Finland and Sweden on Sunday (September 4) announced plans to offer billions of dollars in liquidity guarantees to energy companies in their countries after Russia’s Gazprom shut down the Nord Stream 1 gas pipeline, exacerbating Europe’s energy crisis.
Finland aims to offer €10 billion and Sweden €250 billion (€23.4 billion) in liquidity guarantees.
“It has the ingredients for a kind of Lehman Brothers in the energy industry,” Finnish Economy Minister Mika Lintila said on Sunday.
When Lehman Brothers, then the fourth-largest US investment bank, filed for bankruptcy in September 2008 with more than $600 billion in debt, it triggered the worst of the US financial crisis.
“The government’s program is a last-resort financing option for companies that would otherwise face bankruptcy,” Finland’s Prime Minister Sanna Marin said at a news conference.
Finland proposes loan and guarantee scheme for electrical companies
The Finnish government approved a loan and guarantee program of up to 10 billion euros for power generation companies at risk of insolvency on Sunday.
The regulation according to which the state can grant loans or guarantees covers liquidity …
EU ministers discuss options
EU energy ministers will discuss options to stem rising energy prices on Friday (9 September), including gas price caps and emergency credit lines for energy market participants.
Ministers will also consider urgently offering “pan-European credit line support” for energy market participants facing demands for very high margins, according to a document authored by the Czech Republic, which holds the EU’s rotating presidency.
“Margin requirements for futures contracts have increased in line with increased daily price volatility. This makes it almost impossible for an increasing number of companies to keep their hedging positions open, triggering their exit from the futures markets,” the EU document reads.
Utilities sell most of their electricity a few years in advance to guarantee a certain price, in an agreement that requires them to deposit a “minimum margin” into an account as a safety net in case they go out before the electricity is produced and actually gets into the stream market.
A margin call occurs when the balance in the account falls below the minimum margin requirement for a trade, forcing the company to back it with more cash. The rising European electricity prices in recent months have triggered calls for additional payments and brought liquidity bottlenecks to market participants.
Any EU contingency measures would likely need to be proposed by the European Commission, which is currently preparing proposals.
EU energy ministers will discuss possible caps on the margin limits energy exchanges can impose and a temporary suspension of Europe’s power derivatives markets, the document showed.
Avert presets
Finland’s state-controlled energy group Fortum, which last week urged Nordic regulators to take immediate action to avert defaults by smaller players too, praised the Helsinki and Stockholm proposals.
“We appreciate that the Finnish and Swedish governments are acting quickly to stabilize the Nordic derivatives market and support Nordic energy companies in times of crisis,” the company tweeted.
“Keeping businesses running is crucial. Our talks with the Finnish government are still ongoing.”
The security requirement for Nasdaq clearing recently reached SEK 180 billion, up from around SEK 25 billion in normal times due to surges in electricity prices, which have risen by about 1,100%, Sweden’s debt agency said on Saturday.
The government feared that the shutdown of Nord Stream 1 would lead to a further surge.
Finland’s Marin said that there needs to be action at EU level to stabilize the functioning of both the derivatives market and the energy market as a whole.
Nasdaq Clearing is a Swedish company overseen by Swedish authorities, which is the main reason Sweden was the first country to step in to deal with the potential crisis.
Swedish Finance Minister Mikael Damberg said on Sunday the guarantees in Sweden would last until March next year and would also cover all Nordic and Baltic countries for just the next two weeks.
Without government guarantees, electricity producers could have ended up in “technical bankruptcy” on Monday, Damberg said.
The Swedish government is banking on Europe to solve the energy crisis
Social Democrat Party leader and Prime Minister Magdalena Andersson is hoping to find a European solution to what her opponents see as a problem her party helped create as Sweden faces soaring energy prices ahead of the elections.
At a press conference…
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