The German government has decided on what seems to be the largest nationalization in the history of the country. Uniper, the largest German importer of Russian gas, is coming under full control of the state. Thus, Berlin saves one of the backbone companies in the German energy sector.
Nord Stream shutdown forced Berlin to act
After all, it not only buys gas for Germany, but also owns gas, coal and hydroelectric power plants, gas storage facilities, and now it is also building terminals for receiving liquefied natural gas (LNG). Uniper’s overseas assets include nuclear power plants in Sweden and Unipro in Russia, which owns five large thermal power plants.
The nationalization of Uniper seemed inevitable after Gazprom sharply reduced in June, and at the end of August completely stopped deliveries of blue fuel to Germany via “North Stream”. As a result, Uniper lost up to 100 million euros daily, buying gas at extremely high prices on the spot market in order to fulfill its obligations to German customers, primarily regional energy companies and large enterprises.
Support measures such as the July 18 increase by the state bank KfW of a credit line for Uniper from 2 to 9 billion euros and the acquisition by the German government of a 30% stake in the company could not turn the tide.
The decision taken on September 21 on the virtual transfer of Uniper into state ownership (it will eventually receive 98.5% of the shares) will help stabilize gas supply in Germany in the context of an acute energy crisis and the beginning of the heating season. After all, now the import of the required volumes of gas, no matter how much it costs, will be financed from the budget, and it can be replenished by increasing the public debt. All taxpayers in the country will have to pay for this.
Bailout of gas importers resembles bank bailouts
However, if Uniper became insolvent and had to stop supplying gas to its customers, for example, large factories, as well as stop its own thermal power plants that provide electricity to entire cities, then the financial losses for the whole of Germany and, accordingly, for German taxpayers would be incomparably greater. large.
Professor Claudia Kemfert, an influential energy specialist at the German Institute for Economic Research (DIW) in Berlin, called the government’s measures a “necessary evil”: “Uniper is a backbone company, it needed to be protected.”
So the nationalization of Uniper – along with the transfer in April under government control gas storage facilities and other assets of Gazprom subsidiary Gazprom Germania and the forthcoming bailout of East German energy company VNG, which the third major Russian gas importer asked for on September 9, could well be compared to the bailout of German banks during the 2008-2009 global financial crisis.
At that time, the question of maintaining the viability of the “monetary blood circulation” system in the economy was extremely acute. Today, the task of providing the country with a sufficient amount of energy is no less acute. Then the term Bad Bank was widely used – “a bank of bad assets”, where all kinds of problem loans were transferred. Today, contracts with Gazprom have become such toxic assets, since the Russian state-owned company has ceased to service them. And the state again has to take on the role of a savior.
Part of Uniper’s assets can be privatized
How much all this will ultimately cost the German budget is still completely unclear. Including, by the way, because the example of a recent sale at a high profit of a stake in Lufthansaacquired by the German government in the first year of the pandemic to support the German air carrier, shows that at least part of the now nationalized assets could well be sold at a profit over time.
Thus, the German Ministry of Economics specified on September 21 that the further fate of Swedish nuclear power plants and Russian thermal power plants, which the German state certainly does not want to own, will be dealt with in Berlin only in a few months. You can certainly get a good price for Uniper’s hydroelectric power plants. Perhaps the same Finnish semi-state energy concern Fortum, which until now owned 78% of the shares of this German company, will want to buy them, but has now sold them to the German government so as not to bear the excessive financial burden of saving the company.
But it is unlikely that the German government will be able to privatize gas and especially coal-fired Uniper power plants in the context of accelerating decarbonization throughout the European Union. Actually, in 2016 the leadership of the German energy of the E.on concern, it was precisely for this that this company was createdin order to transfer to it all assets related to fossil energy, to get rid of unnecessary, from his point of view, ballast and focus mainly on renewable energy.
The German government now holds the gas market in its hands
That is why Uniper has been so closely associated with Russian gas since its birth: during that unbundling, E.on transferred to it all long-term contracts with Gazprom, which the concern got in 2003 during the takeover of the legendary Ruhrgas company. It was she who started buying gas in the Soviet Union back in 1970 and for a long time was its monopoly importer in Germany.
However, in the current emergency situation in the energy sector and especially in gas supply, the concentration of the assets of Gazprom Germania, Uniper, and soon, probably, VNG in the hands of the state, gives Berlin control over the most important blue fuel flows in the country, over a significant part of the gas transportation system and over the main capacity of German gas storage facilities. This, in theory, should make the regulation and crisis management in the energy sector much easier for Berlin in the upcoming winter, which can turn out to be very difficult.
At the same time, Uniper has an important role to play in the coming months, both temporarily expanding coal-fired power generation and then curtailing it in order to achieve the announced climate goals. In addition, the company is now developing a new business for itself, rapidly building in Wilhelmshaven one of the first LNG terminals in Germany. The German government will now be able to exert direct influence on all these processes, which are now extremely important for the country’s energy supply.
Professor Veronika Grimm, one of the members of the Council of Economic Experts under the German government (the so-called “council of wise men”), calling the nationalization of Uniper “a step in the right direction”, recommended that the government, as the new owner of the company, diversify LNG purchases worldwide in every possible way. At the same time, the smartest strategy, in her opinion, would be to conclude long-term contracts with those suppliers who at the first stage will supply natural gas, and in the future will switch to green hydrogen.