Economy

- December 16, 2021 -

On December 7, 2021, the Council of Ministers approved a series of amendments affecting the regulations of the Fund for the recapitalization of companies affected by COVID-19.

These modifications were made in response to the observation of the existence of numerous situations of companies that, experiencing difficulties directly or indirectly attributable to the pandemic, did not qualify in accordance with the criteria established at the creation of the Fund.

The most important changes in the requirements for companies to access the fund are:

The minimum turnover of companies eligible for this fund has been reduced to EUR 10 million from the previous EUR 15 million. The turnover range is therefore between EUR 10 million and EUR 400 million.
Access to the Cofides Fund is open to companies with a turnover of more than EUR 400 million, which did not reach the minimum amount of aid provided for in this Fund.
The Fund's new range of grants is between EUR 2.5 million and EUR 25 million.
The requirement for a 20% drop in 2020 turnover compared to 2019 is eliminated.
Justification of the deterioration of the capital structure (Net Equity/Net Financial Debt) is allowed based on the comparison of the closing of 2021 versus 2019.
Companies considered to be in crisis at the end of 2019 are accepted as beneficiaries of the Fund, provided that at the time of applying for assistance from the Fund, they had reversed this situation.
The maximum amount of aid from the Fund in the form of an ordinary loan will be the most favorable of: (i) twice the beneficiary's annual salary costs as of 2019 or the last year available, (ii) 25% of the total turnover for 2019. For the purposes of the latter calculation, the ICO Covid loans that the companies would have requested are also computed as ordinary debt with state aid.

These modifications apply to the Fund for the recapitalization of companies affected by COVID-19 created in March 2021, whose management was entrusted to the public-private commercial company Cofides. It is a tool oriented to medium-sized companies of any sector which, enjoying viability before COVID-19 and having it in the medium and long term, were strongly affected by the effects of the pandemic.

1 billion and is governed by the European and national Temporary Framework for State aid measures to support the economy in the context of COVID-19.

Cofides will operate with equity or hybrid instruments (such as participating loans), which must be amortized over a maximum term of 8 years, and with ordinary loans, which must be amortized over a maximum term of 6 years.

The capital instruments cannot result in an improvement of the 2019 year-end capital structure, understood as the Net Equity/Net Financial Debt ratio.

The six-month extension granted last November by the European Commission (from December 31, 2021 to June 30, 2022) provides an oxygen balloon, although perhaps insufficient (from December 31, 2021 to June 30, 2022) provides an oxygen balloon, although perhaps insufficient, so that the companies can use part of the funds necessary for their recovery and continuity.

A delayed effect, which will occur throughout 2022, is the end of the maximum grace period of the EUR 140 billion of bank loans guaranteed by ICO. The debt service on these loans will most likely exceed the cash generation capacity of many companies, especially those that requested them in 2020, to cover the heavy losses they were suffering.

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- December 16, 2021 -

The Recovery Plan is structured around four axes (ecological and digital transition, social and territorial cohesion, and gender equality), which articulate ten policy levers, each consisting of thirty components. Within this framework, investment funds(69,528 million euros for the period 2021-2023) have been distributed as follows, with respect to each of the levers:

Urban and rural agenda, fight against depopulation and development of agriculture: 20.7%.
Resilient infrastructures and ecosystems: 15%.
Fair and inclusive energy transition: 9.2%.
An Administration for the 21st century: 6.1%.
Modernization and digitalization of the ecosystem of our companies: 23.1%.
Pact for science and innovation and reinforcement of the National Health System: 6.1%.
Education and knowledge, continuing education and skills development:10.5%.
New care economy and employment policies: 7.2%.
Boosting the culture and sports industry: 1.2%.
Modernization of the fiscal system for inclusive and sustainable growth.

For its part, the execution process will follow an information and financial control system. Its objectives are to ensure the reliability and achievement of milestones and objectives; to detect and correct fraud, corruption, conflict of interest and double financing; and to build on the systems already in place in the Public Administrations, reinforcing and adapting them to the new approach of the Recovery and Resilience Mechanism.

A three-level control will be carried out:

Level 1: internal control of the executing agency.
Level 2: ex ante control by the independent body of the acts of execution of expenditures.
Level 3: ex post control by means of audits (Intervención General de la Administración del Estado, IGAE)

In terms of organization, the control authority will be the IGAE, the responsible body being the Ministry of Finance. The National Anti-Fraud Coordination Service (of an autonomous nature) in contact with the European Anti-Fraud Office (OLAF), and the computerized management and monitoring systems in terms of milestones and objectives, execution of actions, double financing and register of final recipients will also be part of the system.

So far, 23 expressions of interest have been launched for the private sector, thirteen of which refer to digitalization. On the part of the Autonomous Communities and Municipalities, four expressions of interest have been launched.

Among the prospects for 2022, it is expected to reach cruising speed in Phase I: €26.9 billion from Recovery Plan funds. A cross-cutting impact is also expected from the PGE, as 26 of the 30 components of the plan are reflected in the budget.

As for Phase II, the Recovery and Resilience Facility is endowed with funds earmarked for the granting of non-reimbursable transfers and reimbursable loans that Member States may request until August 31, 2023. Disbursement is made in tranches and is linked to the achievement of committed milestones and targets:

Identification of potential projects and investments to be financed, which will be conditioned by the percentages of digital (20%) and green investment (37%).
Design of the optimal financial structure for channeling loan funds: directly through investments or subsidies from the different ministries, or through financial intermediaries.
Schedule of investments up to 2026 so that multi-year planning can be carried out and a stable framework for financing projects can be integrated into successive PGEs.

- December 9, 2021 -

Commission Delegated Regulation (EU) 2021/2139 of 4 June 2021 supplementing Regulation (EU) 2020/852 of the European Parliament and of the Council and establishing the technical selection criteria for determining the conditions under which an economic activity is deemed to make a substantial contribution to climate change mitigation or adaptation and for determining whether that economic activity does not cause significant harm to any of the other environmental objectives

This Delegated Regulation establishes the technical selection criteria for determining under what conditions an economic activity shall be considered as making a substantial contribution to climate change mitigation and for determining whether such economic activity causes significant harm to any of the other environmental objectives of this Regulation.

Regulation (EU) 2020/852 establishes the general framework for determining whether an economic activity can be considered environmentally sustainable for the purposes of determining the degree of environmental sustainability of an investment. This Regulation applies to measures adopted by the Union or by Member States imposing on financial market participants or issuers any requirements in respect of financial products or corporate bond issues that are offered as environmentally sustainable, on financial market participants offering financial products, and on companies that are subject to the obligation to publish non-financial statements.

In this sense, the technical selection criteria should take into account the nature and magnitude of the economic activity and the sector to which they refer, and whether the economic activity is a transitional economic activity. Accordingly, these technical selection criteria should specify the minimum requirements that the economic activity must meet in order to be considered environmentally sustainable. An independent third party must verify compliance with these technical selection criteria in relation to these activities.

The technical selection criteria should ensure that the widest possible range of critical infrastructures, including, in particular, energy transport or storage infrastructures, or transport infrastructures. In addition, technical selection criteria should be established for educational, health, social services, artistic, recreational and entertainment activities. The sectors analyzed in this standard include the following:

Forestry
Environmental protection and restoration activities
Manufacturing
Energy
Water supply, sanitation, waste treatment and decontamination
Transportation
Building construction and real estate development activities
Information and communication
Professional, scientific and technical activities

For all these sectors, a series of generic criteria are established relating to the principle of not causing significant harm to adaptation to climate change, sustainable use and protection of water and marine resources, prevention and control of pollution in relation to the use and presence of chemical products, and protection and recovery of biodiversity and ecosystems.

With a view to ensuring that the implementation of Regulation (EU) 2020/852 evolves in line with technological, market and policy developments, this Regulation should be regularly reviewed and, where necessary, amended with regard to activities.

This Regulation shall enter into force on the twentieth day following that of its publication in the OJEU; it shall be directly applicable in each Member State as from January 1, 2022 and shall be binding in its entirety.

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- September 16, 2021 -

Royal Decree-Law 17/2021, of September 14, on urgent measures to mitigate the impact of the increase in natural gas prices in the retail gas and electricity markets.

This Royal Decree-Law, approved by the Council of Ministers and published in the BOE, aims to keep consumers' final electricity bill this 2021 at the same level as in 2018. The regulation combines general measures with specific measures of greater impact on vulnerable consumers, families, SMEs and the industrial fabric, as well as the environment and territories close to large reservoirs.

Among the temporary decisions adopted, those of a fiscal nature stand out:

To extend until the end of the year the suspension of the Tax on the Sale of Electric Energy Production (IVPEE), which levies a 7% tax on generation.
Reduce from 5.1% to 0.5% the rate of the Special Tax on Electricity (IEE) -the minimum allowed by EU regulations-.
Expand the amount raised from European CO2 auctions to cover electricity system charges from the 1.1 billion budgeted for 2021 to 2 billion.

Likewise, the temporary reduction of the excess remuneration obtained by non-emitting power generation plants in the wholesale market has been approved. A formula similar to the one used to reduce the carbon dividend of non-emitting plants is applied.

This shock plan has an immediate impact on consumers' bills, either because of the tax reduction or because both the income from CO2 auctions and the gas reduction reduce the charges to be included in the tariffs. The applicable charges will be 96% lower than at present. This makes it possible to reduce the regulated part of consumers' final bills in a range from 47.2% for households to 24.5% for large industry. In addition, the lower tax burden will be applied to this reduction.

Also to face the situation of the coming months, the impact of the cost of the raw material in the calculation of the three bands of the last resort natural gas tariff (TUR) will be limited for a six-month period, so that the average increase in the next quarterly review, on October 1, will be 4.6%, instead of 29%. The amounts due will be passed on in the following reviews, with a damping mechanism similar to the existing one for butane cylinders.

In addition, other measures have been adopted with a view to permanence, such as a new minimum vital supply that extends the ban on cutting off electricity service to vulnerable consumers for six months in addition to the existing four - ten in total - during which time a minimum comfort supply will be guaranteed.

In order to increase the liquidity of the forward markets, auctions of power purchase contracts will be called. Dominant business groups will offer electricity in proportion to their share, and independent marketers, as well as large consumers, will be able to purchase it and sign forward contracts with them with a settlement period of one year or more.

The regulation also provides for the reform of the regulated tariff - the voluntary price for small consumers (PVPC) - to incorporate the auction price reference with a maximum weighting of 10%. Free marketers that purchase energy in this way will have to indicate this on their customers' bills.

On the other hand, the Water Law is modified to avoid sudden releases. Thus, at the beginning of each hydrological year, the hydrographic confederations will establish a minimum and maximum regime of monthly flows to be released in reservoirs larger than 50 Hm3, both for situations of hydrological normality and prolonged drought, as well as a regime of minimum volumes of reservoirs for each month.

In addition, Royal Decree-Law 5/2021 on extraordinary measures to support business solvency in response to the COVID-19 pandemic has been amended, extending the time scope covered by direct aid for the self-employed and companies.

In this sense, the period for the aid coverage is extended by four months, from May 31 to September 30. Thus, this finalist aid may be used for the payment of debts and fixed costs assumed by the companies from March 2020 to September 30, 2021.

In addition, the Royal Decree-Law clarifies that, within the purposes for which the aid may be used, the concept of fixed costs incurred includes accounting losses generated during the coverage period. Thus, the self-employed and companies may use the aid to satisfy debts and make payments to suppliers and other financial and non-financial creditors, as well as to offset the fixed costs incurred, including accounting losses, provided that they have been generated within the established period and come from contracts prior to March 13, 2021 (date of entry into force of Royal Decree-Law 5/2021).

These modifications will allow the autonomous communities that still have part of the allocated resources available to make new calls for aid during the remainder of the year.

This Royal Decree-Law will enter into force on the day following its publication in the BOE.

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- September 15, 2021 -

Response to the system operator on the application of Royal Decree-Law 17/2021, of September 14, on urgent measures to mitigate the impact of the escalation of natural gas prices in the retail gas and electricity markets.

This document provides clarification on Title III of Royal Decree-Law 17/2021, of September 14, which refers to the mechanism for reducing the excess remuneration of the electricity market caused by the high price of natural gas on international markets. In particular, clarifications are made on the following issues:

Regarding the scope of application:
The Royal Decree-Law establishes that it will be applicable to peninsular facilities that do not emit greenhouse gases, regardless of their technology. Installations registered in the first and second section of the Administrative Registry of Production Installations in certain groups will be considered as non-emitting.

Additionally, it is established that production facilities with a recognized remuneration framework of those regulated in the Electricity Sector Law are excluded. For these purposes, the facilities that appear with ACTIVE status on the last day of the month object of the reduction, t, in the Specific Remuneration Regime Register (ERIDE) in operating status will be considered excluded.

Regarding the energy considered for the calculation of the reduction:
It is considered that the installations of the owners of installations that accredit directly or through their representative each one of the following points are not subject to the mechanism of reduction of the excess remuneration of the electricity market:

That the electricity produced affected by the reduction mechanism is covered by a forward contracting instrument whose execution date was prior to the date of entry into force of the aforementioned Royal Decree-Law.
That the forward contracting instruments are at a fixed price, i.e., that they do not have a recognized delivery price that is indexed to the spot market price of electricity production.
That the forward contracting instruments do not correspond to contracts signed between the generator and any company of its business group for the sale of the energy produced by the company, ultimately to a marketer of the same group.

Not being subject to the reduction mechanism will be limited to that part of the energy that, without having been matched in the daily electricity market managed by the Spanish Iberian Market Operator, is subject to bilateral forward contracting instruments with physical delivery, as well as that electric energy that is covered by instruments with financial settlement during the period of validity of the mechanism, due to the net selling position of the holding company subject to the mechanism.

Regarding the formula for calculating the amount of the reduction:
The Royal Decree-Law establishes the formula for the monthly reduction to be calculated for each facility. In order to make this calculation, the system operator will use the following information:

To obtain the amount of the reduction, the system operator will deduct from the value of Qti, the value of energy that complies with the above, related to fixed-price forward contracting and hedging.
The value of the term obtained as the percentage of hours (as a percentage of one) in which these facilities have marked the marginal price in that month, weighted by the energy matched in each hour.
The value of the PtGN term, average price of natural gas calculated in accordance with Article 7.

In the case of September 2021, both the FMIGt value and the PtGN value will be calculated exclusively for the days in which the Royal Decree-Law is in force.

Regarding the liquidation of the reduction:
The system operator shall proceed to calculate, notify and pay the reductions as follows:

The system operator will make a settlement to the owners of the affected facilities, separate from the settlement of the system adjustment services.
The system operator will issue a monthly invoice to the incumbent companies before the 15th day of the month following the month subject to reduction (t), and a rectifying invoice for differences with respect to the initial invoice before the 15th day of the month following the definitive closing of measurements for month t.
As with the initial invoice, if applicable, the owners of the facilities will have a period of one month to pay the corrective invoice to the system operator.
The owner company of each installation is the one that appears in the administrative register of installations. In the event that the system operator requires information that does not appear in said registry, this information may be requested from the representative on its own behalf or from the person responsible for the balance sheet.
The system operator shall include the amount of payments received before the 15th day of each month in the statement of net chargeable costs and revenues of the system for the month. Payments received after the 15th shall be included in the following month's statement.

Regulation & Public Policy