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 PJSC shut the Nord Stream 1 gas pipeline, deepening Europe’s energy crisis.
Finland is aiming to offer 10 billion euros (US$9.93 billion) and Sweden plans to offer 250 billion kronor (US$23.1 billion) in liquidity guarantees.
“This has had the ingredients for a kind of a Lehman Brothers of energy industry,” Finnish Minister of Economic Affairs Mika Lintila said on Sunday.
When Lehman Brothers Holdings Inc, the fourth-largest US investment bank at the time, filed for bankruptcy in September 2008 with more than US$600 billion in debt, it triggered the worst parts of the US financial crisis.
“The government’s program is a last-resort financing option for companies that would otherwise be threatened with insolvency,” Finnish 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 stabilize the Nordic derivatives market and support Nordic energy companies in time of crisis,” the company wrote on Twitter.
“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.
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 reached 180 billion kronor, up from around 25 billion kronor in normal times due to the surge in power prices, which have risen some 1,100 percent, Sweden’s debt office said on Saturday.
The government feared that the Nord Stream 1 shutdown would lead to a further surge.
Marin said there needed to be measures at the EU 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 Minister for Finance Mikael Damberg on Sunday said 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” yesterday, Damberg said.
The US dollar on Friday rose against the euro, but pared gains late in a session that was muddied by quarter-end trading, while riskier commodity-led currencies fell sharply after European inflation hit a record high and US consumer spending increased faster than expected. Although the dollar index was showing its biggest quarterly gain since the first quarter 2015, but was registered its first weekly decline in three weeks. Sterling rose against the dollar after falling earlier in the day. The pound last showed four straight sessions of gains followed by wild declines on concerns about Britain’s plan to slash taxes and pay
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