Uniper has submitted an application to the German government for stabilization measures

Source: Energy & Management Powernews, July 11, 2022

Uniper has submitted an application to the federal government for stabilization measures. Already next week, the utility may have to resort to gas for the winter.

Winter mode in July: "Probably very soon, possibly starting next week," Uniper will have to take natural gas from its storage facilities, said the energy company's CEO, Klaus-Dieter Maubach, at a press conference scheduled at short notice. And he spoke of an "emergency measure, in which it concerns exclusively the fulfillment of the gas contracts with our customers as well as around the safety device of our liquidity."

Customers would be informed promptly about the current situation and about the fact "that clear price increases are to be expected". There could also be cuts at municipal utilities and industrial companies. "Specifically, we will not be able to rule out supply cuts under existing contracts," Maubach said at the July 8 event, stressing, "The situation leaves us no other choice." The group's gas storage facilities are reportedly full to a total of 54%, and Uniper itself currently has 40% of its booked capacities filled.

The Düsseldorf-based company apparently also needs financial help quickly. No sooner had the relevant mechanisms for this been enshrined in the Energy Security Act by the German parliament on July 8 than Uniper submitted an application to the German government for stabilization measures.

According to the company's ad hoc announcement, the proposal submitted with the application is based first of all on a so-called fair cost allocation in accordance with section 24 and/or section 26 of the Energy Security Act (EnSiG). Furthermore, the proposal envisages additional debt funds through an increase of the - not yet drawn - KfW credit line.

Uniper hopes for "relevant participation" of the federal government

And finally, the company hopes for a "relevant participation" of the federal government in Uniper SE. In parallel, the Finnish parent company Fortum has proposed in Berlin to restructure Uniper. Goal: Establishment of a supply security company owned by the state.

The federal government had created the prerequisite to directly participate in companies with Paragraph 29 EnSiG. The application of the paragraph has priority over the mechanisms that allow companies to pass on increased procurement costs to customers, Maubach said.

Background: paragraph 24 EnSiG allows a price adjustment clause in customer contracts, paragraph 26 aims at a general allocation of costs. Both paragraphs come only alternatively into consideration, the decision over it lies with the Federal Government. For paragraph 26, a regulation is still needed for application.

Uniper, Maubach said, has found itself in a particularly precarious situation as a result of the supply cuts. Under the current conditions, he said, the company is seeing "daily cash outflows in the mid-double-digit millions, a situation that is not sustainable for us for long." In just three weeks, Uniper was missing gas volumes equivalent to one percent of total German gas consumption. "That's enough to last 660,000 households a whole year."

Management has no plans for further loans. The rating agency S&P recently downgraded Uniper, the utility ranks just above "non-investment grade." According to Maubach, the company must "do everything in its power to prevent a further downgrade. Loans alone would no longer be of any use in this situation; other key figures would be decisive, and in this respect there would be no way around a relevant equity investment

Losses of ten billion euros possible

The Chairman of the Board of Management did not want to comment on the amount of the targeted investment. Extreme scenario: with a gas price of 200 euros per MWh and the volumes Uniper is missing, losses could pile up to 10 billion euros by the end of the year.

Maubach describes the new hedging mechanisms in the law as "communicating tubes." "The less we pass on to customers - because Section 26 or 24 are not activated - the more funds we need to avoid getting into a financial mess."

He was positive about Fortum's commitment: "Our majority shareholder has already gone above and beyond in our company." Fortum spent about 7.5 billion euros for the 80 percent share package, he said. "In addition, we have 4 billion cash credit line from Fortum plus 4 billion guarantees."

Meanwhile, the German government has already signaled support for the struggling utility. "We have definitely decided politically that we will help Uniper," Chancellor Olaf Scholz (SPD) said after a meeting with business associations in Munich.

Author: Manfred Fischer