Germany pledges €67bn to bolster struggling energy companies

Germany has repurposed a Covid-19 bailout fund to support struggling energy companies amid concerns that soaring gas prices will trigger a wave of insolvencies across the European energy sector.

KfW, Germany’s state development bank, will be able to deploy €67bn in loan guarantees and liquidity assistance to energy firms, according to officials, drawing on funds that were originally earmarked for companies hit by the pandemic.

Governments across Europe are under pressure to support their domestic energy companies after Russia’s decision to suspend gas shipments via the Nord Stream 1 pipeline, which connects the country to Germany.

The move, which followed EU and US sanctions against Russia in the aftermath of its invasion of Ukraine, has pushed prices higher for buyers of the commodity.

Many European energy firms have appealed to their governments to help protect them from default or failure. Earlier this month, Switzerland’s largest renewable electricity producer Axpo and Finnish utility Fortum both secured big new state-backed credit lines.

Around the same time, Finland and Sweden unveiled €33bn in liquidity support to electricity producers to avert what the Finnish economy minister called “all the ingredients for the energy sector’s version of Lehman Brothers”.

The new German measure is not the first intervention by chancellor Olaf Scholz’s government to help gas importers forced to pay higher prices for the fuel because of Russia’s suspension of supplies through Nord Stream 1.

Uniper, the biggest casualty of the energy crunch so far, has been granted a government bailout now totalling €19bn. VNG, another big gas importer, asked the government for help to stay afloat last week.

Scholz’s government plans to use the “economic stabilisation fund” (WSF) that was set up in 2020 at the start of the Covid-19 pandemic to help companies pushed to the brink of insolvency by repeated lockdowns and other public health measures. It was the government’s mechanism for bailing out Lufthansa after the airline failed in 2020.

During the pandemic, the finance ministry granted the government the authority to borrow billions of euros for the WSF. This authorisation will now be transferred to the KfW to allow it to support the energy sector.

This “expands the [KfW’s] ability to provide stabilisation aid to energy suppliers”, officials said. “We’re talking about a minimally invasive measure which can be implemented quickly,” they added.

The KfW has emerged as one of the German government’s main instruments in helping energy companies survive the gas crisis. It is already providing them with the funds fill up gas storage facilities ahead of the winter heating season and to build import infrastructure for liquefied natural gas.

It has also provided credit lines for energy companies faced with rising collateral demands. Norwegian oil and gas group Equinor has estimated that European energy companies need at least €1.5tn to cover the extra collateral payments on their trades, known as margin calls.

Scholz’s government is set to approve the loan guarantee plan, which was first reported by the Handelsblatt newspaper, at a regular cabinet meeting on Wednesday.