Energy companies across Europe are turning to governments to bolster their liquidity and secure supplies, as the gas crisis stoked by Russia’s war against Ukraine tests their ability to stay afloat.
Switzerland’s largest renewable electricity producer Axpo and Finnish utility Fortum both said on Tuesday they had secured big new state-backed credit lines.
Power producers across Europe are facing an acute cash crunch as sharply rising energy prices lead to ballooning collateral requirements on the futures exchanges where they hedge their supply contracts.
Centrica, owner of British Gas, is in talks with banks to secure billions of pounds in extra credit, the Financial Times reported on Monday.
The Swiss government activated legislation to stabilise the finances of its energy companies at an emergency meeting of the governing federal council on Monday evening, following an urgent appeal by Axpo over the weekend.
Axpo has been granted immediate access to a SFr4bn ($4.1bn) credit line, Bern said, to help it cover trading and collateral costs in the face of soaring prices. Funding will also be available for Switzerland’s two other big energy companies, Alpiq and BKW, although neither has yet applied for liquidity.
“We cannot afford for a large electricity company to become insolvent and take other companies with it,” energy minister Simonetta Somaruga said on Tuesday. “We want to prevent a wildfire by all means possible . . . There have never been such high jumps in prices in Europe as there are now.”
The bailout comes with a high financial cost: the finance ministry said it would charge companies interest of 6-11 per cent on emergency funding — a punitive rate that could wipe out annual profits for the companies should they fully utilise the available funds.
Switzerland is particularly vulnerable to turmoil in European energy markets this winter. The wealthy alpine country’s dependence on hydroelectricity means it must import up to 40 per cent of its electricity needs during the colder months, when lakes and rivers in the alps freeze.
“This credit line ensures that, should the situation intensify further, Axpo is in a position to cover the collateral requirements of long-term power supply contracts concluded with its customers, and continue contributing to Switzerland’s security of energy supply,” Axpo said in a statement.
The company has not yet drawn down on the funds.
Fortum, which is majority owned by the Finnish state, on Tuesday agreed to a €2.35bn liquidity facility with a state-owned holding company at an annual interest rate of 14.2 per cent.
If Fortum uses the facility — which it described as a “last resort” — it would be unable to raise management salaries or pay bonuses and would have to issue extra shares to the state-holding company, Solidium. However, it would be able to pay dividends.
“The ongoing energy crisis in Europe is caused by Russia’s decision to use energy as a weapon and it is now also severely affecting Fortum and other Nordic power producers . . . The arrangement provided by the Finnish state strengthens our liquidity backstop in the midst of the turbulence,” said chief executive Markus Rauramo.
Finland and Sweden unveiled separate guarantee packages of up to €33bn at the weekend to avert what the Finnish economy minister called “all the ingredients for the energy sector’s version of Lehman Brothers”.
Illustrating the extreme volatility in the markets, Fortum said its collateral demands had fallen last week by €1.5bn to €3.5bn, after rising the week before by €1bn. It said a week ago that the Nordic market could collapse if there was a default of even a small utility.
Fortum needs to make use of at least €350mn from the liquidity facility by the end of September otherwise it would end. The liquidity cannot be used by Fortum’s German subsidiary, Uniper, which has said it needs a bigger credit line after exhausting the one provided by the German state.
Rauramo repeated his calls for regulatory changes to “curb the unreasonably high margining and collateral requirements”. He added that power companies should be able to use their future production as collateral so that companies, many of which are earning record profits, do not technically default due to margin calls.
Source: Economy - ft.com
