China lends Cuba a helping hand

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0:17Good morning from the Financial Times. Today is Tuesday, April 7th, and this is your FT News Briefing. The global energy crisis is causing fiscal concerns in the European Union, and private equity buyouts hit a rough patch. Plus, Cuba's power supply is in a critical situation, and the country is turning to China for help. I'm Mark Filippino, and here's the news you need to start your day.

0:47The U.S. and Iran rejected each other's ceasefire proposals yesterday. Iran is demanding a few things, the permanent end to war, the lifting of sanctions, and a, quote, protocol for ships to pass through the Strait of Hormuz safely. That's all according to Iranian state media. U.S. President Donald Trump said Iran made a, quote, significant proposal to end the conflict, but it wasn't enough for Washington. He added that Tehran had been negotiating in good faith. Tonight at 8 p.m. Eastern time is Trump's deadline for Iran to reopen the Strait of Hormuz. Trump warned on Monday that, quote, the entire country can be taken out in one night.

1:27The European Union is worried about countries turning the global energy crisis into a fiscal one. EU officials are urging governments to avoid what they describe as excessive support to offset energy prices. Things like subsidies, tax cuts, and price caps. Brussels wants to avoid a repeat of the 2022 energy crisis caused by Russia's full-scale invasion of Ukraine. That led to rampant inflation and widening deficits. Here to tell us more is the FT's Brussels Bureau Chief Henry Foy. Hey, Henry. Hi, Mark. So what exactly have member states been doing to ease the pain of rising energy prices caused by the war in Iran?

2:03So essentially, you have a series of measures that different countries have rolled out, but they all come down to one thing, which is how do we make fuel, mainly fuel for cars, cheaper? Some countries have gone with slashing excise tax or VAT on fuel. Others have mandated that the fuel be capped at a certain price, which of course has to be paid for by someone, that's the government. Others have offered subsidies to big businesses to essentially allow them to buy fuel cheaper. That of course all costs a lot of money. And as the weeks roll by, the money adds up. Yeah, how much exactly is it costing?

2:39Do we know? So some countries have said, look, this is going to be capped. Spain, for example, has said 5.8 billion euros is what they're spending on a VAT reduction and some other cuts in fuel prices at the pump. Poland is doing it sort of month by month, and it reckons it's going to be about 350 million euros a month. That's in lost tax revenues, because again, they've cut the IT and excise. The list goes on. But this is a serious amounts of money for countries that are already not in a great shape. Most European countries have rather large debts and rather large deficits. A lot of them spent a huge amount of money combating the, as you said, the 2022 to Russian energy crisis.

3:19Before that, the COVID crisis that came out of the pandemic, sort of making sure that people had jobs, making sure that businesses could keep running. So this is the third crisis really in six years where businesses and households are turning to their governments in Europe and saying, how are you going to make sure that we're okay? So the EU basically thinks that subsidies that would address the energy shock would also be inflationary. Absolutely. There are two real problems. The first is if you're going to start throwing a lot of government money into subsidizing businesses, subsidizing fuel, you're going to push up inflation.

3:54That's just a given. The second impact, of course, is that you're going to make your fiscal situation much worse. We're already seeing borrowing costs in the market for European countries gone up since the start of the war in Iran. So there are big concerns here in Brussels that if governments aren't clever, and they don't roll out measures that are targeted and temporary, but go for more open-ended or more permanent measures, Europe could be spending itself into a really big problem. So where do you think this goes from here, Henry? Could this lead to any EU-wide action? So the EU does have powers in its treaties to essentially crack down on countries that are spending too much.

4:31It can step in and essentially mandate where countries can and can't put their money. The other thing that the EU could do is bring in some kind of block-wide new taxes to raise money. The governments of Spain, Italy, Germany, Portugal and Austria just this weekend called on Brussels to implement a windfall tax on energy companies that are obviously making large revenues at the moment. And that money could then be reinvested into supporting households. The way in which I think the EU will be most active, though, is making sure that these subsidies don't simply go into propping up fossil fuels.

5:04For the last decade or so, the EU's been trying to push countries to invest in renewables, to invest in greener energy sources. And what they don't want is this crisis, meaning everyone takes a big step backwards and throws a load of money back into fossil fuel companies. Henry Foy is the FT's Brussels Bureau Chief. Thanks so much, Henry. Thanks, Huck.

5:28The start of the year hasn't been kind to private equity. PE buyouts slumped in the first quarter. they were valued at$172 billion. That's down 36 % from the previous quarter and an 8 % drop from the same period last year. That's according to DealLogic. But last quarter's PE buyout deals were still higher than the first quarters of 2023 and 2024. This recent skid is driven by concerns about artificial intelligence basically turning certain software companies obsolete. Software groups have been one of the buyout industry's most lucrative sectors over the past couple of years. People are now also worried that the economic impact from the war in the Middle East could make the buyout slump worse.

6:17Cuba's power grid is teetering on collapse. In March, it suffered two nationwide blackouts in one week. This comes after U.S. President Donald Trump, in effect, cut off all oil shipments to Cuba at the beginning of the year. And as a result of the near total oil blockade, Cuba's decades-long economic crisis went from bad to worse. But the island nation has an unlikely energy lifeline that it's built up over the past couple of years, solar power from China. Here to tell us more is the FT's Jude Weber. She's been covering the energy crisis in Cuba. Hi, Jude. Hi, Mark. So how bad is Cuba's energy situation right now?

6:54Oh, it's really bad. For months now, people can be without power. most of the day and night. They might just get a few hours of power, so they have to rush to cook their food. I mean, you can just imagine the precariousness, you know, for hospitals, schools have been sent home, but there just isn't enough electricity to go around. And the reason for this is the economy really relies on oil imports. Now, Cuba, for the last couple of decades, has been relying on Venezuela for most of its oil. But obviously, since the capture of Nicolás Maduro in January, that avenue has been cut off and Donald Trump has shut down other exports, has put pressure on other countries to stop exporting oil to Cuba.

7:38So really, it produces a little bit of oil domestically, but not enough to cover its needs. That causes problems in the electricity grid and causes it to collapse all the time. Okay, so I mentioned earlier that Cuba has been relying on Chinese solar power for a little while now. Over the past year, they've received one gigawatt of solar power from China. How did that come to pass? Well, I mean, China's the biggest exporter and the biggest supplier, really, of this clean tech worldwide. They've really, really carved out a niche for themselves. They certainly have been supplying increasing numbers of solar panels and battery technology as well to Cuba, mostly since sort of the middle of 2024.

8:19And this has been a real lifeline for Cuba, actually. I mean, it doesn't resolve the problem, but it's absolutely best than nothing. In fact, every day Cuba has a deficit of electricity. And according to the Cuba Study Group, which has just published a big report on the electricity sector and the infrastructure in Cuba, daily deficits averaged roughly 1500 megawatts per day. So if you think that in the last year, Cuba imported a gigawatt, which is a thousand megawatts, then you can see that that really does go quite some considerable way towards plugging the gaps that are always there. Jude, how are Cubans using the solar panels that China is sending over?

9:04Some of the solar panels have included rooftop kits for homes in isolated areas and schools and hospitals. But according to some reports, the cheapest home solar panel that Cubans can buy costs a hundred times the official minimum wage. And one man I spoke to who works in Havana said they're just really too expensive. So it's very hard for people to have them. But what you do see, according to people who are there at the moment, is little mini kits sometimes, the size of a book, for example, that can help Cubans power their mobile phones and things like that, and small household appliances. What do you think is next for Cuba?

9:39I think it's so hard to call. I mean, there are talks underway between the two governments. That's been confirmed by both sides, but we just don't know very much about what stage they're at. And frankly, at the moment, Donald Trump seems completely preoccupied by what's happening in the Gulf. I kind of imagine that the minute he stops being preoccupied by what's happening in the Gulf, then Cuba will come into full focus again. But we just don't really know when that will be. So I think that things are probably going to continue to get worse for the near future. It's a very grim, very bleak outlook, unfortunately.

10:14Jude Weber reports on Cuba for the FT. Thanks, Jude. Thanks, Mark. You can read more on all these stories for free when you click the links in our show notes. This has been your daily FT News briefing. Check back tomorrow for the latest business news.

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