The government pushes for hundreds of billions in guarantees – “faces a pure winter of war”

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The government issues liquidity guarantees to the energy companies for several hundred billion kroner. At the same time, Magdalena Andersson tells Di that the electricity price support for households and businesses has no ceiling. “With this, we are not only securing financial stability in Sweden but in the entire Nordic region,” says Finance Minister Mikael Damberg.Updated: September 3, 2022, 5:59 p.mPublished: September 3, 2022, 2:58 p.mOn Friday evening, the announcement came that Russia is stopping gas deliveries through Nordstream 1 indefinitely. The Russian gas giant referred to a leak that needed to be repaired.On Saturday, the government called at short notice to a press meeting with Prime Minister Magdalena Andersson and Finance Minister Mikael Damberg (S) as well as the top heads of the Riksbank and the Financial Supervisory Authority, Stefan Ingves and Erik Thedéen. Since August last year, Russia has reduced gas deliveries to Europe in order to drive up energy prices, reminds Prime Minister Magdalena Andersson (S). But, now Vladimir Putin is taking the next step. “With yesterday’s announcement, we are facing a pure winter of war,” says Prime Minister Magdalena Andersson (S). “It also threatens our financial stability.” If we don’t act soon, it could lead to serious disruptions in the Nordics and the Baltics. In the worst case scenario, we could fall into a financial crisis,” says Magdalena Andersson. “Then it’s not just about unreasonable electricity bills. Pension accounts and ISK can plummet,” she says further. The message is that it is proposed to the Riksdag that the government may issue liquidity guarantees of hundreds of billions to the electricity producers who are registered on Nasdaq Clearing AB. The task of executing the liquidity guarantees to the energy companies must be handled by the National Debt Office. “This is expected to be in place on Monday before the stock exchanges close. It is expected to include all Nordic and Baltic actors,” says Magdalena Andersson about the guarantees that the companies have to pay for with “a market price.” “With this, we are not only securing financial stability in Sweden, but in the entire Nordic region,” says Finance Minister Mikael Damberg. At the same time, he emphasizes the seriousness. “This is a very serious situation. There are still many uncertainty factors and risks,” he says. The Swedish Financial Supervisory Authority’s Director General Erik Thedéen describes a market put under great pressure, when companies send money into the system to guarantee loss-making transactions on price-guaranteed contracts. “In case of large price movements, it can lead to large losses and set the entire clearing system in motion,” says Erik Thedéen, and states that it was not rigged for the situation. The collateral in the clearing system has increased from 25 to 180 billion kroner since August last year in line with the electricity price increases, according to the FI manager. “The signals that have come from power companies and also from banks – because there are banks in this system too – have been that this security mass to be sent into the system has become so large that even if we are a strong company, we can not raise the many millions or even billions of money required,” he says. Riksbank Governor Stefan Ingves is satisfied with the decision. “This is a good measure, because we know what it looks like on the electricity market. It makes sense to do this to isolate this to that market,” he says. The government has already announced support for households and businesses of SEK 90 billion. However, if the gas stop raises electricity prices to new levels and redraws the forecasts, the aid amount of 90 billion to households and companies can quickly be exceeded. Do you see a need to increase the amount of support?
“If it is the case that electricity prices become higher than we have thought, then the repayment to households in the form of high-cost protection will increase,” says Magdalena Andersson. “There is no ceiling in this, if the electricity prices are higher, you get more in repayment. But it is also because we have this situation that we are working hard against other countries to disconnect gas prices from electricity prices,” she says further. According to Mikael Damberg, the speaker and the group leaders in the Riksdag, as well as the economic policy spokespersons, have been informed of the measures. The Riksdag is convened extra on Monday to make a decision on the support measure.

This is how the guarantees work

A large number of actors in the energy market are linked to Nasdaq Clearing AB. Nasdaq Clearing is a so-called CCP (central clearing counterparty). Instead of all parties doing business directly with each other, Nasdaq Clearing acts as an intermediary, the counterparty both buyers and sellers do business with. To take on that credit risk, Nasdaq Clearing requires collateral from its members. For the energy players, the total security mass has recently increased enormously due to rising prices on the energy market, according to FI from SEK 25 to 180 billion. If a company cannot provide the capital required to cover the collateral in time, Nasdaq Clearing must, according to the rules, put the company into technical bankruptcy, take over the positions and auction them on the market. If it doesn’t work, according to FI, it could set the clearinghouse in motion. Nasdaq Clearing is indirectly linked to the financial system. The government sees risks that energy players in the Nordics and Baltics will not have enough liquidity if electricity prices rise further after the weekend in the wake of the Russian gas stop that was announced last Friday evening. They therefore want to issue government liquidity guarantees to eliminate the risks of disruptions in the system. Source: FI, the Riksbank, Nasdaq, the Government

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