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

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STOCKHOLM/HELSINKI — 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.

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

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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 program 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.

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.

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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 shutdown would lead to a further surge.

State-controlled Finnish energy company Fortum last week urged Nordic market regulators to take immediate action to stabilize the market, adding that a default of even a smaller market participant would be difficult to manage.

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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 on Sunday said 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 Helsinki Editing by Terje Solsvik, Hugh Lawson and Frances Kerry)