'In midst of turbulence' | Finland finance for Fortum to bridge Russia-triggered energy crisis

Finland is granting Fortum €2.35bn ($2.35bn) in bridge financing to assure liquidity at the state-controlled utility amid an energy crisis triggered by Russian fossil gas curtailment in the wake of the Ukraine war.

The company said it currently has sufficient liquid funds to meet collateral needs, but the additional liquidity may be necessary in case energy prices – and with it collateral requirements – continue to rise significantly on the Nordic commodities exchange Nasdaq.

“The ongoing energy crisis in Europe is caused by Russia’s decision to use energy as a weapon and it is now also severely affecting Fortum and other Nordic power producers,” Fortum chief executive Markus Rauramo said.

“The uncertainty in the market remains high as we in recent weeks have seen historically high power prices. Last week, however, spot and futures prices and thus collateral requirements decreased from the highest levels.

“The arrangement provided by the Finnish state strengthens our liquidity backstop in the midst of the turbulence.”

The liquidity aid comes in the wake of a combined $33bn promised by Sweden and Finland over the weekend as emergency backstops in the form of loans and credit guarantees in order to help utilities weather power market turbulence, which according to Finnish economy minister Mika Lintila could otherwise lead to an “energy-industry Lehman Brothers” situation.

Russia on Friday once more stopped gas deliveries to Germany through the Nord Stream 1 pipeline under the Baltic Sea, and later said it found an oil leak during maintenance work, a claim dismissed as pretext by Berlin. Fossil gas prices - which also impact electricity markets - once again shot up on the news.

The incremental liquidity facility to Fortum is provided by Finnish state-owned holding company Solidium, and matures within one year from signing. A first €350m tranche must be drawn at the latest on Sept. 30, 2022, in order for the arrangement to remain effective. The last tranche may be drawn by 31 March 2023.

The agreement also includes an option for Solidium to subscribe up to 8.97 million new ordinary shares, which would increase the stake of the Finnish state in Fortum by one percent to 51.26%

Fortum’s collateral requirements yesterday amounted to some €3.5bn at the close, and have reached a high of about €5bn on 26 August 2022, Fortum said, urging to reform European market infrastructure regulation (EMIR).

“Regulatory changes are urgently needed to curb the unreasonably high margining and collateral requirements,” Rauramo demanded.

“The EMIR-regulation that governs commodities trading does not make a difference between financial traders and companies hedging their future power production – both have the same cash collateral requirements.

“Power companies hedging their own production should be allowed to use their future production as collateral.”