‘The impact is zero’: Energy giants not worried by Italy’s tax on profits

The Italian government says energy companies will foot the bill for a reduction in fuel duty and help to cut utility costs for the poorest. But the firms say the cost to them is 'negligible' as profits soar.

'The impact is zero': Energy giants not worried by Italy's tax on profits
The headquarters of Italian multinational oil and gas company ENI in Milan. Photo by Miguel MEDINA / AFP

The Italian government on Wednesday brought in a new package of measures which it claims will help protect consumers and businesses from recent steep energy and fuel price rises.

The measures, included in a decree approved on Friday, are worth 4.4 billion euros and include help towards paying energy bills for those on the lowest incomes, and a temporary 25-cent cut to taxes on petrol and diesel or motorists.

Prime Minister Mario Draghi said the measures would be “financed not by the public purse but by companies in the energy sector”, as his government promised to levy a windfall tax on the increased profits made by energy firms off the back of soaring costs.

The decree confirmed that the levy will take the form of a one-time, 10 percent tax on “extraordinary” pre-tax profits made between October 2021 and March 2022, comparing them to profits in the same year-ago period.

But Italian energy giant Enel said the tax would be negligible.

“The impact for us is zero. It’s something between 7 to 10 million euros,” Enel CEO Francesco Starace told Bloomberg TV on Monday.

In 2021, Enel posted a net profit of 3.19 billion euros, while Eni reported net profit of 5.82 billion euros.

READ ALSO: ‘It’s a crock’: Italians outraged at 25-cent fuel discount

Forward contracts that guarantee fixed prices for two years means that Enel is protected from price fluctuations, he said, “so we don’t have benefits or extra benefits out of this volatility”.

Italian hydrocarbon group Eni, meanwhile, told AFP it was premature to estimate any new tax, but a spokesman said provisionally it could be at most “a few hundred million euros”.

The Spanish government attempted to tax profits of major energy companies in September, before it backtracked months later in the face of opposition by the sector, which warned the measure would jeopardise future investment.

Enel’s Starace called for a mechanism to regulate prices for at least 12 months, calling the volatility of gas prices in Europe “totally out of control”.

Starace said Enel was in the process of stopping investment in Russia and reducing its exposure. 

The group, which is 23.5 percent owned by the Italian state, operates three thermal power plants and two wind farms in Russia.

Eni, in which the state controls 30.3 percent, said earlier this month it would sell its 50 percent stake in the Blue Stream gas pipeline, which it holds equally with Russian energy giant Gazprom, following the invasion of Ukraine by Moscow.

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How long will it take Italy to wean itself off Russian gas?

Italy's government has repeatedly said it plans to end its dependence on Russia for gas supplies following the invasion of Ukraine. But as the timeline keeps changing, when and how could this happen?

How long will it take Italy to wean itself off Russian gas?

Italy is heavily dependent on Russian gas, but has been seeking new sources since Moscow’s invasion of Ukraine as part of an effort to end this reliance in the coming years.

But it remains unclear whether Italy can really end its dependence on Russia for its gas supply – or when this might be feasible.

READ ALSO: What does Italy’s Algerian gas deal mean for energy supplies?

The government has been seeking new sources since Moscow’s invasion of Ukraine, including with a recent deal to boost supplies from Algeria.

Prime Minister Mario Draghi said last week the country could be independent of Russian gas by the second half of 2024 – the latest in a series of changing estimates.

“Government estimates indicate that we can make ourselves independent from Russian gas in the second half of 2024,” Draghi told the Senate, while adding that the “first effects” of this plan would be felt by the end of this year.

He said his government was also seeking to boost its production of renewable energy, including by “destroying bureaucratic barriers” to investment, saying it was the “only way” to free Italy from having to import fossil fuels.

Explained: Why and how Italy will pay for Russian gas in rubles

In April, Italy‘s Ecological Transition Minister Roberto Cingolani estimated the country would no longer need Russian gas within 18 months, following an earlier prediction that it could take until 2025.

Italy is one of Europe’s biggest users and importers of natural gas, importing 90 percent of its gas supply with 45 percent of that coming from Russia – up from 27 percent ten years ago.

Italy now imports 29 billion cubic metres of Russian gas a year, which Cingolani said in March “must be replaced” – but he didn’t specify with what.

Analysts have said there are “a lot of questions” about how helpful Italy’s gas deal with Algeria will be.

Despite its vast natural gas reserves, Algeria is already exporting at close to full capacity.

Draghi repeated his strong support for EU sanctions on Moscow last week, including a proposed ban on imports of Russian oil, although this is currently being blocked by Hungary.

“We must continue to keep up the pressure on Russia through sanctions, because we must bring Moscow to the negotiating table,” he said.

But for now, Italian energy giant Eni says it plans to pay for Russian gas supplies in rubles, meeting a demand from Vladimir Putin.

It was not immediately clear whether the plan would fall foul of European Union sanctions, although Eni said it was “not incompatible”.

The company said its decision to open the accounts was “taken in compliance with the current international sanctions framework” and that Italian authorities had been informed.