Germany in bailout talks with Uniper amid gas crisis

© Reuters. FILE PHOTO: Uniper logo is seen in this illustration taken, May 1, 2022. REUTERS/Dado Ruvic/Illustration

By Tom Käckenhoff and Vera Eckert

FRANKFURT/DUESSELDORF/BERLIN (Reuters) -Germany’s Uniper is in talks about a possible government bailout as the financial fallout from dwindling supplies of Russian gas reverberates across Europe, sending shares in the energy company sliding.

The falling supply of gas has forced utilities across the continent into expensive purchases in spot markets while governments, worried about rising inflation, have capped prices that can be charged to consumers, resulting in many energy companies going bust.

A Berlin Economy Ministry spokesperson said it was in talks with Uniper, which is among Russian Gazprom (MCX:GAZP)'s biggest European customers, about stabilisation measures.

Uniper Chief Executive Klaus-Dieter Maubach said the talks entailed possible guarantees, raising credit facilities or even the state taking a share of Uniper's equity.

At 1142 GMT, Uniper shares in the midcaps index stood 15.5% lower. They are down 68% since the beginning of the year and at their lowest since March 6, 2017. Finland's Fortum which has a 78% stake in Uniper fell 5.4%.

Uniper, forced to ditch its financial forecasts and issue a profit warning, has raised the pressure on the German government to allow utilities to pass on soaring energy costs, a step it stopped short of triggering when it moved to the "alarm" stage of its emergency gas plan earlier this month.

The Russian invasion of Ukraine has exposed the EU's and particularly Germany's dependence on Russian gas supplies, sparking a frantic search for alternative energy sources, such as seaborne gas on liquefied natural gas (LNG) tankers.

Berlin fears public protests if gas price hikes hit consumers in their millions directly. It is currently racing to fill storage ahead of winter and has reached 61% with a target of 80% by October.

Governments across Europe are taking action to prop up strategic companies. In Spain, the government has approved a bailout package and in the Czech Republic, the government has been in talks with utilities about offering aid while new rules in Hungary allow the government to supervise energy firms. In Britain, dozens of energy companies caught between rising costs and the UK's energy price cap, were allowed to fold in the past 12 months.

UNIPER ALREADY UNDER STRAIN

Uniper's case is the first in Germany where the alarm bells have been raised for the state to help.

Uniper said it had received only 40% of the contractually agreed gas volumes from Gazprom since June 16.

Already before the Ukraine war it had asked for a 2 billion euros credit line from state-owned KfW bank to prepare for margin calls. This has not yet been drawn, said Maubach.

Ahead of its first-half earnings due on Aug. 2, Uniper withdrew its 2022 guidance for adjusted earnings before interest and taxes (EBIT) and adjusted net income.

A statement from Fortum said the company was supporting Uniper with credit lines and guarantees, but the nature of the critical situation required "national and sector-wide efforts."

Uniper encompasses the activities of former gas champion Ruhrgas and serves customers across Europe.

The head of Uniper's works council said the state should step in, possibly taking a majority.

Global gas prices have been spiralling upwards since last year due to a stronger than expected post-COVID economic recovery while Russian exports had been quietly falling and inventories had been run down.

The benchmark Dutch front month price of gas has gone up 60% this year.

Europe is anxiously awaiting scheduled maintenance during July 11-21 on the Nord Stream 1 pipeline, which brings gas to Germany from Russia, hoping Russia reopens the pipeline as planned.

Gazprom's share price was off 26% on Thursday.