Germany grants 100 billion euros in loans to energy groups affected by the war in Ukraine

The German government has announced an aid package to support businesses hit by fallout from the war in Ukraine and sanctions on Russia, the biggest energy supplier to the euro zone’s biggest economy.

Measures include a new €100bn program of short-term loans from state-owned development bank KfW for energy companies struggling to cover the vastly increased cost of insuring against rising oil and gas prices .

The package will also provide around €7 billion in KfW loans to boost liquidity for companies whose operations have been affected by the war and will provide additional government guarantees for bank loans to companies with funding problems.

The aid package, described by Finance Minister Christian Lindner as an “economic shock absorber”, is similar but on a smaller scale to that launched by Berlin to support businesses affected by the coronavirus pandemic in 2020.

German companies have warned of dire consequences if the war in Ukraine leads to a disruption of energy supplies from Russia. Some automakers and steel producers have already had to shut down production due to soaring energy costs and shortages of parts made in Ukraine.

The support plan, announced by Lindner and Economy Minister Robert Habeck on Friday, will provide “a time-limited and narrowly defined cost subsidy” to businesses whose electricity costs have at least doubled since last year. .

Ministers said Berlin also plans to inject capital directly into companies through equity or hybrid investments, initially through KfW and later through a separate fund. They didn’t say how much he might invest.

“We will cushion the hardships and prevent structural breakdowns,” Lindner said, adding that the plan was “precisely targeted” to avoid discouraging the transition away from fossil fuels.

KfW’s new €100 billion loan facility will bring some relief to German utilities, which have warned energy markets could crash due to the high cost of insuring against rising prices through financial derivatives markets.

A group representing Europe’s biggest energy traders – including Shell and BP and major German utilities – appealed unsuccessfully to central banks last month for help with additional ‘margin calls’ needed to cover their exposure to rising energy prices.

Uniper, the German utility, had to raise 10 billion euros in additional funding this year, partly from KfW, to avoid a cash crunch after gas prices spiked in preparation for the Russian invasion of the ‘Ukraine.

Brussels agreed this week to ban coal imports from Russia, which supplies 70% of the thermal coal imported by the bloc. However, the ban will not come into effect until August, due to a German request for more time to adjust to other sources.

Some EU countries are pushing for sanctions to be extended to include a full embargo on Russian oil and gas imports, but Germany has resisted. German Chancellor Olaf Scholz was repeatedly asked about Berlin’s reluctance to ban Russian energy imports at a press conference in London after his meeting with British Prime Minister Boris Johnson.

Scholz defended Berlin’s plans to replace Russian oil imports by the end of this year and to replace Russian gas imports by 2024, saying it was ‘not possible’ for Germany and many Eastern European countries to do so immediately.

“It is absolutely necessary that we build the necessary infrastructure to do this,” he said, adding that it was “not so easy” because it would require the construction of new pipelines to northern Germany. and the installation of regasification vessels to convert liquefied water. natural gas. “We started doing it before the war started,” he said. “We are doing everything we can.”

Before the start of the war, half of Germany’s imports of gas and thermal coal came from Russia, which also supplied a third of the country’s oil imports.

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