Cabinet makes a loan of €25 billion available to state participation TenneT | News item

News item | 12-01-2024 | 5:35 PM

Clarity about financing

TenneT must attract approximately €13 billion in new financing in 2024 for the planned investments in both the Netherlands and Germany. In addition, in order to maintain its creditworthiness, the company must be able to prove in 2024 that it can also meet its financing needs in 2025. This will amount to approximately €12 billion in 2025. The government therefore intends to offer TenneT a loan for the entire financing requirement for 2024 and 2025, totaling €25 billion. As a result, the company will not have to borrow on the regular bond market in the coming year and can demonstrate that it can also meet its entire financing requirement in 2025. The government has submitted its intention to offer the loan to Parliament for approval.

Temporary

Providing a loan is not a long-term solution, but offers a bridge until TenneT Germany is sold to the German state or another structural solution for financing TenneT is found. Intensive negotiations have been taking place for some time about the sale of TenneT Germany to the German state. No agreement has been reached at this time. If a provisional agreement on the sale of TenneT Germany is reached in the short term, it will still take several months before the transaction is actually completed. Until then, TenneT has the option to make use of this loan.

Conditions

The Dutch government has made agreements with TenneT about the loan. For example, TenneT pays a competitive interest rate, which has been tested for market conformity by an independent advisor. TenneT will repay the full loan amount in the period 2030-2040. If the sale of TenneT Germany takes place, the state has made agreements with TenneT under which the loan will be repaid in full or a substantial part at the same time and the remainder in the period 2030-2040. Parliament must agree to making the loan available.

Security of supply, reliability and affordability

TenneT is a so-called state participation because of the public interest. The Netherlands believes it is important that Dutch public interests such as security of supply, reliability and affordability of electricity are safeguarded in the energy transition. One of the main reasons for the government to realize a complete sale of TenneT Germany to the German state is a structural solution for TenneT Germany’s capital needs. For this reason, the government continues to focus on the sale of TenneT Germany. The Dutch state is then no longer exposed to the risks of German activities.

The House of Representatives and Senate are requested to approve the loan before March 1, 2024. More information is available in the letter and assessment framework that was sent to the House of Representatives.

Q&A TenneT’s proposed sale of the German part

Q: Why a loan (and not a deposit of equity)?
This loan provides Tennet with a bridge and security for the financing of planned investments in the power network. Intensive negotiations have been taking place for several months about the sale of TenneT Germany to the German state. It is currently impossible to say with certainty that an agreement will be reached. In the meantime, TenneT must continue to invest heavily in expanding and strengthening the electricity grid. This is important to meet the growing demand for space on the electricity grid and to be able to connect all households and companies that want a new or heavier connection. This is essential for the energy transition and for the business climate. TenneT must be able to attract financing for this. TenneT can do this independently if the Dutch state meets part of this financing need by investing several billions in equity. This contribution of equity is almost entirely caused by TenneT’s German activities and should be included in the national budget. Given the state of the negotiations and the previously formulated principle that the Dutch state in principle does not pay for German activities, the government prefers not to pay any capital in this situation.

The alternative to meet this financing need is a loan from the state. As a result, under the current uncertain circumstances, it is not necessary for the company to go to the regular bond market for its financing needs for 2024 in the coming year and TenneT can already demonstrate that it can also meet its entire financing needs in 2025.

Q: What conditions apply to this loan (interest, repayment)?
TenneT repays the borrowed amount in full. The state receives a market-based interest rate for providing the loan to TenneT. This interest rate includes a usual credit surcharge for the credit risk. TenneT not only pays compensation for the amounts that it will actually borrow from the state, but also compensation for making available the option to borrow a total of € 25 billion.

Q: How is this loan processed in the budget (consequences for national debt)?
The loan is designed in accordance with market conditions, which means that the preliminary opinion is that the loan qualifies as a financial transaction. This means that the entire loan is not relevant for the Economic and Monetary Union balance (EMU balance). The EMU balance is the difference between government income and expenditure. Market conformity has been tested by an independent advisor. The final final assessment lies with Statistics Netherlands and Eurostat. They assess afterwards based on the regulations of the ESA2010 whether there is a real loan and/or financial transaction. When TenneT uses the loan, the government debt increases. This decreases again when TenneT repays the loan.

Q: Where does the money come from?
The money comes from the state and is also repaid to the state by TenneT, including market-based interest.

Q: How do we know the money is being used for the grid and not for other purposes?
This loan is necessary so that TenneT can continue to invest in the Dutch and German grid. TenneT is legally obliged to make these investments. All investments above a certain amount must be approved by the state as a shareholder.

Q: A state agent came to KLM to monitor the agreements, is that the intention again? If not, why not?
This loan is not comparable to the situation at KLM. KLM found itself in a very deteriorated financial situation due to the COVID-19 pandemic. This does not apply to TenneT. TenneT is a profitable company. The state is providing this loan because negotiations on the sale of TenneT Germany are still ongoing and the state wants to provide TenneT with certainty that TenneT is able to attract sufficient financing until there is a structural solution for TenneT Germany. That is why this loan is issued at market rates.

Q: Can the government do this in outgoing status?
As a shareholder, the Minister of Finance is responsible for the continuity of TenneT. The minister has previously informed the House that he wants to bridge TenneT’s capital needs if the possible sale of TenneT Germany is delayed. Making the loan available requires parliamentary approval. The House of Representatives and Senate are requested to approve the temporary loan before March 1, 2024.

Q: What does the current situation in Germany mean for the transaction?
As is known, the government is investigating whether a complete sale of TenneT Germany to the German state is possible under acceptable conditions. The government previously formulated the following conditions: (1) the continuity of the Dutch operation must be guaranteed, (2) the most important synergy benefits must be retained as much as possible and (3) a convincing and market-based price must be paid. Discussions with the German state are still ongoing. That is why we cannot make any statements about this. It is currently impossible to say with certainty that an agreement will be reached. The basic principle remains that no final decision will be taken before views have been exchanged with the House on the outcome of the negotiations.