Germany prepares the financial rescue of the Uniper energy consortium

Germany prepares the financial rescue of the Uniper energy consortium

The threat of cutting off Russian gas supplies forces Berlin to act urgently

The federal government is preparing the rescue this week of the energy consortium Uniper, the largest supplier of natural gas in Germany, which is threatened with insolvency due to the crisis unleashed after the invasion of Ukraine by Russia. Several German media revealed this Monday that the Berlin executive is preparing the legal basis to intervene in favor of the Düsseldorf-based group, but also of other German energy companies in trouble, and guarantee their solvency by granting credits or guarantees and arrived the case with direct participation by acquiring part of its shares. The measure is urgent in the face of the imminent threat of a complete cut off of gas supplies from Russia to Germany. On July 11, a routine maintenance operation will be carried out on the Nord Stream 1 gas pipeline, which carries most of the Russian gas consumed by this country through the Baltic. Berlin fears that Moscow will take advantage of this review to definitively cut off supplies to Germany, which would lead to the ruin of Uniper and other companies in the sector.

The rescue operation designed by the government of the federal chancellor, the Social Democrat Olaf Scholz, is similar to the Economic Stability Fund created during the coronavirus pandemic to prevent the financial collapse of large companies such as the German airline Lufthansa. The airline then received state aid worth 9,000 million euros to avoid bankruptcy. Berlin, which operated in the same way with other consortiums threatened by the pandemic, then assumed part of the capital of Lufthansa. German media highlight that after the so-called «Lex Lufthansa» of March 2020, the Bundestag will approve this Friday in its last ordinary session before the summer holidays what it already qualifies as «Lex Uniper», which could be approved this Tuesday by the council of ministers and then by the federal parliament before the weekend. It is an article with "facilities for the execution of stabilization measures" that would complement the Energy Guarantees Law. If it is not possible to carry it forward this week, the Bundestag would have to hold an extraordinary session during the holidays.

Uniper is currently in serious financial trouble. The largest German importer of Russian gas currently has to cover its needs through suppliers from other countries at much higher prices. The group is obliged to comply with long-term supply contracts to municipal energy companies or large industrial consortiums signed before the war in Ukraine and under much more favorable conditions than the current ones. The energy consortium has to contribute two-digit millionaire amounts on a daily basis and its liquidity is running out. An insolvency of Uniper or other major importers would set off a fatal chain reaction in the energy markets of Germany and Europe. The Federal Minister of Economy and Energy, the green Robert Habeck, has compared that possibility to the bankruptcy of the US bank Lehman Brothers that triggered the global financial crisis of 2008. If Uniper stops supplying, all the companies dependent on it would immediately fail and the supply of gas to industry and private households would end up being suspended. Berlin is aware that it cannot allow this.

Habeck's initiative contemplates that all German energy consortiums can be covered under an umbrella of financial security of the German state. Interested companies must apply to the Federal Ministry of Economy and Energy, which "is the competent authority for negotiating stabilizing measures," according to the bill. This contemplates that the public Credit Society for Reconstruction contributes the necessary capital, as already happened during the coronavirus pandemic. The rescue umbrella for German energy consortia will initially be in operation until the end of 2027, according to Habeck's plans. The purpose of the article is to deal with the acute crisis in the gas markets, although the competent German ministry considers that this measure will not be enough to deal with the continuous rise in prices of natural gas and energy in general.

For this reason, the German executive is also preparing a compensatory mechanism with which the rising costs of gas are shared between industry and consumers. To do this, the continental organization Trading Hub Europe, the union of the large network companies, must make funds available to gas wholesalers such as Uniper so that it can continue to acquire raw material at higher prices on international markets. This would be refinanced through higher network fees that all customers would have to pay to their gas companies. In fact, the measure would mean the socialization of the losses of Uniper and the other companies in the sector affected. The principle of solidarity is necessary, since the gas supply companies and their customers are affected in different ways by price jumps in the markets. Those who buy so far in Norway or the Netherlands are in a better situation than those, like Uniper, who mainly buy their gas in Russia.

Meanwhile, Federal Chancellor Olaf Scholz has warned the citizens of this country that the current crisis will be long and that inflation will continue to be high for some time. "The current crisis will not be overcome in a few months," Scholz said before beginning this afternoon in his office an extraordinary meeting, baptized as "concerted action", with representatives of employers and unions, as well as economic and scientific experts, to study measures to combat inflation. Russia's war in Ukraine and disruptions in supply chains due to the coronavirus pandemic are responsible for the high level of insecurity. "We must get used to the idea that this situation is not going to change in a foreseeable time," said Scholz, who spoke of a "historic challenge" and insisted that Germany will be able to overcome this crisis "if we join hands and put ourselves agree on common solutions. The Federal Chancellor pointed out that the objective of the meeting is to search for instruments to somehow deal with the rise in prices in Germany. It will be a long process with several meetings whose results are not expected before the fall, explained the Federal Chancellor. "The important thing for me is the message: we are united," said Scholz before starting talks with employers, unions and experts.

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