Germany nationalises Uniper to avert energy sector collapse

Energy

3 min.

21.09.2022

Government determined to ensure the survival of country’s largest gas importer, which has already received bailouts and rescue loans

Germany will nationalise Uniper in a historic move to rescue the country’s largest gas importer and avert a collapse of the energy sector in Europe’s biggest economy.

Chancellor Olaf Scholz’s administration will control about 99% of the Dusseldorf-based utility after injecting €8 billion into the company and buying the majority stake held by Finnish utility Fortum Oyj. The deal is expected to be completed by the end of the year.

Uniper is the epicentre of the energy crisis in Germany. Its massive gas contracts with Russia exposed the company to the Kremlin’s moves to slash supplies in retaliation for sanctions stemming from its invasion of Ukraine. The utility has accumulated €8.5 billion in gas-related losses after prices for alternative sources soared.

“Today’s agreement provides clarity on the ownership structure, allows us to continue our business and to fulfill our role as a system-critical energy supplier,” Chief Executive Officer Klaus-Dieter Maubach said on Wednesday. “This secures the energy supply for companies, municipal utilities, and consumers.”

Uniper shares tumbled as much as 23%, while Fortum shares surged as much as 20%.

Scholz’s government is determined to ensure Uniper’s survival in coming months, when the energy crunch could worsen as temperatures fall heading into winter. Uniper has already been given a series of bailouts and rescue loans but those were quickly overtaken by the scale of the crisis and more robust state support is required.

The risk of shortages has rippled across Europe. Public spending to limit the crisis has swollen to half a trillion euros across the European Union, the UK and Norway, according to think tank Bruegel.

The nationalisation of Uniper is just one part of a broader swoop by Germany, which is reversing decades of energy policy that built up a reliance on Russia. The government is also in advanced talks to take control of two other major gas suppliers.

The government’s exposure to Uniper includes an existing €13 billion credit line from KfW. The state-owned lender will continue to provide financing until the deal is completed. The total rescue package will cost the government around €30 billion, according to reports in German media.

Uniper’s losses from finding alternative suppliers to Russia will likely surpass €18 billion this year, according to Bloomberg Intelligence. The company already reported a loss of more than €12 billion for the first half, ranking among the biggest in German corporate history.

German Economy Minister Robert Habeck after a press conference on Wednesday announcing the nationalisation of Uniper

Kay Nietfeld/dpa

The company’s problems are tied to its creation in 2016. With Germany setting the wheels in motion to gradually shift to wind and solar energy, hulking power plants that burn coal and gas were no longer in vogue. To focus on operating renewable capacity, EON pooled these assets into Uniper and spun it off.

Talks over Uniper were complicated by the involvement of the Finnish government, which has come under pressure over its handling of the rescue from opposition parties.

“Fortum’s board has today made an unavoidable decision amid exceptional uncertainty,” said Finland’s Europe Minister Tytti Tuppurainen, who oversees government-owned companies. “Fortum must protect its financing position in a way that safeguards its ability to manage its core business.”

Finland’s strategic interest in Fortum is ensuring adequate power generation in the country under all circumstances, the government said.

By putting billions of euros of German public money on the line, the move risks stoking tensions in Scholz’s ruling coalition. The effort is being overseen by Economy Minister Robert Habeck, a member of the Green party, which could put him at odds with Finance Minister Christian Lindner, a fiscal hawk who heads the business-friendly Free Democrats. 

The Uniper rescue also raises questions about the implementation of the government’s planned gas levy. The temporary measure, to take effect from Oct. 1, is designed to allow suppliers to share the burden of high prices with consumers but has prompted a public backlash.

Around a dozen companies have applied for compensation totaling about €34 billion, according to Trading Hub Europe, which is overseeing the levy, with Uniper guzzling most of the aid.

Habeck has said he plans to revise the controversial levy to shut out company’s that aren’t affected by surging prices. On Wednesday, he said the plan is being revised, but said questions whether a levy can benefit a state company is being “intensively discussed.”

Behind closed doors, he’s acknowledged that the measure will likely be abandoned.

©2022 Bloomberg L.P.

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