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Montoro Blocks Spanish Power Tax as Conflict Question Rejected

August 20, 2012

Spanish Budget Minister Cristobal Montoro

Spanish Budget Minister Cristobal Montoro said in an Aug. 16 telephone interview he’ll stop the plan announced in July by Industry Minister Jose Manuel Soria to use taxes to claw back solar subsidies on the grounds that it breaches European law. Photographer: Denis Doyle/Bloomberg

Spanish Budget Minister Cristobal Montoro is blocking a proposal to raise taxes on solar-power producers, a move he said doesn’t represent a conflict of interests with his brother’s lobbying firm.

While his brother and the brother of his chief of staff run a lobbying group that advises energy firms, Montoro said there’s no conflict as government discussions on the issue have been informal. The minister said in an Aug. 16 telephone interview he’ll stop the plan announced in July by Industry Minister Jose Manuel Soria to use taxes to claw back solar subsidies on the grounds that it breaches European law.

“Until I decide, this isn’t going forward, whoever announces it,” Montoro, 62, said. “This conflict you’re analyzing doesn’t exist because there isn’t an energy tax policy that we have changed: we’ve talked about it, but a policy hasn’t been decided.”

A Spanish law from 2006 says ministers and senior officials should recuse themselves from any issues affecting companies that members of their family have either managed or advised.

The clash over energy subsidies, which made Spain the world’s biggest buyer of solar panels in 2008, has opened a rift in Prime Minister Mariano Rajoy’s cabinet as he struggles to avoid an international bailout. The issue may undermine Rajoy’s efforts to persuade voters to accept the deepest budget cuts on record and overcome growing distrust of politicians.

Sensitive Opinion

“Public opinion is very sensitive to anything that could look like an abuse of power and so you have to be particularly scrupulous,” said Jose Ramon Pin, a member of the ruling People’s Party and Professor of Governance and Leadership in Public Administration at IESE business school in Madrid. “This may give people the impression there’s a conflict of interest.”

Montoro said the 2006 law is not relevant to his case and he has been pushing for greater transparency in the government.

“From a legal point of view, this probably can’t be seen a conflict of interest,” Pin said. “The problem in Spain is that this lobbying should be regulated to improve transparency.”

Industry Minister Soria said last month he planned to set varying tax rates for power producers to curb aid to renewable plants. That aid accounts for most of the 94 billion euros ($116 billion) of subsidies and state guarantees pledged to the broader power industry.

Curbing Aid

Cristobal Montoro set up lobby firm Equipo Economico SL in 2006, taking 30 percent of the shares, according to filings with Spain’s companies register. He sold his stake in 2008 when he returned to national politics, he said. Solar operators including Abengoa SA (ABG) are clients of Equipo Economico, said an official at the lobbyist who declined to be named in line with company practice.

His sociology professor brother, Ricardo, confirmed in an e-mail he is a partner owning almost 15 percent of the firm. Ricardo Martinez Rico, brother of Montoro’s chief of staff Felipe, is chairman, the filings show.

Ricardo Montoro, 59, said the lobbying company is scrupulous to avoid conflicts. He produces reports on politics and elections and doesn’t work directly with energy companies, he said.

Ricardo Martinez Rico was not available to comment, his spokeswoman said, adding he was meticulous in avoiding inappropriate discussions with the minister. Requests to speak to Felipe Martinez Rico were referred to the budget minister.

El Economista newspaper last month reported the lobby firm’s links to Abengoa and said Montoro clashed with the Industry Ministry over solar taxes.

Still Negative

“Because it wasn’t a law being produced by the Budget Ministry, there’s no conflict” under Spanish law, said Jesus Sanchez Lambas, general secretary in Spain of Transparency International, which monitors standards in politics and business. “Of course, our view of this would still be negative.”

Spanish energy companies often recruit former politicians. Gas Natural SDG SA (GAS) has former Prime Minister Felipe Gonzalez on its board while Endesa SA (ELE)’s owner Enel SpA (ENEL) has former Finance Minister Pedro Solbes. Iberdrola SA (IBE) has former Interior Minister Angel Acebes on its board.

Proposals to overhaul the energy market have divided the power industry as well as the government. Power companies like Iberdrola SA and Endesa SA, where Economy Minister Luis de Guindos was a board member until December, would benefit from Soria’s plan that placed more of the cost reductions on clean- power producers. They have been publicly pressing the government to cut subsidies for at least two years.

Recruiting

An economy ministry official declined to comment on de Guindos’s role in the energy debate.

When Montoro founded the lobbying and advisory firm, then called Montoro & Asociados Asesores SL, in June 2006, he recruited people who’d worked for him or alongside him during his previous term in government, company filings show. The chairman, Ricardo Martinez Rico, served as deputy budget minister to Montoro in 2003 and 2004. De Guindos was a minor shareholder and has since sold his stake.

Montoro said in the interview he still reads the firm’s research and discusses the broad challenges facing the Spanish economy with Ricardo Martinez Rico. Montoro said he never asked the government’s Office for Conflicts of Interests to examine his links to the firm because it wasn’t necessary and, as the office is part of his ministry, people would question the independence of any findings.

Family Tie

Abengoa, the biggest recipient of subsidies for solar- thermal power, has the most visible links with the Budget Ministry. As well as being a client of the lobbying firm, the Seville-based engineering firm named Ricardo Martinez Rico to its board last year, stock-market filings show.

Another family tie was represented by Carlos Sebastian, the brother of former Industry Minister Miguel Sebastian. Abengoa announced his resignation from the board in February. Miguel Sebastian was in office from April 2008 until Jose Luis Rodriguez Zapatero’s government lost power at the end of last year.

An Abengoa official who asked not to be named in line with corporate practice declined to say whether the company is a client of Equipo Economico or to comment on the company’s approach to building links with policymakers.

“They are managing the diplomatic channels,” said Tomas Diaz, a spokesman for the UNEF photovoltaic industry lobby. “They have influential people in their board. It’s a normal practice.”

To contact the reporters on this story: Ben Sills in Madrid at bsills@bloomberg.net

To contact the editor responsible for this story: John Fraher at jfraher@bloomberg.net


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