Putin tears giant hole in critical German record

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Compared to the heroism of Ukrainians who stood up to Vladimir Putin’s heinous war, efforts to prevent the implosion of German utility Uniper SE may seem insignificant.

Yet few European companies have suffered such a severe financial calamity from the conflict as this fossil fuel company spun off from E.ON SE in 2016. Sleep must be lacking at the Düsseldorf headquarters.

On Thursday, Uniper announced an abysmal loss of 12.4 billion euros ($12.6 billion) for the six months to June, most of which related to anticipated losses from its Russian gas business.

While some European peers reap windfall profits from high power prices, Uniper has bled 100 million euros a day lately because Gazprom is not delivering a contracted gas pipeline, forcing it to buy on the market cash at massively inflated prices to continue serving German customers. It was also forced to write off a large loan to the canceled Nord Stream II gas pipeline and write down the value of its Russian power generation unit.

It’s fair that Uniper sees the consequences of its misguided reliance on cheap Russian gas, but there’s a lot of blame to be placed on Germany’s energy situation. It is also worth having a debate about who should bear the costs.

Without a massive bailout coordinated last month between the German government and Finnish majority owner Fortum Oyj (which in turn is majority-owned by the Finnish state), Uniper would have been sunk. Further credit rating downgrades risked triggering collateral calls, depleting the company’s cash.

With Finland reluctant to dig too deep, the German state has agreed to buy a 30% stake (at a steep discount) and will support Uniper’s future losses beyond an agreed level. Meanwhile, German energy customers will also cover 90% of Uniper’s additional cost burden from October 1 via a special surcharge on their bills.

With lines of credit provided by Fortum and German development bank KfW, the bailout put Uniper on more stable footing. Yet its woes were not over as gasoline prices continued to soar. Due to international sanctions against Russia, it is also unclear how Uniper will recover the value of its Russian powerhouse unit Unipro which it wants to exit. Expropriation remains a risk.

Important details about Uniper’s bailout have yet to be clarified, including exactly how the plan’s loss protection will work and the terms of a mandatory convertible bond of up to €7.7 billion issued to the German state. . The company’s market capitalization has fallen by more than 80% since the start of the year to just 2.6 billion euros. Analysts fear minority shareholders will suffer more.

Is it right? Uniper has a vital role to play in helping to end Germany’s energy dependence on Russia, for example by building floating LNG terminals and ensuring that the country’s gas storage facilities are filled. Its coal-fired power plants will unfortunately also be needed to keep the lights on this winter.

In trying to do the right thing, Uniper has also suffered setbacks that are not its fault – a fire at the Freeport LNG terminal in the United States in June caused a further shortfall in gas deliveries, forcing Uniper to purchase replacement volumes at large-scale expenditures (it expects to recognize hundreds of millions of euros in losses at a later date).

Uniper management has been admirably transparent about the difficulties Germany is currently facing. While industry has already reduced its gas consumption, private households have yet to show the same determination, as long-term contracts have so far protected them against soaring market prices. However, the surcharge announced this week will add hundreds of euros to annual household bills and may need to be increased further.

In short, the Germans will have to burn the candle at both ends this winter. Uniper’s weary management may have some advice.

More other writers at Bloomberg Opinion:

• From the Rhine to the Tigris, the rivers are warning signs: Andreas Kluth

• Russian emigrants should remain silent on possible visa bans: Leonid Bershidsky

• Welcome to the Dark and Cold Winter of Europe: Julian Lee’s Elements

This column does not necessarily reflect the opinion of the Editorial Board or of Bloomberg LP and its owners.

Chris Bryant is a Bloomberg Opinion columnist covering industrial companies in Europe. Previously, he was a reporter for the Financial Times.

More stories like this are available at bloomberg.com/opinion

James R. Rhodes