Germany plans to rescue Uniper Energy Consortium's financial position

Uniper, Germany's largest natural gas supplier, is under threat of insolvency as a result of Russia's invasion of Ukraine. The federal government is currently preparing to rescue Uniper. German media reported this Monday that the Berlin executive was preparing the legal foundation to intervene in support of the Dusseldorf-based company, as well as other German energy companies in distress, and ensure their solvency through credit or guarantees. The case also included direct participation by purchasing a portion of Uniper's shares. This is necessary in light of the imminent threat to Germany of total gas cutoffs from Russia. A routine maintenance operation will take place on Nord Stream 1's gas pipeline. This pipeline carries the majority of Russia's gas through the Baltic. Berlin is concerned that Moscow may use this review to cut off gas supplies to Germany. This could lead to the destruction of Uniper and other companies within the sector.

The federal chancellor's rescue operation, which was designed by Social Democrat Olaf Scholz is very similar to the Economic Stability Fund that was created during the coronavirus pandemic in order to prevent large companies like Lufthansa from going bankrupt. To avoid bankruptcy, the state provided assistance in the amount of 9,000 million euros. Berlin, which was operating in the same manner as other pandemic-threatening consortiums, took over part of Lufthansa's capital. German media highlights that the Bundestag will vote this Friday, March 2020, to approve what it calls Lex Lufthansa>>. This is in addition to the Lex Uniper>> which it has already qualified as. It could then be approved by the council of ministers, and then the federal parliament, before the weekend. This article would add to the Energy Guarantees Law by containing "facilities to the execution of stabilization actions". The Bundestag will have to call an extraordinary session during the holidays if it is impossible to move it forward this week.

Uniper is in serious financial trouble right now. The German largest importer of Russian gas must cover its current needs by purchasing supplies from other countries at much lower prices. The group must comply with long-term supply agreements to municipal energy companies and large industrial consortiums that were signed prior to the conflict in Ukraine. These contracts are subject to much higher prices than current ones. The energy consortium must contribute daily amounts of two-digit millionaire dollars and its liquidity is running dry. A failure of Uniper or any other major importers could cause a catastrophic chain reaction on the European and German energy markets. Robert Habeck, the federal minister of economy and energy, has made a comparison between this possibility and the 2008 global financial crisis that was triggered by the bankruptcy of Lehman Brothers, a US bank. All the companies that depend on Uniper would fail if it stopped supplying gas and supply to private households and industry would be suspended. Berlin knows this is not possible.

Habeck's initiative envisages that all German energy consortia can be covered by a financial security umbrella. According to the bill, interested companies need to apply to the Federal Ministry of Economy and Energy. This "is the competent authority to negotiate stabilizing measures." The public Credit Society for Reconstruction will contribute the capital required, just as it did during the coronavirus epidemic. According to Habeck's plans, the rescue umbrella for German energy consortiums will be operational in the beginning and continue until 2027. Although the article's purpose is to address the crisis in gas markets, the German competent ministry believes that it will not be sufficient to deal the continuing rise in energy prices and natural gas prices in general.

The German executive has also prepared a compensatory mechanism to share the increasing gas prices between the industry and the consumers. The European Union Trading Hub Europe must make funds available for gas wholesalers like Uniper to continue purchasing raw material at higher prices in international markets. These funds would be repaid by higher network fees, which all customers would have pay to their gas companies. The measure would socialize the losses of Uniper as well as other affected companies. Since price rises on the markets can affect both gas supply companies as well as their customers in different ways, the principle of solidarity is essential. People who have bought gas so far in Norway and the Netherlands are better off than those who purchase their gas primarily in Russia.

Federal Chancellor Olaf Scholz warned citizens that the current crisis would last for a long time and that inflation will remain high for some time. Scholz stated that the current crisis would not be over by the end of the month. He then opened this afternoon's extraordinary meeting in his office, which he called "concerted action". It included representatives from employers, unions, and economic and scientific experts to discuss ways to combat inflation. The high level of insecurity is due to Russia's war in Ukraine, as well as disruptions in supply chain due to the coronavirus epidemic. Scholz said that the situation will not change soon and that it was a historic challenge. He also stressed that Germany can overcome this crisis if they work together and find common solutions. The Federal Chancellor stressed that the goal of the meeting was to find instruments to deal with the rising prices in Germany. The Federal Chancellor explained that it will take a long time and there will be many meetings, whose results cannot be expected before the fall. Before beginning talks with unions, employers, and experts, Scholz stated that "the important thing for me" was the message: "We are united."