Spain’s chems await helping hand from new government – trade group

MADRID (ICIS)–Apart from the suspension of a tax on electricity production that has helped lower the energy bill for industrial sectors, the Spanish chemical industry still awaits meaningful measures from the new government to help it thrive, according to the director general at the country’s trade group FEIQUE.

Juan Antonio Labat (pictured right) said that the five-month old government has good ideas about how to decarbonise Spain’s industrial sectors – but a very thin majority in Parliament to undertake them.

Moreover, it also lacks coordination, he said, as plans that made headlines around the world earlier this month – aiming to fully decarbonise electricity generation by 2050 – had been announced without consulting the most affected industrial sectors, automobile and refining.

A positive, however, has come from the suspension of a tax on electricity generation, established in 2012, that proved to be a “disaster” in terms of costs for energy-intensive industries like chemicals.

The suspension is already saving corporates and final consumers up to 5% on their electricity bills, or €2.8bn/year, according to FEIQUE’s figures.

The suspension of the tax, adopted soon after the Socialist cabinet led by Pedro Sanchez took office in June, is due for renewal in February – something all energy-intensive industrial sectors hope will happen.

“The new government has announced a lot of measures, based on their manifesto [electoral programme], but it has bumped into reality: it doesn’t have the votes in Parliament to pass most of those measures,” said Labat.

The executive’s diagnosis on Spain’s political woes is shared by the head of chemicals at the country’s main union CCOO, who said in an interview with ICIS this week that Sanchez’s cabinet did not have an industrial strategy worth being called that name.

According to Labat, however, the savings coming from lower electricity bills have proved “very beneficial” for chemicals and, together with less pricey coal, crude oil and natural gas – which feed Spain’s electricity production – in past weeks has overall improved the prospects for the industry in 2019.

In fact, Labat said the forecasts published in October, predicting a slowdown in Spain’s chemicals in the next two years, have improved due to the lower price of crude oil and somehow improving prospects in the US-spurred trade conflicts around the globe.

“We made those forecasts with the assumption of crude oil being at $80/bbl on average in 2019. Spain spends around €100m/day in hydrocarbons, and any lower prices for them help,” he said.

The parliamentary weakness of Sanchez’s cabinet may be welcome in some quarters among the country’s entrepreneurs, however.

As the Socialists gather their main support in Parliament from the far-left Podemos, talk of tax hikes for corporates and high-earning individuals alike have become recurrent in the country.

However, without even being able to pass the Budget for next year, those hikes are unlikely to be implemented.

Moreover, FEIQUE’s Labat said that the corporate tax rate in Spain – currently at 25%, but often reduced thanks to tax breaks linked to research and development (R&D) or capital investments – would be a negative for chemicals.

“Our sector is not the Amazons or the Googles [the US technology majors who effectively pay little taxes in non-US jurisdictions where they operate]. Our factories cannot be moved, our investments will take place here: scrap tax breaks on corporate tax for us would be a mistake,” he said.

“Scrapping those tax breaks would go against more investment in the chemicals industry.”

Like the trade union leader, Labat also complained about a lack of coordination between the government and those sectors affected by its proposed measures.

Labat said he was especially concerned about two sectors closely related to chemicals: automobile and refining.

Spain is one of the major producers and consumers of vehicles in Europe a fleet that is still predominantly diesel- or gasoline-based.

According to figures by the EU-wide trade group ACEA, the country produced nearly 3m vehicles in 2017, only behind Germany’s 6m units and well ahead of France (around 2.2m) or the UK (around 1.7m).

The announcement by the government that by 2040 it aims to have no cars powered by hydrocarbons took the sector by surprise. The auto sector consumes around 15% of the chemicals produced in Spain, said FEIQUE.

“The Spainish automobile industry is gearing up for production of EVs [electric vehicles]. While currently there is only one prototype being marketed, by 2020 car makers will market 14 prototypes, all produced in Spain,” said Labat.

“What the industry is asking the government is: ‘Couldn’t you wait a little longer, and coordinate with us, so consumers don’t shun diesel- or gasoline-based vehicles straight away?”

The consequence of this was, he added, that after the government announced its plan and called the sector to talks the day after, the automobile producers did not attend the meeting.

“The government is listening to no-one,” said Labat.

He said that plans to fully decarbonise electricity production by 2050 would only be possible if storage technologies improve. However, he asked for caution as 60% of electricity in Spain is still produced with hydrocarbons, warning that change will not come overnight.

BREXIT AND TRUMP
While energy prices are decreasing, two other factors are still bringing uncertainty to Spain’s chemicals prospects: the UK’s planned exit from the EU in 2019 and the US president’s trade policies that are slowing down commerce in goods globally.

On Brexit, Labat said that the UK’s Prime Minister’s “extraordinary resilience” has proved vital to achieve a deal which took into account most of the chemical industry’s demands, mostly free trade in goods.

However, the Brexit agreement published earlier this month still has to be approved by the remaining 27 EU countries as well as the UK’s Parliament, the latter probably being the major challenge given the country’s divisions on the topic.

Labat conceded that the planned trade relationship post-Brexit, as it stands under the terms of the current deal, would “tie up” the UK to the EU forever under the customs union.

“That’s a given [the UK under EU jurisdiction], at least in trade for goods. And this arrangement could be forever. The CIA [UK’s chemicals trade group] has made a good job in showing the government how vital keeping that trade in goods intact was,” he said.

“The UK cabinet understood that and May’s softening stands shows that – she ended up being very pragmatic because if the economy took a big hit [under a no-deal Brexit], public opinion would turn against her Conservative party: that would be much more traumatic than having 50 rebels within the party opposing this deal.”

FEIQUE reiterated its forecast that a no-deal Brexit would cost UK chemicals around €200m/year and Spain’s €100m/year. These forecasts take the assumption of the same trade flows that currently take place, and being traded under World Trade Organisation (WTO) rules, those that would prevail were the UK to crash out of the EU.

Labat found relief in what he saw as a “softening” of the US’ position in trade. According to him, the country is negotiating with the EU a deal covering industrial goods – although excluding automobiles – which would bring back some legal certainty for corporates to invest.

“So far, the trade war has been okay for the US – the economy is booming, unemployment is at lows – but [President Donald] Trump knows that if he goes on like this it will impoverish his own country because it will end up hurting US exports.”

Picture source: FEIQUE

Interview article by Jonathan Lopez