Germany to overhaul law to bail out energy firms stricken by Russia woes - draft

Summary

• Government could present proposals to parliament this week
• Government may acquire stake in Uniper: sources
• Possible Uniper bailout could follow Lufthansa rescue model
• Germany fears 'Lehman moment' for energy firms
• Uniper shares down 24%

The German government will be able to buy stakes in energy companies buckling under the cost of soaring gas import prices, according to draft legislation seen by Reuters, as Berlin bolsters its defences in a deepening economic war with Moscow.

The amended law, which may come before parliament this week, could also allow the government to impose emergency levies on consumers, three sources told Reuters, though it was not clear how quickly it might exercise that right.

Chancellor Olaf Scholz's government is scrambling to deal with the impact of soaring energy prices after Russia's invasion of Ukraine, warning that utilities could face a "Lehman"-style collapse if they cannot pass costs on to consumers.

"We must brace ourselves for the fact this situation will not change in the foreseeable future, in other words - we stand before a historic challenge," Scholz told reporters after meeting with trade union and employers association leaders to discuss the cost of living crisis.

Under the new energy proposals, the government would be able to take voting or non-voting stakes in companies related to critical infrastructure via the same mechanisms used to bail out companies during the coronavirus pandemic.

The amendments are currently being discussed among government ministries and could be presented to parliament on Friday.

Officials have been talking to Uniper (UN01.DE), the largest buyer of Russian gas in Germany, about a possible bailout. News of the proposed legislative changes drove shares down 24% on Monday, with traders citing nationalisation risks.

Uniper said last week it was discussing possible guarantees, raising credit facilities or even the state taking an equity stake. The sources told Reuters the government might take a stake in Uniper as a last resort. Uniper declined immediate comment.

A possible bailout for Uniper could be modelled on pandemic relief for airline Lufthansa (LHAG.DE), which was saved from bankruptcy during the coronavirus pandemic with a 9 billion euro ($9.4 billion) aid package, one government source said.

"The federal government should be given options along the lines of the Lufthansa aid," the source said.

Lufthansa's bailout saw the state taking a 20% stake in the airline through an Economic Stabilization Fund, but without being able to exercise shareholder voting rights.

The airline was not allowed to take over other companies until 75% of the state aid had been repaid, and its shareholders and managers could not benefit from taxpayers' money, meaning dividends and bonus payments were put on hold.

SKY-HIGH PRICES
Decades after de-regulating their energy markets, governments across Europe are intervening to prop up utility companies struggling with sky-high prices, while also protecting consumers from soaring costs.

Several European energy suppliers have gone bust over the past year, where they have had long-term contracts with customers and have been unable to pass on the swift spike in prices.

Russia is Germany's top supplier of gas, making it more exposed than other European states to an economic war with Moscow.

A worsening gas crisis has prompted recession warnings in Europe's largest economy. Top bankers at a conference in Frankfurt echoed such concerns, with Commerzbank  saying the risks were comparable to the European debt crisis a decade ago.

Germany has accused Russia of strangling the flow of energy to Europe through spurious pretexts in revenge for sanctions over the Ukraine war, and is closely watching whether flows will resume after scheduled maintenance 11-21 July .

Russia has denied doing so, and said it was a reliable energy supplier that honours its contracts. Uniper said it was receiving around 40% of the normal amount of gas from Russia at the moment.

The benchmark Dutch front month gas contract rose 13.6% to 167 euros per megawatt hour (MWh) on Monday, its highest level since March 8. The price remains below a record but is still 500% higher than this time last year.

Germany's government has warned of possible energy shortages and rationing in the winter months if it cannot fill its gas storage quickly enough.

"The hope of filling the gas storage facilities to some extent by winter could be torpedoed by Russia at any time. Then there are hardly any compensatory possibilities left," said a note from Sentix that tracks investor morale in the euro zone.

"In Germany, some ideological boundaries have to be crossed to prevent a "Lehman moment" in the energy sector," it said, referencing the U.S. bank whose demise help triggered the 2008 financial crisis.

($1 = 0.9573 euros)