Spain to approve €16 billion in aid to offset soaring energy costs

  • Spain to extend fuel discounts to all citizens
  • Rent increase capped at 2% for three months
  • Gas price cap still under discussion

MADRID, March 28 (Reuters) – Spain on Monday announced 16 billion euros ($17.5 billion) in direct aid and subsidized loans to help businesses and households cope with rising electricity prices. exorbitant energy sources that drive up inflation and stoke social discontent.

The government will on Tuesday approve the package aimed at mitigating the fallout from Russia’s invasion of Ukraine, Prime Minister Pedro Sanchez said at a corporate event.

“The war response shock plan will protect industries and citizens,” he said.

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The three-month plan will go into effect on April 1.

Truckers have been on strike for two weeks over fuel prices, causing sporadic shortages of goods across the country. Read more

Around €6 billion will come from direct aid and tax cuts mostly extended from a previous package linked to the COVID-19 pandemic, while the remaining €10 billion are subsidized loans. There will also be limits on rent increases and caps on energy prices.

It will initially be approved by decree because the fragile parliamentary majority of the government makes it difficult to approve it in Congress.

Very exposed to external shocks, Spain was among the European countries most affected by the pandemic and responded with a gigantic economic rescue plan of 140 billion euros. Now facing domestic protests over energy prices, which soared 60% in the year to February and pushed inflation to almost 8%, Madrid is taking new steps to protect its economy.

Sanchez halted negotiations in the European Council on Friday until he secured an “Iberian exception” for Spain and Portugal that would allow them to cap gas prices. Read more

The government is working out the details of its plan pending final European approval.

The cap on gas prices will be set at 30 euros per megawatt hour, according to a minister from Unidas Podemos, a junior partner in Spain’s ruling coalition.

The government will also extend a fuel subsidy for truckers and transport companies to all citizens.

Under the plan, the government will pay 15 cents per litre, while the oil companies will cover at least another 5 cents.

Rent increases will be capped at 2% for three months – an unprecedented measure – and employers will not be allowed to fire workers for economic reasons related to the invasion, but furlough schemes will be available.

Borrowers who are energy-intensive will benefit from a 12-month grace period, during which companies will be required to pay interest but not the principal of a loan.

Consumer associations have criticized the package as insufficient and some truckers remain on strike, albeit causing less disruption than last week.

($1 = 0.9136 euros)

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Reporting by Belen Carreno, Inti Landauro and Jesús Aguado; additional reporting Cristina Thykjaer; written by Nathan Allen; edited by Emma Pinedo, Emelia Sithole-Matarise and Tomasz Janowski

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