Threat of cutting off Russia’s gas supply forces Berlin into urgent action
The federal government is preparing this week to bail out the Uniper energy consortium, Germany’s largest natural gas supplier, which has been threatened with insolvency by the crisis erupted after Russia’s invasion of Ukraine. Several German media revealed this Monday that the Berlin management is preparing the legal basis to intervene in favor of the Düsseldorf-based group, but also other German energy companies in difficulty, and to guarantee their solvency by granting loans or guarantees, and came the business with direct participation by acquiring part of its shares. The move is urgent in light of the imminent threat of a complete shutdown of gas supplies from Russia to Germany. On July 11, a routine maintenance operation will be carried out on the Nord Stream 1 gas pipeline, which carries most of the Russian gas consumed by this country through the Baltic Sea. Berlin fears that Moscow will use this review to cut off supplies to Germany permanently, leading to the demise of Uniper and other companies in the sector.
The bailout launched by the government of Chancellor Social Democrat Olaf Scholz is similar to the Economic Stability Fund created during the coronavirus pandemic to prevent the financial collapse of major companies such as German airline Lufthansa. The airline subsequently received state aid worth 9,000 million euros to avoid bankruptcy. Berlin, which operated similarly with other consortia threatened by the pandemic, then took over part of the capital from Lufthansa. German media stress that after the so-called “Lex Lufthansa” of March 2020, the Bundestag will approve next Friday in its last regular session before the summer holidays what it already qualifies as “Lex Uniper”, which could be approved by the Council of Ministers this Tuesday and then by the federal parliament before the weekend. It is an article with “facilities for the implementation of stabilization measures” which would complement the law on energy guarantees. If it is not possible to continue it this week, the Bundestag should hold an extraordinary session during the holidays.
Uniper is currently in serious financial trouble. The largest German importer of Russian gas currently has to meet its needs through suppliers from other countries at much higher prices. The group is obliged to fulfill long-term supply contracts to municipal energy companies or large industrial consortia signed before the war in Ukraine and on much more favorable terms than the current ones. The energy consortium has to contribute double-digit millionaire amounts on a daily basis and liquidity is running out. A bankruptcy of Uniper or other major importers would set off a fatal chain reaction in the energy markets of Germany and Europe. Federal Secretary of Economy and Energy, the green-backed Robert Habeck, has likened that possibility to the collapse of US bank Lehman Brothers that sparked the 2008 global financial crisis. If Uniper stops supplying, all the companies that depend on it would immediately go bankrupt and supply of gas to industry and private households would eventually cease. Berlin is aware that it cannot allow this.
Habeck’s initiative means that all German energy consortia can fall under an umbrella of financial security from the German state. Interested companies should contact the Federal Ministry of Economy and Energy, which according to the bill is “the competent authority for negotiating stabilizing measures”. This means that the public Credit Society for Reconstruction is contributing the necessary capital, as already happened during the coronavirus pandemic. The rescue umbrella for German energy consortia will initially be in operation until the end of 2027, according to Habeck’s plans. The aim of the article is to cope with the acute crisis in the gas markets, although the competent German ministry believes that this measure will not be enough to cope with the continuous rise in natural gas prices and energy in general.
For this reason, the German government is also preparing a compensation mechanism that will share rising gas costs between industry and consumers. To this end, the continental organization Trading Hub Europe, the union of the large network companies, must make money available to gas wholesalers such as Uniper, so that they can remain on the international markets for raw materials at higher prices. This would be refinanced by higher network tariffs that all customers would have to pay to their gas companies. In effect, the measure would mean socializing the losses of Uniper and the other companies in the sector concerned. The principle of solidarity is necessary, as gas supply companies and their customers are affected in different ways by price increases in the markets. Those who so far buy in Norway or the Netherlands are in a better situation than those, such as Uniper, who mainly buy their gas in Russia.
Meanwhile, Chancellor Olaf Scholz has warned the citizens of this country that the current crisis will last a long time and that inflation will remain high for some time to come. “The current crisis will not be overcome in a few months,” Scholz said before kicking off an extraordinary meeting in his office this afternoon, dubbed “joint action,” with representatives of employers and unions, as well as economic and scientific experts, to study measures to combat inflation. The Russian war in Ukraine and supply chain disruptions caused by the coronavirus pandemic are responsible for the high level of insecurity. “We have to get used to the idea that this situation will not change in the foreseeable future,” said Scholz, who spoke of a “historic challenge” and insisted that Germany will be able to overcome this crisis “if we join hands and agree on common solutions. The Chancellor pointed out that the aim of the meeting is to look for instruments to somehow absorb the price increases in Germany. It will be a long process with several meetings whose results will not be are expected in the autumn, the chancellor explained. “The most important thing for me is the message: we are united,” Scholz said before meeting employers, unions and experts.
Source: La Verdad
I’m Wayne Wickman, a professional journalist and author for Today Times Live. My specialty is covering global news and current events, offering readers a unique perspective on the world’s most pressing issues. I’m passionate about storytelling and helping people stay informed on the goings-on of our planet.
