The proposed semiconductor manufacturing facility by Intel, near Magdeburg, Germany, has hit financial roadblocks. It was initially envisioned to be Europe's most extensive plant, but an escalation in costs has resulted in additional subsidies being sought from the German government.
Nevertheless, authorities show resistance in approving extra funds due to budget restrictions. This discussion provides an insight into Intel's predicament of securing extra subsidies and the divergent views within the government regarding fiscal support.
Intel's plan to set up a top-notch semiconductor manufacturing unit near Magdeburg, Germany, has potential to be Europe's largest and most sophisticated. However, the project is grappling with a surge in costs, leading Intel to appeal for increased subsidies from the German government. Despite this, the authorities remain reluctant to extend additional fiscal assistance due to budgetary constraints, as per a report by the Financial Times. Christian Lindner, the Finance Minister of Germany, expressed that the present budget has no scope for extra funding. The government's concentration is towards fiscal consolidation instead of expansion. Initially, the fab's construction was projected to be $18.7 billion (€30 billion). However, delays in the construction and other factors like escalating energy prices, material costs, and inflation have inflated the total estimated cost to $31.675 billion (€30 billion). Intel's decision to include more advanced tools for sophisticated nodes in chip production in Germany further elevated the costs.
To offset this financial discrepancy, Intel is seeking extra subsidies amounting to $4.223 billion to $5.279 billion (€4 billion to €5 billion) from the German government. But this request has led to disagreement within the authorities. While Chancellor Olaf Scholz and Economy Minister Robert Habeck appear inclined towards augmenting financial support for Intel, motivated by the potential rise in Intel's total investment from €17 billion to €30 billion, Christian Lindner is resistant to such subsidies. Lindner insists that the Chancellery and Economy Ministry identify alternate funding sources. The perspective on subsidies in Germany is not uniform. Certain economists regard subsidies as unproductive use of taxpayer money, whereas others worry about the intricacies of semiconductor supply chains, which makes reducing dependency on Asian suppliers arduous. Intel has chosen not to respond to the Finance Minister's remarks but acknowledged a cost discrepancy and assured that the company is devoted to collaborating with the government to address this issue.
Significantly, Lindner's subsidy opposition isn't limited to Intel. He has also challenged Economy Minister Habeck's idea to subsidize electricity costs for energy-intensive sectors, citing potential infringement of EU state aid rules. However, reduced electricity costs could positively impact Intel's proposed fab near Magdeburg. Habeck proposed utilizing the Economic Stabilization Fund to finance these subsidies, a notion Lindner rejected as a violation of coalition agreements.
Update: it seems that Germany is buckling towards Intel's demand. The German government and Intel are reportedly in advanced talks concerning a significant grant increase to €9.9 billion for the creation of a high-tech chip production plant, according to credible sources. A prior suggested subsidy of €6.8 billion was deemed inadequate by the semiconductor corporation.
This newly divulged information, confidentially passed on by governmental insiders, starkly contrasts a recent public declaration by Finance Minister Christian Lindner. A handful of days prior, Lindner stated that the financial resources were not sufficient to set aside almost €10 billion for the chip factory's establishment. Nevertheless, Minister of Economic Affairs Robert Habeck has reportedly been striving to secure the discussed subsidy augmentation.
Additional information from sources suggests that the conclusive discussions between Intel and the German government are planned for the forthcoming weekend. Post these dialogues, CEO Pat Gelsinger is slated to address the parliament on Monday to officially sign the contractual agreement.
