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Industrial relations and social dialogue

Policies to support EU companies affected by the war in Ukraine

As the war in Ukraine has intensified, the cost of food, raw materials and energy prices, already high due to the COVID-19 pandemic, has continued to rise substantially. Ahead of coordinated action at EU level, as agreed by EU energy ministers on 9 September 2022, governments across the EU have started to implement policies to support companies affected by the rising prices, and those with commercial ties to Ukraine, Russia or Belarus. This article summarises these first policy responses, as reported in Eurofound’s EU PolicyWatch database, up to 31 May 2022.

As the war in Ukraine has intensified, the cost of food, raw materials and energy prices, already high due to the COVID-19 pandemic, has continued to rise substantially. Ahead of coordinated action at EU level, as agreed by EU energy ministers on 9 September 2022, governments across the EU have started to implemented policies to support companies affected by the rising prices, and those with commercial ties to Ukraine, Russia or Belarus. This article summarises these first policy responses, as reported in Eurofound’s EU PolicyWatch database, up to 31 May 2022. The article is related to two other Eurofound articles outlining the first policies to support refugees from Ukraine and citizens in the EU.

Introduction

Companies across the EU have been affected by the rising energy prices due to the war in Ukraine. Some have been acutely affected due to their close business ties with Ukrainian, Russian or Belarusian companies. Governments have moved to implement policies to help these companies face these challenges. In addition, specific measures have been introduced to support sectors providing essential goods or services, most notably in agriculture.

A first analysis of these measures shows the following.

  • Subsidies, tax reductions and the elimination of energy-related fees aid companies across the entire economy
  • Subsidies and measures to facilitate access to finance have been introduced to support companies affected by the war either directly, due to their commercial relations with Ukraine, Russia or Belarus, or indirectly, due to a steep increase in costs and a loss of turnover
  • In a few cases, short-time work schemes have been extended to companies particularly impacted by the war
  • Another set of measures, including subsidies and tax reductions, target agricultural companies, with the aim of ensuring an adequate food supply. In a few EU Member States, the transport sector has also been singled out for aid
  • Although social partners were not involved in the design or implementation of the majority of these measures, they are mostly supportive of them. However, the general support measures, which are aimed at all companies, have faced some criticism for not reaching the most affected companies

General support measures for companies

As rising fuel and energy prices affect all companies, governments across the EU Member States and Norway have introduced temporary measures to lighten the economic burden of energy consumption for all companies. The most common measures are reductions in tax liabilities and direct subsidies, while a few Member States have eliminated energy-related fees. Social partners in Austria, Germany, Greece, the Netherlands and Slovenia have criticised some of these measures as falling short of their aim to support the most affected groups. Table 1 provides an overview of these general support measures by country.

Table 1: Overview of general support measures for companies

Policy measure

Country

Reductions in tax liabilities

Belgium, Cyprus, Germany, Italy, Netherlands, Slovenia

Direct subsidies

Belgium, France, Greece, Luxembourg, Slovenia

Elimination of energy-related fees

Austria, Greece

Source: EU PolicyWatch database, as reported at the end of May 2022

Reductions in tax liabilities

Several Member States have temporarily reduced tax liabilities for energy consumption. In Belgium, the value added tax (VAT) on electricity and natural gas has been reduced from 21% to 6% until September 2022. There will be an extra discount on Dutch energy taxes in 2022, with companies paying €225 less in tax (including VAT). In Italy, the tax credit for gas consumption will increase from 20% to 25% in the second quarter of 2022; for companies with high levels of natural gas consumption, a tax credit of 10% is also granted for the first quarter of 2022. Companies in Slovenia will also profit from lower excise duties on electricity.

Other Member States have temporarily reduced the tax rate for fuel. This is the case in Cyprus, which implemented a reduction of 8.30 cent per litre of diesel and petrol, and a reduction of 6.40 cent per litre of heating oil. In Germany, the tax rate has been reduced by 29.55 cent per litre for petrol, by 14.04 cent per litre for diesel fuel, by 6.16 cent per kilogram for natural gas and by 12.66 cent per litre for liquid gas.

Direct subsidies

Direct subsidies is another frequently applied measure to counteract the increase in energy prices. France, Luxembourg and Slovenia provide temporary subsidies covering a percentage of energy costs, but eligibility for these subsidies depends on thresholds defining how significant energy costs are to the company and on the actual increase in energy costs.

In France and Luxembourg, subsidies cover between 30% and 70% of any additional cost beyond a doubling of natural gas and electricity prices. In France, the percentage covered varies depending on the fall in gross operating surplus, whether the company had negative earnings and if the company is in one of the sectors most exposed to international competition. In Luxembourg, the cumulative cost of all measures amounts to €827 million, spread over the budget years 2022 and 2023.

Slovenian companies will receive a lump sum of up to 60% of the loss caused by rising energy prices. Agricultural companies will receive further subsidies to counter the high cost of energy prices and mineral fertilisers, which will be calculated in proportion to the size of their land.

Greece chose to provide subsidies for electricity and natural gas based on megawatt-hour (MWh) consumption, with no consumption limit. From January to March 2022, companies received an electricity subsidy of €65 per MWh; in April, the subsidy doubled. The electricity subsidy for companies is expected to have amounted to €133 million in February 2022. The subsidy for natural gas was set at €30 per MWh in January 2022, €20 in February and March, and €40 in April.

Greece also provides an additional subsidy of €100 per MWh, which will be awarded to microenterprises, small and medium-sized enterprises, and bakeries. The additional subsidy applies to 1,160,000 companies and has an estimated cost of €35 million for April 2022.

Elimination of energy-related fees

Austria has temporarily suspended the payment of two fees that electricity consumers pay on top of their individual tariffs: the ‘green electricity flat rate’ and the ‘green electricity promotional contribution’. These fees aim to promote the production of green electricity, but, owing to a surplus of revenue in 2021, this financial relief will not affect the further expansion of renewable energies. The fees amounted to around €110 per household on average in 2021, with differences based on individual energy consumption. Similarly, Greece suspended a charge for using public utilities from November 2021 to March 2022.

Support for companies directly affected by the war

In a few Member States, measures have been designed to support companies that have been deeply affected by the current economic situation, experiencing a steep increase in their costs and a sharp reduction in turnover. These measures are mostly direct subsidies and support in accessing finance. A similar set of instruments applies to companies that have been more directly affected by the war because of their commercial ties to Ukraine, Russia or Belarus. These measures have been well received by social partners, even though the partners were not involved in the design and implementation phases. Table 2 provides an overview of these support measures for companies directly affected by the war, by country.

Table 2: Overview of support measures for companies directly affected by the war

Policy measure

Country

Direct subsidies and access to finance

France, Germany, Italy, Norway

Extension of short -time work schemes

France, Romania

Advice for companies

Czechia

Source: EU PolicyWatch database, as reported at the end of May 2022

Direct subsidies and access to finance

France and Germany have expanded existing state-guaranteed loans to cover companies negatively affected by the war in Ukraine. In France, the loan covers up to 15% of the companies’ average annual turnover over the last three years. In Germany, a large-scale guarantee scheme is available for companies requiring a guarantee of over €50 million (€20 million in structurally weak regions), in an agreement between the federal government and states. Small and medium-sized companies can access guarantees of under €2.5 million from the federal states.

Italy has introduced two specific measures to support companies having strong commercial ties with Ukraine, Russia or Belarus. Small and medium-sized enterprises facing a loss of turnover and rising costs of raw materials can receive a grant of up to €400,000. A total of €130 million has been provided for this measure. Other companies with strong commercial ties to these countries can obtain financing at a subsidised rate of 10% of the EU reference rate.

The Norwegian government has allocated NOK 55 million (€5.5 million) to cover up to €400,000 or 80% of contracts with Ukrainian, Russian and Belarusian customers that could not be settled because of the war. These measures are specifically designed for companies with a strong reliance on these countries as business partners. Another set of measures assigns NOK 550 million (€55 million) to aid companies in East-Finnmark, a region on the border with Russia and where companies may be particularly affected by sanctions, with loans to finance investments in buildings, operating equipment and agriculture, including for skills development costs,

Other support measures

France and Romania have extended their existing short-time work schemes because of the Ukrainian war. In France, the long-term partial activity scheme (APLD) now covers companies whose activity is affected by the war in Ukraine. The APLD is designed to replace the partial unemployment scheme for companies facing a longer-lasting reduction in activity. In Romania, the indemnity for technical unemployment for companies whose activity has been affected by COVID-19 has been extended to those affected by the war in Ukraine or the sanctions imposed on Russia. The Czech government has implemented a series of measures to help companies that export products to Ukraine and Russia. In addition to free analysis of the company’s situation and the preparation of alternative export plans, companies can avail of a series of seminars giving information on current measures and other export opportunities.

Targeted support for companies

In addition to disrupting food and fuel supply chains, the war in Ukraine has affected key inputs to the agricultural industry, such as fertilisers and fodder. In response to these disruptions, several EU Member States and Norway have implemented measures aimed at safeguarding food supply. Some governments have also designed measures to support other essential services including the transport sector and building and public works companies.

Ensuring adequate food supply

The Swedish government has allocated additional support for agriculture and fisheries amounting to SEK 1.6 billion (€155 million). Another specific measure, amounting to SEK 300 million (€29 million), has been introduced whereby pig and poultry farming companies and greenhouse companies can receive financial support of up to SEK 200,000 (€19,200), depending on the number of animals they have for pig and poultry farming and on the production area for greenhouse companies. Producers in agriculture, forestry and aquaculture will also benefit from a reduction in tax on diesel used between 1 January 2022 and 30 June 2023.

Italy has allocated €20 million to support small and medium-sized agricultural enterprises with commercial relations with Ukraine, Russia or Belarus that have experienced a decrease in turnover and an increase in the cost of raw materials.

Greek farmers will benefit from reduced tax rates for diesel and fertilisers and livestock farmers will be entitled to a subsidy for the cost of animal feed. The subsidy will cover 2% of their turnover, up to €35,000. To avoid profiteering, all Greek companies must declare their available stocks of agricultural products and foodstuffs, such as fertilisers, animal feed, cereals, flour and vegetable oils.

Finnish agricultural producers will receive a tax refund totalling €45 million. Aid amounting to €27 million will be granted to pig and poultry farming, greenhouse production, storage of horticultural products, reindeer husbandry and fisheries. A further €120 million will be allocated to the compensatory allowance fund run by the Finnish Food Authority.

In Norway, the agricultural and greenhouse industry benefited from subsidies covering 55% of electricity costs of over NOK 0.70 (€0.07) per kWh for December 2021, and will benefit from subsidies covering 80% of those costs from January 2022 to March 2023. In Malta, grain importers will be entitled to emergency funds and access to a national wheat storage facility. In addition, €4 million will be provided to farmers and animal breeders to help them manage rising costs.

To compensate for additional costs due to the war in Ukraine, the Spanish fishing and aquaculture sectors will receive €50 million. The European Commission will fund 70% of the aid package and the Spanish government will fund the remaining 30%. In addition, the Spanish government will provide owners with compensation of between €1,551 and €35,000 per fishing vessel.

Support for other essential services

The increase in the prices of fuel and raw materials due to the war in Ukraine has affected other key sectors, including the transport sector. Italy established a tax credit for transport companies to compensate them for 28% of their expenditure on diesel fuel in the first quarter of 2022.

France has also implemented financial support measures for the road transport sector, and comprehensive measures to support building and public works companies. Companies in the transport sector will receive a flat rate depending on the type and number of vehicles, starting at €300 per vehicle.

In order to support the construction sector experiencing a shortage of raw materials and rise in supply prices, public procurement contracts in France will be amended to ensure the continued performance of services; public actors are advised to suspend contractual penalties and to insert a price revision clause in all future public procurement contracts. In addition, information on raw material prices will be updated more often, and crisis units created during the COVID-19 crisis will be reactivated to provide a forum for consultation on subjects affecting the construction industry. As the increase in the price of non-road diesel is a notable issue, the abolition of the tax advantage on non-road diesel that was scheduled to come into force on 1 January 2023 has been postponed. Furthermore, €80 million have been allocated to partially compensate public works SMEs for the increase in the price of non-road diesel.

Conclusion

The war in Ukraine has sent shockwaves across a worldwide economy that was already struggling to recover from the effects of the COVID-19 pandemic. In response, EU Member States have implemented both economy-wide and more targeted policies. Several states have included provisions that vary by month, or according to price or consumption level, suggesting that the governments have prepared these measures knowing that conditions will change rapidly and affect segments of the economy disproportionately.

Future measures will also incorporate coordinated European action, as discussed in an extraordinary meeting held on 9 September 2022 by the Transport, Telecommunications, and Energy (Energy) Council. During the meeting, Ministers discussed both temporary emergency measures to mitigate high energy prices as well as longer-term improvements to the market framework. They also called for reducing the EU’s dependency on fossil fuels and accelerating decarbonisation.

In a third of Member States, direct subsidies and tax reductions have reportedly been used as first responses to help companies across the economy that are facing rising energy prices. Others have chosen to get rid of energy-related fees. Social partners in Austria, Germany, Greece and Slovenia have criticised some of these measures as falling short of their aim to support the most affected groups.

Governments have also implemented more targeted measures that have been met with greater approval from social partners. Some measures support companies that have been particularly or directly affected by the war, either because of their commercial ties or because they have faced rising costs and falling turnover. Another set of measures targets sectors to help ensure sufficient food supply and other essential services. Although social partners were not involved in the design of these measures, in the main they have expressed favourable opinions about the initiatives.

Image © Drazen/Adobe Stock

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