MADRID, July 10 (Reuters) - A row within the Spanish government over how to plug a power tariff deficit escalated on Wednesday when the treasury ministry dismissed assertions that a deal had been struck on how the hole would be financed.
The 26-billion-euro ($33 billion) deficit, created by years of mismatched regulated electricity prices and costs, has become a growing headache for recession-hit Spain, which is likely to slash renewable energy subsidies as part of sector reforms.
Earlier on Wednesday Industry Minister Jose Manuel Soria said in a radio interview that the treasury ministry had agreed to finance part of the tariff deficit through the state's budget as part of long-anticipated reforms of the country's dysfunctional energy sector.
That would have paved the way for the likely approval of the reforms by the government this week, after these were initially expected in June.
But a treasury ministry dismissed Soria's announcement, bringing the spat out into the open and heaping more uncertainty onto the timetable for the reforms.
While the government is thought to be most likely to eventually finance part of the deficit, the treasury ministry is keen to control any extra spending as it struggles to meet tough EU-agreed deficit targets.
"There is no deal sealed to take on the costs of the energy reform," the source from the treasury ministry said, on condition of anonymity.
It is now unclear if the reforms will be approved at Friday's cabinet meeting or at a later stage.
The reforms are likely to hit companies in the sector hard as well as banks which have financed them. Electricity giant Iberdrola, Endesa, Gas Natural as well as solar companies Acciona and Abengoa are expected to suffer most.
In addition to the deficit that has already accumulated, the Spanish government estimates that it will continue to grow by 4 billion to 5 billion euros a year unless measures are taken.
Soria said part of this fresh deficit would be covered by the state's annual budget, though he had not detailed by how much and what form the support would take.
"As part of this reform, part of this deficit which has not yet been covered will also be met by the treasury ministry," he told Onda Cero radio, adding that the terms of a deal between the Industry and Treasury ministries had been agreed.
He had said on Tuesday that the reforms would likely be submitted for approval by the government on Friday.
Spain's treasury ministry had already pitched in with support to plug the tariff deficit before, coughing up 2.2 billion euros in extraordinary financing to help cover some subsidies in the system, which was booked in the 2013 budget.
Utilities have until now funded the deficit, and the government has been gradually paying them back through the issuance of state-backed bonds. ($1 = 0.7821 euros)