Finland and Sweden on Sunday (4 September) announced plans to offer billions of euros in liquidity guarantees to power companies in their countries after Russia’s Gazprom shut the Nord Stream 1 gas pipeline, deepening Europe’s energy crisis.
Finland is aiming to offer €10 billion and Sweden plans to offer 250 billion Swedish crowns (€23.4 billion) in liquidity guarantees.
“This has had the ingredients for a kind of a Lehman Brothers of energy industry,” Finnish Economic Affairs Minister Mika Lintila said on Sunday.
When Lehman Brothers, the fourth-largest US investment bank at the time, filed for bankruptcy in September 2008 with more than $600 billion in debt, it triggered the worst parts of the US financial crisis.
“The government’s programme is a last-resort financing option for companies that would otherwise be threatened with insolvency,” Finland’s Prime Minister Sanna Marin told a news conference.
EU ministers to discuss options
EU energy ministers on Friday (9 September) will discuss options to rein in soaring energy prices, including gas price caps and emergency credit lines for energy market participants.
Ministers will also consider offering urgent “pan-European credit line support” for energy market participants facing very high margin calls, said a document drafted by the Czech Republic, which holds the EU’s rotating presidency.
“The margin requirements for futures contracts have increased commensurately with increased daily price fluctuations. This makes it almost impossible for an increasing number of companies to keep their hedging positions open, triggering their withdrawal from the futures markets,” the EU document said.
Utilities sell most of their power a few years in advance to guarantee a certain price, in an arrangement which requires them to deposit a “minimum margin” into an account as a safety net in case they default before the power is produced and actually enters the market.
A margin call occurs if the funds in the account fall below the minimum margin requirement for a trade, forcing the company to secure it with more cash. Soaring European power prices in recent months have triggered margin calls, putting a liquidity squeeze on market participants.
Any emergency EU policies would likely need to be proposed by the European Commission, which is currently drafting proposals.
EU energy ministers will discuss possible caps on the margin limits that energy exchanges can ask for, and a temporary suspension of European power derivatives markets, the document showed.
State-controlled Finnish power company Fortum, which last week had urged Nordic regulators to take immediate action to avert defaults even among smaller players, praised the proposals made by Helsinki and Stockholm.
“We appreciate Finnish and Swedish governments taking swift action to stabilise the Nordic derivatives market and support Nordic energy companies in time of crisis,” the company tweeted.
“It’s crucial to keep companies operational. Our discussions with the Finnish government are ongoing,” it said.
The collateral requirement on Nasdaq clearing recently hit 180 billion Swedish crowns, up from around 25 billion in normal times due to the surge in power prices, which have risen some 1,100%, Sweden’s debt office said on Saturday.
The government feared that the Nord Stream 1 shutdown would lead to a further surge.
Finland’s Marin said there needed to be measures at the European Union level to stabilise the functioning of both the derivatives market and the energy market as a whole.
Nasdaq clearing is a Swedish company supervised by Swedish authorities, which is the main reason Sweden was the first country to step in to tackle the potential crisis.
Swedish Finance Minister Mikael Damberg said on Sunday that the guarantees would last until March next year in Sweden and would also cover all Nordic and Baltic nations for the next two weeks only.
Without government guarantees, electricity producers could have ended up in “technical bankruptcy” on Monday, Damberg said.
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