this year. Iberdrola has Angel Acebes, who was Interior Minister alongside Rajoy in the last People’s Party administration.“
(emphasis added)
So the fact that 'politicians failed to keep an appropriate distance' from the electricity industry they were 'supposed to regulate' has now produced a €25 billion shortfall that necessitates an apparently hitherto 'unforeseen' bailout (at least we have never heard anything about this up until now – it is of course a good bet it was not a surprise for everyone).
It seems the Rajoy administration decided this was a good moment to throw this one out there, given that Spain's government is probably on the brink of applying for an even bigger bailout for itself in the not-too-distant future. Best to come clean with the all the legacy wastage right here and now, rather than have it crop up unexpectedly during a 'troika' visit. 🙂
Never a dull day in Europe, even though the markets are not in upheaval for a change.
Madrid's IBEX stock index, monthly. Looking at this longer term chart it appears likely to us that wave C of the current bear market is not yet complete. At a minimum, the fifth wave down is still missing – via BigCharts.com – click for better resolution.
