Finland state

Sweden and Finland step in to avoid a Lehman-like situation for power companies

Swedish Finance Minister Mikael Damberg attends a news conference to offer help for households affected by high electricity prices, in Rosenbad, Stockholm, Sweden, January 12, 2022. Johan Jeppsson /TT News Agency/ via REUTERS/File Photo

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  • Sweden and Finland offer $33 billion in credit guarantees
  • Soaring electricity prices have led to soaring collateral needs
  • Power companies risk ‘technical bankruptcy’, Sweden says
  • Fortum welcomes proposal, says talks underway

STOCKHOLM/HELSINKI, Sept 4 (Reuters) – 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 closed the Nord Stream 1 gas pipeline, deepening Europe’s energy crisis.

Finland aims to offer 10 billion euros ($9.95 billion) and Sweden plans to offer 250 billion Swedish kronor ($23.2 billion) in liquidity guarantees.

“It had the ingredients for a sort of Lehman Brothers of the energy industry,” Finnish Economic Affairs Minister Mika Lintila said on Sunday.

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When Lehman Brothers, the fourth largest US investment bank at the time, filed for bankruptcy in September 2008 with over $600 billion in debt, it triggered the worst moments of the US financial crisis.

“The government program is a last resort financing option for companies that would otherwise be at risk of insolvency,” Finnish Prime Minister Sanna Marin told a news conference.

Finnish state-controlled power company Fortum (FORTUM.HE), which last week urged Nordic regulators to take immediate action to avoid failures even among smaller players, welcomed the proposals made by Helsinki and Stockholm.

“We appreciate the Finnish and Swedish governments for taking swift action to stabilize the Nordic derivatives market and support Nordic energy companies in times of crisis,” the company tweeted.

“Keeping businesses operational is crucial. Our discussions with the Finnish government are ongoing,” he said.

The safeguards are intended to prevent soaring collateral requirements from knocking down energy companies trading power on the Nasdaq Commodities exchange, an event that could in turn spill over to the financial sector, the governments said.

Falling gas flows from Russia before and after its invasion of Ukraine in February drove up European prices and pushed up electricity costs.

Rapidly rising electricity prices have led to paper losses on power companies’ power futures contracts, forcing them to find funds to post additional collateral with exchanges.

The collateral requirement on Nasdaq clearing recently reached 180 billion Swedish kronor, compared to around 25 billion in normal times due to soaring electricity prices, which increased by around 1,100%, announced the Swedish debt office on Saturday.

The government feared the shutdown of Nord Stream 1 would lead to a further surge.

Finland’s Marin said action was needed at EU level to stabilize the functioning of the derivatives market and the energy market as a whole.

Nasdaq clearing is a Swedish company supervised by the Swedish authorities, which is the main reason why Sweden was the first country to step in to deal with the potential crisis.

Swedish Finance Minister Mikael Damberg said on Sunday the guarantees would last until March next year in Sweden and also cover all Nordic and Baltic countries for the next two weeks only.

Without government guarantees, power producers could have ended up in “technical bankruptcy” on Monday, Damberg said.

($1 = 10.7633 Swedish crowns)

($1 = 1.0049 euros)

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Reporting by Supantha Mukherjee in Stockholm and Essi Lehto in Helsinki Editing by Terje Solsvik, Hugh Lawson and Frances Kerry

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