Sweden to Give Utilities $23 Billion in Credit Guarantees

Niclas Rolander, Bloomberg News

Electric lights on in homes and businesses at dusk in Gothenburg, Sweden, on Thursday, Jan. 13, 2022. The Swedish government set aside 6 billion kronor ($664 million) to lessen the impact of soaring power bills on households, saying Russia’s approach to supplying gas to Europe this winter was a major factor in stoking costs last month. , Bloomberg

(Bloomberg) --

Sweden’s government will provide Nordic and Baltic utilities as much as 250 billion kronor ($23.2 billion) in credit guarantees as it seeks to prevent Russia’s energy curbs from setting off a financial crisis.

The measure is aimed at helping companies struggling to meet the surging collateral requirements needed to trade electricity, and avoid the threat of some going into technical defaults as soon as Monday, Finance Minister Mikael Damberg said at a news conference in Stockholm. Utilities registered with Nasdaq Clearing AB are eligible for the guarantees.

“The issue is currently isolated to energy producers, but unless we act, it could have contagion effects on the rest of the financial market,” the minister said on Sunday. “Ultimately, it could lead to a financial crisis.”

The surging price of energy in Europe has made it more expensive for utilities to buy and sell electricity, because of the collateral required to guarantee trades on power markets facing unprecedented turbulence. Fortum Oyj of neighboring Finland said Aug. 29 its collateral rose by 1 billion euros ($1 billion) in a week to 5 billion euros, excluding funds posted by its German subsidiary Uniper SE.

Russia has been limiting supply of its gas to the European Union, contributing to a surge in prices and concerns about shortages during the colder winter months ahead. Already at four times the level of a year ago, natural-gas prices are set to jump on Monday after Russia’s announcement its Nord Stream 1 gas pipeline to Germany would stay shut. That’s piling more pressure on industries and households -- and on policy makers to act.

The guarantees will be provided by Sweden’s National Debt Office, and are primarily aimed at Swedish companies, though entities based in other Nordic and Baltic countries can access them during the initial two weeks, or until their governments provide support. Finland is preparing a similar move, but Damberg said the neighboring country has indicated that it may take more time to implement.

According to newspaper Helsingin Sanomat, the Finnish government is meeting on Sunday to decide on loans and credit guarantees worth “several billion euros.”

The move comes a week ahead of Sweden’s election, in which a constellation of conservative and liberal parties are seeking to unseat the Social Democratic minority cabinet, led by Prime Minister Magdalena Andersson.

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