In principle agreement to windfall taxes for energy companies

Government agencies on Tuesday agreed in principle with the notion of windfall taxes for fuel companies and renewables producers – as proposed by main opposition party Akel – but voiced reservations about its application.

The House energy committee was discussing two legislative proposals tabled by Akel MP Stefanos Stefanou.

Under the first, amending the Income Tax Law, the ‘unexpected earnings’ of electricity suppliers from renewables, and of distributors and oil companies, would be subject to a 90 per cent tax. It would apply to earnings made in 2022.

The second bill aims to introduce a permanent fee into bilateral contracts relating to the supply of electricity generated from renewables. The fee would be set at 90 per cent for any amount over and above the maximum market rate per kilowatt-hour. Currently, the maximum rate paid to RES producers is 11 cents per kilowatt-hour.

Proceeds from these taxes and fees would be used to provide relief to consumers reeling from soaring energy prices.

Speaking in parliament, Akel’s Stefanou said the government’s inaction had forced the party to draw up their own bills. He complained that he had earlier sent two letters to Finance Minister Constantinos Petrides, which remained unanswered.

The MP also accused the government of merely paying lip service to the idea of taxing the surplus profits of energy companies. From Tuesday’s discussion in parliament, he noted, it became evident that the various government departments have not studied the matter in depth.

“The various involved ministries came here with different views, and the various agencies submitted different proposals… we heard excuses as to why A, B or C can’t be done.”

It also emerged that government officials had no clear picture of what the companies’ surplus profits were – a non-starter for the discussion.

Yet months ago, Stefanou recalled the energy minister had promised the government would come up with a number by September.

“I’m sure the government will come out and say that Akel doesn’t understand that companies need to make a profit. Actually we do understand, a business must make a profit to remain viable. But we are speaking about [taxing] super-profits, in other words profits generated because of the high cost of living, money that comes out of the pockets of people, households and businesses.”

For its part, the auditor-general’s office said it agreed with the purpose of Akel’s legislative proposals, provided they are deemed to be in line with the constitution and the EU acquis.

A representative of the audit office mentioned that Cyprus could act within the framework of EU Council Regulation 2022/1854 – ‘an emergency intervention to address high energy prices’.

In particular, the audit office cited Article 6 of the regulation, which aims to impose a mandatory cap on the market revenues of producers. The regulation sets the cap at a maximum of €180 per megawatt-hour of electricity produced.

Article 6 states: “Member States shall ensure that the cap on market revenues targets all the market revenues of producers and, where relevant, intermediaries participating in electricity wholesale markets on behalf of producers, regardless of the market timeframe in which the transaction takes place and of whether the electricity is traded bilaterally or in a centralised marketplace.”

In the preamble, the tax on companies’ surplus profits is described as a ‘solidarity contribution’. It notes that this contribution “is an appropriate means to tackle surplus profits, in the event of unforeseen circumstances. Those profits do not correspond to any regular profit that Union companies or permanent establishments with activities in the crude petroleum, natural gas, coal and refinery sectors would or could have expected to obtain under normal circumstances, had the unpredictable events in the energy markets not have taken place.”

The cap in the EU regulation applies to the market revenues obtained from the sale of electricity produced from the following sources: wind energy; solar energy; geothermal energy; hydropower without reservoir; biomass fuel, excluding biomethane; waste; nuclear energy; lignite; crude petroleum products; peat.