European governments are working on emergency measures to shore up utilities, amid fears that companies will collapse under the weight of rising margin demands, exacerbating an energy crisis that has driven up prices and left the continent short of gas.
Recent days have seen a flurry of news - from Sweden to Switzerland to the UK - as companies and governments try to get the situation under control.
On Tuesday morning, Finnish facility Fortum Oyj secured 2.35 billion euros ($2.3 billion) of "transit financing" to ensure sufficient liquidity. Switzerland also gave Axpo a credit line of up to 4 billion francs ($4.1 billion), after the company, which produces and trades renewable energy, requested but has not yet used the credit line.
Alongside these measures came strong warnings as wild price movements increased the amount of collateral companies needed to maintain their hedges.
On Sunday, Finland warned of "a repeat of the Lehman Brothers collapse scenario in the energy industry", as companies face a sudden cash shortage. Finland and Sweden announced a $33 billion emergency liquidity facility to support facilities through loans and credit guarantees.
In the UK, Centrica Plc is in talks with banks about a possible extension of credit lines, Bloomberg reported, citing sources.
The aid effort is in response to a rapidly deteriorating situation, especially after Russia cut off gas supplies through the main Nord Stream pipeline. Energy providers and traders also faced huge margin calls last winter, when gas prices soared to then-record levels.
Now with those levels dwindling after months of price hikes, governments are beginning to heed industry warnings that policy support may be needed with prices expected to remain higher for longer.
"Companies have run out of liquidity due to margin calls and collateral requirements," said Christian Ruby, general secretary of the energy industry group Eurelectric. He stressed the need for governments to be ready to deal if things go wrong and support companies with direct credit, otherwise there is a risk of one of them falling, and a successive series of collapse.
In turn, the European Commission is also considering measures to help liquidity. It could include lines of credit from the European Central Bank, new products as marginal collateral, and the temporary suspension of derivatives markets.
"Now we must do everything in our power to secure our energy supply," Swiss Energy Minister Simonetta Sommaruga said on Tuesday.
Late last month, Fortum said its requirements for collateral rose by €1 billion to €5 billion in a week. Citigroup analysts said last week that rising energy and gas prices had forced utilities to offer more than 100 billion euros in additional guarantees to cover margin calls.
A common measure among lobbyists is to allow utility companies, but not financial participants in derivatives markets, to offer products other than cash as collateral against deals, such as bank guarantees or carbon credits. This would free up utilities budgets to use the capital for "other meaningful purposes," Euroelectric's Ruby said.
In terms of credit, Germany has provided by far the largest scheme in Europe to support companies affected by the repercussions of the war in Ukraine, allocating 7 billion euros in loans to companies facing liquidity problems in addition to an aid package of 100 billion euros. German energy giant Uniper SE last week sought an additional €4 billion after fully utilizing a €9 billion facility.
The Vienna Municipal Energy Facility has also received €2 billion from the Austrian government to cover open business centres.
The Source
- Agencies