Energy group Uniper, Germany’s largest gas importer, has now formally called for help. Meanwhile, its main Finnish owner Fortum suggests the federal government could take over the systemically important German business.
Just over a week ago, German energy company Uniper announced that it had entered into talks with the German government about possible stabilization measures. On Friday, Uniper’s board took the next step and formally submitted a request to the government for such measures, the company said in an ad hoc statement. Among other things, it cited a relevant federal government stake in Uniper SE as a possible part of the solution.
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Because Russia’s state-owned gas company Gazprom has been supplying only 40 percent of its contractually guaranteed gas volumes since mid-June, Uniper has had to procure replacement volumes at much higher prices. And because the group cannot pass on these additional costs to its customers during the year, it is losing money every day. The daily cash outflow is “in the mid-double-digit millions,” group CEO Klaus-Dieter Maubach said at a media conference at the company’s headquarters in Düsseldorf. By the end of the year, he said, a loss of up to €10 billion could result.
The Uniper Group is an important gas supplier for industry and for many municipal utilities. It also operates power plants, owns gas storage facilities and is the largest importer of natural gas to Germany. The requested state stabilization measures are intended to end the accumulation of substantial losses, cover the group’s liquidity needs and protect its credit rating.
In an initial reaction, German Economics Minister Robert Habeck said the German government was working flat out on stabilization measures. The concrete form of support is now being negotiated, he said. “Politically, one thing is clear: We will not allow a systemically important company to go bankrupt and, as a result, the global energy market to be thrown into turmoil,” he added.
“Fair cost distribution”
The fact that Uniper has just submitted the formal application on Friday is related to the fact that a second amendment to the Energy Security Act, which supplements the government’s “toolbox” for such assistance, was passed by the Bundesrat on that day.
Uniper’s request for assistance lists four possible measures. It is “initially” based on a fair distribution of costs in accordance with section 24 or section 26 of the Energy Assurance Act, the statement says. That points to two options now possible: First, the state could allow utilities to pass on additional costs for gas procurement to their customers during the year, meaning they wouldn’t have to wait until the renewal of their – usually annual – contracts. Second, the additional costs could be distributed to all gas consumers via a levy.
If all consumers were charged equally under the second option, prices would rise under the first, especially for those consumers whose gas supplier has been particularly dependent on Russian gas up to now. The two models cannot take effect at the same time; the German government would have to choose one. A prerequisite for their activation in both cases is that the Federal Network Agency determines a significant reduction in the total gas import volumes for Germany.
Will the state step in?
Beyond this cost sharing, Uniper’s proposal provides for additional debt capital by increasing an existing but undrawn €2 billion credit line with the state development bank KfW. Finally, it contains “equity components that would lead to a relevant participation of the German government in Uniper SE,” the ad hoc announcement continues.
When one speaks of a “relevant” stake, one does not mean (only) 5 or 10 percent, Maubach said. He did not want to give further figures, especially since the individual elements of the proposal are communicating vessels: How much help is needed depends on the extent to which the additional costs can be passed on to customers or consumers.
A proposal from Finland
Not only Uniper itself is currently talking to the German government, but also its Finnish parent company Fortum, which controls almost 80 percent of the company. Fortum noted in its own statement that it is discussing several alternatives. One of them, he said, was to put the system-critical German businesses under ownership of the German government.
Maubach acknowledged that the Uniper board and Fortum had presented different proposals. The trick, he said, would be to find a solution that both the German government and the majority owner could agree to.
The Uniper CEO pointed out that his company might have to use gas from its storage facilities as early as next week instead of continuing to fill them. He said customers would be informed that significant price increases were to be expected and that supply cuts could not be ruled out in individual cases. However, such cuts would be the “very last” resort and would have to be approved by the Federal Network Agency beforehand.
The planned annual maintenance of the Nord Stream 1 Baltic Sea pipeline, which normally takes around ten days and during which it cannot transport any gas at all, begins on Monday. The crucial question for Uniper and the whole of Germany is whether and to what extent Gazprom will resume deliveries through this main line afterwards.