Sweden, Finland step in to avert Lehman-like situation for power companies

By Supantha Mukherjee and Essi Lehto

STOCKHOLM/HELSINKI (Reuters) -Finland and Sweden on Sunday introduced plans to supply billions of {dollars} in liquidity ensures to energy firms of their international locations after Russia’s Gazprom shut the Nord Stream 1 fuel pipeline, deepening Europe’s vitality disaster.

Finland is aiming to supply 10 billion euros ($9.95 billion) and Sweden plans to supply 250 billion Swedish crowns ($23.2 billion) in liquidity ensures.

“This has had the substances for a type of a Lehman Brothers of vitality business,” Finnish Financial Affairs Minister Mika Lintila stated on Sunday.

When Lehman Brothers, the fourth-largest U.S. funding financial institution on the time, filed for chapter in September 2008 with greater than $600 billion in debt, it triggered the worst components of the U.S. monetary disaster.

“The federal government’s programme is a last-resort financing possibility for firms that will in any other case be threatened with insolvency,” Finland’s Prime Minister Sanna Marin instructed a information convention.

State-controlled Finnish energy firm Fortum, which final week had urged Nordic regulators to take speedy motion to avert defaults even amongst smaller gamers, praised the proposals made by Helsinki and Stockholm.

“We respect Finnish and Swedish governments taking swift motion to stabilise the Nordic derivatives market and help Nordic vitality firms in time of disaster,” the corporate tweeted.

“It is essential to maintain firms operational. Our discussions with the Finnish authorities are ongoing,” it stated.

The ensures goal to stop ballooning collateral necessities from toppling vitality firms that commerce electrical energy on the Nasdaq Commodities change, an occasion that would in flip unfold to the monetary business, the governments stated.

Decrease fuel flows from Russia each earlier than and after its February invasion of Ukraine have pushed up European costs and pushed up electrical energy prices.

The speedy rise in electrical energy costs has resulted in paper losses on electrical energy futures contracts of energy firms, forcing them to search out funds to submit further collateral with the exchanges.

The collateral requirement on Nasdaq clearing lately hit 180 billion Swedish crowns, up from round 25 billion in regular occasions because of the surge in energy costs, which have risen some 1,100%, Sweden’s debt workplace stated on Saturday.

The federal government feared that the Nord Stream 1 shutdown would result in an additional surge.

Finland’s Marin stated there wanted to be measures on the European Union stage to stabilize the functioning of each the derivatives market and the vitality market as an entire.

Nasdaq clearing is a Swedish firm supervised by Swedish authorities, which is the principle motive Sweden was the primary nation to step in to sort out the potential disaster.

Swedish Finance Minister Mikael Damberg stated on Sunday that the ensures would final till March subsequent yr in Sweden and would additionally cowl all Nordic and Baltic nations for the subsequent two weeks solely.

With out authorities ensures, electrical energy producers might have ended up in “technical chapter” on Monday, Damberg stated.

($1 = 10.7633 Swedish crowns)

($1 = 1.0049 euros)

(Reporting by Supantha Mukherjee in Stockholm and Essi Lehto in HelsinkiEditing by Terje Solsvik, Hugh Lawson and Frances Kerry)