Germany's Scholz tackles energy fears as government bails out gas giant

German Chancellor Olaf Scholz gestures during an energy news conference in Berlin, on July 22, 2022. PHOTO: REUTERS

BERLIN (AFP) - Chancellor Olaf Scholz promised to shield Germans from surging energy costs on Friday (July 22) as the government agreed a rescue package for key gas company Uniper, which has been brought down by market turmoil from the war in Ukraine.

Interrupting his summer holidays to give a press conference in Berlin, Scholz reassured Germans they would "never walk alone" with the burden of spiralling gas and electricity costs.

The government is planning a housing benefit reform from next year as well as flat-rate payments to help consumers pay their bills, Scholz told reporters after the Uniper announcement.

"No one will be left alone with their challenges and problems," he said.

Russia's war in Ukraine has caused an energy earthquake in Europe and especially in Germany, which is heavily dependent upon Russian gas.

EU states have accused Russia of squeezing supplies in retaliation for Western sanctions over the war, with Germany accusing Moscow of using energy as a "weapon".

Russia on Thursday restored critical gas supplies to Europe through Germany via the Nord Stream pipeline after 10 days of maintenance, but at low volumes, and suspicions linger that the Kremlin may trigger an energy crisis on the continent this winter.

Rescue plan

German gas giant Uniper, threatened with bankruptcy as a result of the crisis, on Friday said it had agreed a rescue plan with the government.

The plan "comprises a capital increase of approximately €267 million (S$ million) for an issue price of 1.70 euros per share", which will lead to "a shareholding of the (state) in Uniper of approximately 30 per cent", Uniper said in a statement.

The group will benefit from a public loan of "up to €7.7 billion" in mandatory convertible bonds that will eventually become shares.

An increase is also planned in the credit line available to the firm via the public lender KfW from two to nine billion euros, Uniper said.

"Uniper is a company of vital importance for the economic development of our country and for the energy supply of our citizens," Scholz told reporters after the announcement.

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Gas company Uniper has been brought down by market turmoil from the war in Ukraine. PHOTO: AFP

Uniper also said the German government was planning to introduce a general mechanism for all gas importers to pass through the replacement costs for missing Russian gas to consumers as of Oct 1.

This measure, long requested by the energy giant, could cause consumer gas bills to explode.

Legal action

Scholz said this could mean that a family of four would have to pay €200 to €300 more per year.

The government wants to ensure that the impact of this is "spread over all of our shoulders", he said.

Moves by Moscow to curtail supplies to Germany since mid-June have forced Uniper to turn to the more expensive spot market for gas to supply its customers, leaving the energy group saddled with the extra cost.

A worker checks a unit at Uniper's Bierwang gas storage facility near the Bavarian town of Kraiburg am Inn, Germany. PHOTO: REUTERS

One of the biggest importers of Russian gas, Uniper is a key part of Germany's energy infrastructure and its biggest gas storage operator.

While the German government has mandated stores to be filled ahead of the winter, the short supply has also forced Uniper to withdraw gas from its own booked storage capacities.

The group made a request for a bailout from the German government on July 8.

After that, the group pursued negotiations with the German government and Uniper's Finnish parent company Fortum.

In a call with reporters on Friday, Uniper chief executive officer Klaus-Dieter Maubach said the company was set to lose around six billion euros by the end of September as a result of the crisis.

Uniper is considering taking legal action against Russia's state-owned energy giant Gazprom, which has blamed cuts in gas deliveries to Europe on "force majeure", Maubach said.

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