Eni Fuel Price Cap: How Italy Turned a Refining Windfall Into a Fuel Subsidy

Rome is halving its diesel tax relief the same week Eni caps pump prices about 17 cents below the national average. With less fiscal room than in 2022, European governments are pushing fuel relief onto the fuel industry, and Italy has found the cheapest way to do it: through a company it controls.

From Monday, September 28, every Enilive station in Italy will charge no more than €2.19 a litre for diesel and €1.99 for petrol. Eni puts that about 17 cents below current averages, for an initial 30 days and possibly to year-end. Two days earlier, the government's diesel excise cut halves again, from 12.2 cents to 6.1 cents a litre, having started at 17 cents, and it expires on October 5. Eni itself links the cap to the shrinking excise relief. Giorgia Meloni's office thanked Eni for "a commendable gesture of consideration for Italy."

Rome has spent about €2.8 billion on fuel relief since the Iran war pushed prices up in March, counting tax breaks for truckers, and it is now drafting a 2027 budget. The state owns 33% of Eni, directly and through Cassa Depositi e Prestiti. Eni budgeted for a refining margin of $6 a barrel; in July it earned more than $30. Economy minister Giancarlo Giorgetti has not ruled out a windfall tax in the budget due next month, and Deputy Prime Minister Antonio Tajani welcomed the cap as "the path we prefer," not "new taxes based on the concept of windfall profits," a dig at Matteo Salvini's League. Italy's biggest fuel retailer is picking up relief that Rome no longer wants on its books, and paying for it out of that windfall. The cap is a windfall tax that never passes through the budget, and it is the version of fuel relief Europe's governments are now reaching for.

What it costs, and who pays

The arithmetic is modest. Eni sold 5.4 million tonnes of fuel through its Italian stations in 2024, about 21% of the market, or roughly 550 million litres a month. At a 17-cent discount the cap costs about €95 million a month, close to €300 million if it runs to December. Germany's 17-cent fuel tax cut from October 1 to year-end costs €2.5 billion. Italy's 2022 excise cut cost about €7 billion over ten months.

The money matters less than where it lands. In July Eni raised its full-year refining-margin assumption from $6 to $14 a barrel and raised the possibility of an extraordinary dividend. Europe's diesel premium over crude went above $95 a barrel this week, the highest in Bloomberg data going back to 2011. The cap spends a slice of that upside at the pump before shareholders see it. Three months of it would cost less than a tenth of this year's €3.4 billion buyback. Set against the windfall tax Giorgetti keeps on the table, a voluntary cap is cheap insurance.

Eni also says that since March it has passed on only part of the rise in international prices to its recommended pump prices. The cap puts a number on a subsidy it was already paying without announcing it, and lets the government take credit for it.

The stations belong to Enilive, the retail and biofuels unit in which KKR holds 30%. Eni's conventional refineries sit outside Enilive and are wholly owned. Unless Eni changes the price at which its refining arm supplies the stations, most of the cost falls on retail margins, and KKR carries almost a third of it. Enilive expects about €1.3 billion of EBITDA this year, roughly €110 million a month. A €95 million monthly discount taken entirely at the pump would absorb most of that.

The squeeze on everyone else

Italy has about 21,750 fuel stations. Many are independents buying at wholesale prices linked to the same record diesel premium. When the market leader prices 17 cents below them, they can cut their margin or lose customers. Industry minister Adolfo Urso and energy minister Gilberto Pichetto Fratin have called Italy's ten refiners and three biorefiners to a meeting on October 8. The likely request is that they match the cap.

Other refiners with Italian plants have some windfall to spend. Retail chains without a refinery, and the independent "white pumps," have none. A cap volunteered by the integrated incumbent moves the burden of fuel relief off taxpayers and onto its competitors' margins.

Hungary shows what can go wrong. Viktor Orbán capped pump prices at 480 forints a litre from November 2021, imports dried up, and MOL, the state-linked refiner, could not supply the whole country. The cap collapsed on December 6, 2022, amid queues and empty pumps. Hungary's cap bound every seller by law, so importers walked away. Eni's covers only its own network, with its own refineries behind it. The likelier failure is commercial: queues at Enilive pumps pull volume from rivals and push the monthly bill above €95 million, giving Eni a reason to stop after 30 days.

Why it is spreading

Europe is short of refined products, and Eni says so. It blames supply lost to geopolitical crises and the closure of nearly 30 European refineries in 15 years. The EU average diesel price hit a record €2.23 a litre this week, about $9.63 a gallon, according to Commission data compiled by AFP, with 19 countries at records. Denmark and Finland lead at €2.56 and Germany is at €2.46; Italy, at about €2.30, is below both. Transport & Environment, a green lobby, estimates EU motorists are paying an extra €203 million a day for diesel alone.

The next barrel may be harder to find. Donald Trump has backed a ban on US diesel exports, just as Europe leans more on American diesel; a Commission spokesman called it "a bad idea." Energy Secretary Chris Wright has since spoken of voluntary restrictions rather than an outright ban.

Governments are responding with less money than last time. The OECD counts seven EU states among the ten most active interveners, but Bruegel finds fiscal support significantly lower than in 2022. France's package is €450 million and Spain's is €5 billion. Germany, alongside its tax cut, is negotiating a fuel price cap with its oil industry by January 1. Warsaw wants to tax fuel sellers, Berlin wants them to cap prices, and Rome has persuaded the largest of them to do it unasked.

For the European Central Bank, a company cap beats a tax cut. Euro-area inflation was 3.2% in August, with energy up 14.3%, and the ECB raised its deposit rate to 2.5% on September 10. A company cap has no statutory cliff and burns no fiscal room. It will not decide the October 29 meeting, but it trims Italy's energy inflation through the winter.

The October 8 meeting should produce at least one more branded cap, and Rome is likely to let its diesel excise cut lapse on October 5. Eni will probably extend its own cap to year-end while the diesel premium stays above $60 a barrel, since €300 million is easy to afford at those margins. Enilive's fourth-quarter marketing result will show whether Italy's fuel subsidy is being paid by Eni's refiners, its retail stations, or KKR.

Eni Fuel Price Cap: How Italy Turned a Refining Windfall Into a Fuel Subsidy

What it costs, and who pays

The squeeze on everyone else

Why it is spreading

Sources

You May Also Like

Subscribe to our Newsletter