Nordic lawmakers scrutinise $33bn power backstop

Bloomberg

Lawmakers in Sweden and Finland are reviewing their $33 billion emergency backstop plans devised over the weekend to prevent utilities from defaulting after a fresh surge in energy prices.
The two governments announced liquidity facilities made up of loans and credit guarantees to avoid some power companies going into technical defaults over climbing collateral requirements. The aim is to prevent Russia’s energy curbs from sparking a financial crisis.
With price swings across the European energy space higher than ever, there are members on Nasdaq Inc.’s power market that are “facing hard times,” spokesman David Augustsson said on Monday without elaborating. The initiative for a guarantee package came from government and not the exchange, he said.
The Nordic power market is the world’s oldest and was for a long time the most liquid too, until it was overtaken by Germany. Activity was gradually declining even before the massive price jumps that began last year. And in markets with low liquidity, prices tend to climb even more, which then inevitably leads to higher margin calls.
Finland’s Economy Minister Mika Lintila said that several companies had been identified that could potentially be facing a liquidity crisis “quite quickly.” Vattenfall AB, the region’s biggest utility, said in a response to emailed questions on Monday that its finances were “stable,” and welcomed any initiatives that would help stabilise the market.
“This is an extreme time of uncertainty and the addition of government liquidity guarantees will add an extra layer of stability to support orderly trading and energy companies,” he said by email.
Overall margin requirements for traders using the power exchange are now four times higher than a year ago, he added.
The packages will be open to both larger and smaller utilities. Finland’s Fortum Oyj is currently in talks with the Finnish government on support.
“Smaller utilities with slimmer cash balances and less established credit lines with banks might be feeling the squeeze currently,” Jakob Magnussen, global head of credit research at Danske Bank A/S, said by email. “And they will benefit and could potentially be a life-saver for some of them.”