Sweden, Finland step in to avert a Lehman-like situation for power companies
STOCKHOLM/HELSINGFORS, Sept 4 (Reuters) – Finland and Sweden announced plans on Sunday to offer billions of dollars in liquidity guarantees to power companies in their countries after Russia’s Gazprom (GAZP.MM) closing the Nord Stream 1 gas pipeline, deepening Europe’s energy crisis.
Finland aims to offer 10 billion euros ($9.95 billion) and Sweden plans to offer 250 billion Swedish kronor ($23.2 billion) in liquidity guarantees.
“This has meant the ingredients for a kind of Lehman Brothers energy industry,” Finnish Economy Minister Mika Lintila said on Sunday.
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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 program is a last resort for financing for companies that would otherwise be threatened with insolvency,” Finnish Prime Minister Sanna Marin said at a press conference.
State-controlled Finnish power company Fortum (FORTUM.HE)which had last week called on Nordic regulators to take immediate action to prevent defaults even among smaller players, praised the proposals from Helsinki and Stockholm.
“We appreciate that the Finnish and Swedish governments are taking swift action to stabilize the Nordic derivatives market and support Nordic energy companies in times of crisis,” the company tweeted.
“It is crucial to keep the companies operating. Our discussions with the Finnish government are ongoing,” it said.
The guarantees are aimed at preventing collateral requirements from toppling energy companies that trade electricity on the Nasdaq Commodities exchange, an event that could in turn spill over into the financial industry, the governments said.
Lower gas flows from Russia both before and after the invasion of Ukraine in February have pushed up European prices and driven up electricity costs.
The rapid increase in electricity prices has resulted in paper losses on electricity futures contracts for power companies, forcing them to find funds to post additional collateral with the exchanges.
The collateral requirement for Nasdaq clearing recently reached SEK 180 billion, up from around SEK 25 billion in normal times due to strong power prices, which have risen by around 1,100%, Sweden’s National Debt Office said on Saturday.
The government feared that the shutdown of Nord Stream 1 would lead to a further increase.
Finland’s Navy said that measures are needed at the 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 why Sweden was the first country to step in to tackle the potential crisis.
Sweden’s Finance Minister Mikael Damberg said on Sunday that the guarantees will apply until March next year in Sweden and 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.
($1 = 10.7633 Swedish kronor)
($1 = 1.0049 euros)
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Report by Supantha Mukherjee in Stockholm and Essi Lehto in Helsinki. Editing by Terje Solsvik, Hugh Lawson and Frances Kerry
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