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Sweden, Finland step in to avert Lehman-like situation for power companies

Published 09/04/2022, 08:33 AM
Updated 09/04/2022, 01:35 PM
© Reuters. FILE PHOTO: Swedish Finance Minister Mikael Damberg attends a press conference to propose relief for households affected by high electricity prices, in Rosenbad, Stockholm, Sweden January 12, 2022. Johan Jeppsson /TT News Agency/via REUTERS/File Photo
GAZP
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By Supantha Mukherjee and Essi Lehto

STOCKHOLM/HELSINKI (Reuters) -Finland and Sweden on Sunday announced plans to offer billions of dollars in liquidity guarantees to power companies in their countries after Russia's Gazprom (MCX:GAZP) shut the Nord Stream 1 gas pipeline, deepening Europe's energy crisis.

Finland is aiming to offer 10 billion euros ($9.95 billion) and Sweden plans to offer 250 billion Swedish crowns ($23.2 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 U.S. 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 U.S. 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.

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 guarantees aim to prevent ballooning collateral requirements from toppling energy companies that trade electricity on the Nasdaq Commodities exchange, an event that could in turn spread to the financial industry, the governments said.

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Lower gas flows from Russia both before and after its February invasion of Ukraine have pushed up European prices and driven up electricity costs.

The rapid rise in electricity prices has resulted in paper losses on electricity futures contracts of power companies, forcing them to find funds to post additional collateral with the exchanges.

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 stabilize 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.

($1 = 10.7633 Swedish crowns)

($1 = 1.0049 euros)

Latest comments

What could be wrong with more free money? Heck governments could stop taxing and just print money.
What a disaster as Sweden now follows Austria (which just bailed out Wien Energie on Wednesday with a 2 billion loan). Watch out as a liquidity ripple effect is now in the process of unfolding in Europe as more and more energy companies will come forth looking for Gov't bailouts. This will basically have the effect of pulling liquidity out of the system (and away from from non-energy businesses) at the same time the ECB is trying to follow the Fed and pullback on the excessive liquidity they pumped out during Covid. Only a matter of time before Europe has a "Minsky Moment" and something breaks. So sad.....
The only thing that will break is the Russian economy. You think they can afford losing so much energy revenue? It's crumbling as it is.
 Hi Jason. No you're incorrect regarding Russia. Actually they're bring in plenty of revenue (despite western sanctions) because a) they've off-loaded alot of the excess energy from the sanctions to countries not part of the western alliance (China, India etc) and b) soaring energy prices in Europe more than compensated Russia for the loss in sales volume due to sanctions.
The unfortunate reality is that we've been outsourcing our labour and manufacturing ability to countries such as China and India.  China manufactures the most steel in the world while we've dramatically reduced our capacity to make it.  Plenty of chinese steel is garbage quality, but even adjusting for complete lemons, it's significantly more.  We can't really push them too far.  Semi conductors are one thing, nearly every material good including pharmaceutical precursors are made there or India.
Another bankrupted country. Homeland of renewable energy.
talking *******buddy
 they are indeed socialist "green" countries.  and look at where it gets them?  Is that what you want for the US
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