Yesterday, the Croatian Government has announced a comprehensive set of measures to help combat high inflation rates in Croatia, and offset the current macroeconomic turmoil. The whole package of measures is worth HRK 21bn while the measures targeting energy prices are estimated at around HRK 6bn. Capping the prices of basic food products are expected to be amortized through the whole value chain while it will positively influence the lowering of inflation measured by CPI. Last but not least, the Government has announced the introduction of a specific company income tax that will be targeted at companies that have made extraordinary profits during the energy crisis in order to make better distribution of the crisis burden among stakeholders. The enactment is envisioned by the year-end.
Out of the measures announced, we bring you highlights of the ones that could have the most impact on the current macroeconomic situation. Firstly, the electricity prices for households, in which as a category, schools, kindergartens, universities, etc. are added. These prices, from 1 October 2022 until 31 March 2023, for the consumption up to 2.500 kWh, will be capped at EUR 59/MWh, while anything above this, will have to be paid at the rate of EUR 88/MWh. This would mean that on average, the price would amount to EUR 62/MWh. This measure is estimated to be worth HRK 1bn (EUR 132.9m).
Current market electricity prices in Europe are running around their all-time highs inflicted by distortion of the market caused by the Russian invasion of Ukraine and the subsequent sanctions on Russia. As a response, Russia reduced its gas exports to Europe. All of this is affecting power prices as gas is used for power production in many countries and as a result, electricity prices have increased almost 10x compared to 2020. Currently, the European electricity benchmarks are running at app. EUR 500/MWh. However, it should also be noted that Croatia is quite self-sufficient in power production, and as such, it is producing enough power for export as well. Because of this, a fair price of energy for Croatian citizens and companies can be achieved.
In regards to businesses, the companies that in the next half-year period use 250k kWh will pay EUR 70/MWh for electricity, while for the half-year consumption above 250k kWh, they will pay EUR 180/MWh. For consumption above 2.5 GWh, the cost will amount to EUR 230/MWh, while below this amount, it will amount to EUR 180/MWh. The total value of this measure is estimated by the Government at HRK 266m (EUR 35.3m).
Moving on to gas prices, the wholesale gas prices in the EU amounted to between EUR 200-300/MWh, while due to govt. support, they are capping it to EUR 42/MWh for Croatia. On average, gas prices in the EU increased by 128%, while due to govt. support, it increased by 13% for Croatia. Also, Croatia is an important gas producer and as such, has to use its resources to protect its local economy and support consumer spending.
At the same time, there is an EU-wide movement for the price cap of wholesale gas prices currently being considered, due to the influence of gas prices on electricity prices. The stance of the Croatian govt. is that the electricity prices on the stock exchanges are not reflective of the prices of electricity production in the EU, and because of higher gas prices, they should be decoupled from the electricity price calculation.
Moving on to prices of heating, the govt. announced that the prices of heating will not change in the 2022 – 2023 heating season. The measure will include 159k buyers and over 98% of delivered heating energy. This measure is worth HRK 1.475bn (EUR 195.8m).
The government also announced price caps on basic food items prices, including milk (EUR 0.98/l), sugar (EUR 1.06/kg), and flour (EUR 0.8/kg), among others.
Measures also included tax reliefs for certain monetary rewards and reimbursements, worth HRK 580m (EUR 76.9m), as well as many other subsidies to different industries, for families, the retired, as well as unemployment and employment support/benefits, among many others.
The government also announces loans and guarantees in the amount of HRK 3.1bn (EUR 412m). If you would like to read the full report, click here (available in Croatian only).
Last but not least, the Government has announced the introduction of a specific company income tax that will be targeted at companies that have made extraordinary profits during the energy crisis in order to make better distribution of the crisis burden among stakeholders. The enactment is envisioned by the year-end. We believe that it will be introduced for energy companies that are selling produced energy at elevated prices due to market conditions like Hep-production and Ina. In this way, the Government would be able to compensate for part of the spending for these measures.
