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Sweden, Finland step in to avert Lehman-like situation for power companies

·3-min read
FILE PHOTO: Swedish Finance Minister Mikael Damberg attends a press conference to propose relief for households affected by high electricity prices, in Rosenbad

By Supantha Mukherjee and Essi Lehto

STOCKHOLM/HELSINKI (Reuters) -Finland and Sweden on Sunday announced plans to offer billions of dollars in liquidity guarantees to power companies in their countries after Russia's Gazprom shut the Nord Stream 1 gas pipeline, deepening Europe's energy crisis.

Finland is aiming to offer 10 billion euros ($9.95 billion) and Sweden plans to offer 250 billion Swedish crowns ($23.2 billion) in liquidity guarantees.

"This has had the ingredients for a kind of a Lehman Brothers of energy industry," Finnish Economic Affairs Minister Mika Lintila said on Sunday.

When Lehman Brothers, the fourth-largest U.S. investment bank at the time, filed for bankruptcy in September 2008 with more than $600 billion in debt, it triggered the worst parts of the U.S. financial crisis.

"The government's programme is a last-resort financing option for companies that would otherwise be threatened with insolvency," Finland's Prime Minister Sanna Marin told a news conference.

State-controlled Finnish power company Fortum, which last week had urged Nordic regulators to take immediate action to avert defaults even among smaller players, praised the proposals made by Helsinki and Stockholm.

"We appreciate Finnish and Swedish governments taking swift action to stabilise the Nordic derivatives market and support Nordic energy companies in time of crisis," the company tweeted.

"It's crucial to keep companies operational. Our discussions with the Finnish government are ongoing," it said.

The guarantees aim to prevent ballooning collateral requirements from toppling energy companies that trade electricity on the Nasdaq Commodities exchange, an event that could in turn spread to the financial industry, the governments said.

Lower gas flows from Russia both before and after its February invasion of Ukraine have pushed up European prices and driven up electricity costs.

The rapid rise in electricity prices has resulted in paper losses on electricity futures contracts of power companies, forcing them to find funds to post additional collateral with the exchanges.

The collateral requirement on Nasdaq clearing recently hit 180 billion Swedish crowns, up from around 25 billion in normal times due to the surge in power prices, which have risen some 1,100%, Sweden's debt office said on Saturday.

The government feared that the Nord Stream 1 shutdown would lead to a further surge.

Finland's Marin said there needed to be measures at the European Union level to stabilize the functioning of both the derivatives market and the energy market as a whole.

Nasdaq clearing is a Swedish company supervised by Swedish authorities, which is the main reason Sweden was the first country to step in to tackle the potential crisis.

Swedish Finance Minister Mikael Damberg said on Sunday that the guarantees would last until March next year in Sweden and would also cover all Nordic and Baltic nations for the next two weeks only.

Without government guarantees, electricity producers could have ended up in "technical bankruptcy" on Monday, Damberg said.

($1 = 10.7633 Swedish crowns)

($1 = 1.0049 euros)

(Reporting by Supantha Mukherjee in Stockholm and Essi Lehto in HelsinkiEditing by Terje Solsvik, Hugh Lawson and Frances Kerry)