Once again, Putin’s energy war against Europe has taken a formidable victim. This week, the continent was rocked by the forced bailout by the German state of energy company Uniper. That company, which with 11,500 people accounts for a turnover of 165 billion euros per year, supplies gas to almost half of all households and companies in Germany. The shutdown of the Russian gas tap this summer had put Uniper in such trouble that the German government said it had no choice but to intervene.

    Two months ago, the French state also had to carry out a far-reaching rescue operation. In July, Électricité de France (EDF) was nationalized after it had become so constrained by the Putin-induced price explosion in the energy markets that it could no longer stand on its own two feet. With 160,000 employees and a turnover of 85 billion euros, EDF is the second largest electricity company in Europe. Not only does it face sky-high costs from its aging nuclear power plants, but it is also required by the national regulator to sell power from those plants below market price to domestic competitors. In this way, excessive price increases for the citizen must be prevented.

    Like Berlin, Paris indicated that it could not afford for such an energy supplier that is indispensable to the system to collapse. Then there would be a chain reaction of other companies going out of business and households being left in the dark.

    Stuck

    Uniper and EDF then attract the most attention, in many more places in Europe governments now have to help energy companies. Some no longer receive Russian gas and, like Uniper, have to buy very expensive on the ‘day market’, while the customer is contractually entitled to low prices. Others are in trouble because the energy markets demand sharply rising financial guarantees from market parties, such as suppliers of valuable gas. Billions have been made available in Finland, Sweden and the Czech Republic to provide companies with relief. In the United Kingdom, a support package for citizens and businesses of 60 billion pounds (68 billion euros) was announced on Friday afternoon. Germany is narrowly ahead of Italy and France in spending to avert the energy crisis: 100.2 billion, which is equivalent to 2.2 percent of the economic size (gross national product).

    Uniper’s rescue seems the biggest bail out of being a troubled company since the 2008 banking crisis

    The boss of the European Investment Bank Werner Hoyer said he feared more nationalizations after the rescue of Uniper. “We will probably see this for a while”he noted gloomily. His organization is considered the most important investment bank of the EU and invests heavily in the energy transition. The German government would being about to nationalize some other energy companies. This would concern VNG and SEE (formerly Gazprom Germania), two major gas importers that are also struggling with the loss of Russian supplies.

    In a week in which various European governments, including the Dutch, decided on unprecedented aid packages for households and other companies, it leads to a wry conclusion: Putin’s physical war in Ukraine may continue to stall, but his economic war against Europe is just getting started. to cut in more. The Brussels think tank Bruegel figured this week that European countries have collectively committed some half a billion euros to protect their economies – just to help households and businesses, not including support for energy companies. “Clearly unsustainable from a government spending perspective,” the researchers conclude. It would also fuel divisions between European countries. Because some countries just don’t have as deep pockets as others, and that can feel unfair.

    Mainly risks in the wholesale trade

    And what about in the Netherlands? Major accidents have not happened here yet. A number of small energy companies have gone bankrupt. In most cases this already happened at the end of last year. There was no question of a Russian invasion at the time, but gas and oil were already becoming more expensive as a result of the high demand for energy. This was again the result of the end of the corona era.

    According to the sector organization Energie-Nederland, the risks for energy companies mainly lie in the wholesale market. “There, companies can be confronted with extremely high prices due to high prices and large price fluctuations margin callssays the organization. These ‘margin calls’ are financial guarantees – which grow with the value of a contract – that have to convince the counterparty of a contract that the other party has sufficient money.

    Large energy companies such as Vattenfall and Essent stated this summer that they were very concerned about the price increases that customers are encountering. Energy Netherlands expects the number of payment problems to decrease due to the price ceiling proposed by the government last week. “But introducing that price ceiling also poses risks for energy suppliers.” After all, it is still unclear how (quickly) the suppliers will be compensated, the organization states in a written response.

    New chapter

    In addition, there is no price cap for business users yet. Such a ceiling also makes little sense if a small company uses a relatively large amount of energy. “Then the risks of payment problems remain. It is not possible for energy suppliers to provide customization; they only see the consumption and not whether this constitutes the largest part of the operating costs”, according to Energie-Nederland, which emphasizes that it has no insight into the financial situation of its members.

    With ‘Uniper’, the European energy crisis seems to be starting a new chapter. Unlike EDF, which was already largely in the hands of the French state, the company was a financially healthy company until last year. It is now clear that it has become far too dependent on cheap Russian gas. As much as half of the gas Uniper supplied to its customers came from Gazprom. The company ran into problems because Russia gradually reduced the agreed supply since the beginning of this year, after which the company was forced to buy gas on the daily market at extremely high rates in order to still meet its obligations to customers. As a result, losses piled up by tens of millions a day.

    The amount that Berlin – normally averse to intervention in the free market – ultimately paid for the bailout shows just as much how exceptional the situation is: almost 30 billion euros the bailout has already cost the German treasury. This makes the rescue of Uniper the biggest bailout of an ailing company since the 2008 banking crisis.

    ‘Lehman scenario’

    Some are now very concerned that the crisis among the energy companies could cause other, severe shock waves. In Sweden, Finance Minister Mikael Damberg, after announcing early this month that the Swedish government was going to help energy companies for 23.4 billion euros, said that the problem is “limited to energy companies for now. But if we don’t intervene, there could be contagion in the financial markets. Ultimately, this could lead to a financial crisis.”

    Finland’s Economy Minister Mika Lintilä offered help for the Finnish energy sector on the same day and plainly warned of a ‘Lehman moment’. Lehman Brothers was the US bank that first encountered problems during the credit crisis in 2008, and which in its fall dragged many other financial institutions with it, resulting in a global economic and financial crisis.

    Bruegel researcher Georg Zachmann, who has been monitoring the European energy market for years, does not consider it an inconceivable scenario. “No one knows exactly what is to come. We can’t look in the books of energy companies. We do not know to what extent they are exposed to risks. There are billions of transactions every year between hundreds of major parties and some very large ones in the European energy sector. It seems unlikely that they are all perfectly covered.”

    If such a company gets into trouble, others can follow, he says. “Banks are closely linked with energy companies, through loans and because they often provide liquidity to energy companies that trade in the energy markets.” Dozens of lenders, including France’s BNP Paribas, Deutsche Bank and US Goldman Sachs, have collectively invested $1.8 billion in Uniper, financial news agency Bloomberg reported this week. “That’s how you go from a problem in the energy sector to a problem in the financial system,” says Zachmann. “We’re in a storm and we don’t know if the ship will hold.”

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