AFP

Germany has reached a deal to nationalise troubled gas giant Uniper, the government said Wednesday, as the energy sector reels from the fallout of Russia’s war in Ukraine.

The deal will leave Germany with a 99 percent stake in the debt-laden gas company, the economy ministry said in a statement.

“Uniper is a central pillar of German energy supplies,” the ministry said.

Under the agreement, Berlin will inject eight billion euros ($7.9 billion) in cash into Uniper and buy 500 million euros of shares from its majority shareholder, the Finnish state-owned energy company Fortum.

Fortum will also be repaid for an eight-billion-euro loan it gave Uniper.

“The situation has become much more dramatic” for Uniper since the shutdown in late August of the Nord Stream 1 gas pipeline from Russia to Germany, Economy Minister Robert Habeck told a press conference.

The crisis intervention was needed to “secure our gas supply and to protect consumers from an uncontrollable situation”, Finance Minister Christian Lindner said.

One of the biggest importers of Russian gas, Uniper has been squeezed as Moscow has reduced supplies to the continent in the wake of its invasion of Ukraine in February.

– Gas crisis –

Missing deliveries from Russia have had to be replaced with expensive supplies from the open market, where prices for gas have skyrocketed.

The German state had already agreed in July to take a 30 percent stake in Uniper as part of an initial agreement, but will now own around 99 percent under the new bailout terms.

Uniper announced earlier this month that the two sides were exploring a possible nationalisation as the energy crisis showed no signs of abating.

Letting the company go bust could have had a chain reaction where “many other energy suppliers could have ended up in a very difficult situation” as they bore the brunt of higher prices, Uniper CEO Klaus-Dieter Maubach said at a press conference. 

The pressure on the gas supplier was already felt in January when Fortum provided an eight-billion-euro loan to Uniper as prices began to climb amid tensions with Moscow before the invasion of Ukraine.

The Finnish company, which is itself majority owned by the government in Helsinki, held a near-80-percent stake in Uniper.

Fortum said Uniper has accumulated close to 8.5 billion euros in gas-related losses “and cannot continue to fulfil its role as a critical provider of security of supply as a privately-owned company”.

“New measures to resolve the situation were needed, as both Uniper and Fortum were exposed to significant risks,” said Fortum chief executive Markus Rauramo at a press conference.

– ‘No longer viable’ –

Fortum had taken an “inevitable decision in exceptionally uncertain circumstances”, said Tytti Tuppurainen, the Finnish minister responsible for state companies.

“The situation is a result of Russia’s attack on Ukraine. Putin is using energy as a weapon,” Tuppurainen said in a statement.

Russia’s war in Ukraine has triggered an earthquake on European energy markets, cranked up the pressure on suppliers and raised fears of possible shortages over the winter.

Germany has found itself particularly exposed due to its previous heavy reliance on Russian energy imports.

Since the outbreak of the war, Berlin has worked to wean itself off Russian gas and secure alternative supplies.

Officials have seized key pieces of energy infrastructure which were in the hands of Russian energy companies and mandated gas stores to be filled.

Earlier in September, the German government entered into discussions with another gas supplier, VNG, over a possible bailout package.

European stock markets recovered from initial falls Wednesday, as traders awaited another hefty US interest rate hike from the Federal Reserve.

The dollar reached the highest level in 20 years against a basket of major rival currencies with investors seeking safety as Russia escalates operations over Ukraine.

The Dollar index, which compares the US unit against currencies including the euro, pound and yen, jumped to 110.87 points, also as the Fed prepares a third successive jumbo rate hike to combat decades-high inflation.

The British pound hit a new 37-year low at $1.1305, even as the Bank of England prepares to announce its own large interest rate hike Thursday.

“The Fed is having to be cruel in order to restore price stability,” noted Russ Mould, investment director at AJ Bell.

“Higher rates will cause pain to households and businesses, with the jobs market being closely watched for signs of redundancies and hiring freezes.”

Most analysts are predicting that the Fed will announce another 75 basis-point lift, though some have tipped a full percentage-point move.

In the event of no surprises, the US central bank’s forecast and post-meeting comments from boss Jerome Powell will be the main attraction for investors.

“Volumes remain light and the mood cautious, with few looking to take on large positions before hearing what the Fed says,” according to Fiona Cincotta at City Index trading group.

Other central banks are meeting this week. On Tuesday, officials in Sweden surprised markets by unveiling a one percentage-point hike.

Adding to the cautious mood was Vladimir Putin’s announcement of a “partial mobilisation” as Russia’s president upped the ante in his battle against Ukraine.

Putin said he would annex the territories his forces had occupied and backed referendums in four regions in Russian-held parts of Ukraine.

“We will definitely use all means available” to protect Russian territory, he warned, adding: “That’s not a bluff.”

The moves mark an escalation in the seven-month war, which has roiled markets and sparked an energy crisis.

Oil prices surged nearly three percent Wednesday, having wilted in recent months on weaker demand expectations fuelled by recession fears.

Putin’s announcement and possible escalation in the war “raises a whole new set of uncertainties”, Rabobank’s Jane Foley said.

Asian stock markets closed lower Wednesday, reversing Tuesday’s bounce.

– Key figures at around 1100 GMT –

London – FTSE 100: UP 0.7 percent at 7,244.18 points

Frankfurt – DAX: FLAT at 12,668.47

Paris – CAC 40: UP 0.2 percent at 5,991.70

EURO STOXX 50: UP 0.1 percent at 3,469.99

Tokyo – Nikkei 225: DOWN 1.4 percent at 27,313.13 (close)

Hong Kong – Hang Seng Index: DOWN 1.8 percent at 18,444.62 (close)

Shanghai – Composite: DOWN 0.2 percent at 3,117.18 (close)

New York – Dow: DOWN 1.0 percent at 30,706.23 (close)

Pound/dollar: DOWN at $1.1343 from $1.1384 Tuesday

Euro/dollar: DOWN at $0.9928 from $0.9970

Euro/pound: DOWN at 87.52 pence from 87.63 pence 

Dollar/yen: UP at 143.88 yen from 143.72 yen

Brent North Sea crude: UP 2.7 percent at $93.10 per barrel

West Texas Intermediate: UP 2.5 percent at $86.00 per barrel

Germany has reached a deal to nationalise troubled gas giant Uniper, the government said Wednesday, as the energy sector reels from the fallout of Russia’s war in Ukraine.

The deal will leave Germany with a 99 percent stake in the debt-laden gas company, the economy ministry said in a statement.

“Uniper is a central pillar of German energy supplies,” the ministry said.

Under the agreement, Berlin will inject eight billion euros ($8 billion) in cash into Uniper and buy 500 million euros of shares from its majority shareholder, the Finnish state-owned energy company Fortum.

Fortum will also be repaid for an eight-billion-euro loan it gave Uniper.

“The situation has become much more dramatic” for Uniper since the shutdown in late August of the Nord Stream 1 gas pipeline from Russia to Germany, Economy Minister Robert Habeck told a press conference.

One of the biggest importers of Russian gas, Uniper has been squeezed as Moscow has reduced supplies to the continent in the wake of its invasion of Ukraine in February.

– Gas crisis –

Missing deliveries have had to be replaced with expensive supplies from the open market, where prices for gas have skyrocketed.

The German state had already agreed in July to take a 30 percent stake in Uniper as part of an initial bailout agreement.

But Uniper announced earlier this month that the two sides were exploring a possible nationalisation as the energy crisis showed no signs of abating.

Fortum provided an eight-billion-euro loan to Uniper in January as the price of gas had already begun to climb amid tensions with Moscow before the invasion of Ukraine.

The Finnish company held a near-80-percent stake in Uniper, which would have been cut to around 56 percent under the July bailout plan.

Fortum said Uniper has accumulated close to 8.5 billion euros in gas-related losses “and cannot continue to fulfil its role as a critical provider of security of supply as a privately-owned company”.

“New measures to resolve the situation were needed, as both Uniper and Fortum were exposed to significant risks,” said Fortum chief executive Markus Rauramo at a press conference.

– ‘No longer viable’ –

“The role of gas in Europe has fundamentally changed since Russia attacked Ukraine, and so has the outlook for a gas-heavy portfolio. As a result, the business case for an integrated group is no longer viable,” Rauramo also said in a separate statement.

Fortum had taken an “inevitable decision in exceptionally uncertain circumstances”, said Tytti Tuppurainen, the Finnish minister responsible for state companies.

“The situation is a result of Russia’s attack on Ukraine. Putin is using energy as a weapon,” Tuppurainen said in a statement. 

Russia’s war in Ukraine has triggered an earthquake on European energy markets, cranked up the pressure on suppliers and raised fears of possible shortages over the winter.

Germany has found itself particularly exposed due to its previous heavy reliance on Russian energy imports.

Since the outbreak of the war, Berlin has worked to wean itself off Russian gas and secure alternative supplies.

Officials have seized key pieces of energy infrastructure which were in the hands of Russian energy companies and mandated gas stores to be filled.

Earlier in September, the German government entered into discussions with another gas supplier, VNG, over a possible bailout package.

Stocks fell Wednesday ahead of what many expect to be a third successive jumbo rate hike by the Federal Reserve, while the dollar hit fresh multi-decade highs against the pound and euro after Russia stepped up its war in Ukraine.

Equities around the world have been clattered by fears of a recession in major economies as central banks ramp up borrowing costs to combat the highest inflation in decades, which has been compounded by the Ukraine war and supply chain snarls.

In Washington, the Fed is due to conclude its latest policy meeting, with most analysts predicting it will announce another 75 basis-point lift, though some have tipped a full percentage-point move.

However, while the hike has largely been priced into the markets, the US central bank’s forecast and post-meeting comments from boss Jerome Powell are the main attraction for investors.

“Volumes remain light and the mood cautious, with few looking to take on large positions before hearing what the Fed says and where policy makers see rates going by the end of the hiking cycle,” Fiona Cincotta, at City Index, said.

“This is what will drive the markets, not the rate hike… but what the Fed plans to do next.”

Fed officials have for months stuck to the mantra that they will only ease up on their hawkish drive when inflation comes down and remains subdued.

This has led many to warn that rates are unlikely to come down anytime soon, possibly as late as 2024, with a recession more than likely in the United States as well as other major economies.

– Dollar extends rally –

Other central banks are also meeting this week. On Tuesday, officials in Sweden surprised markets by unveiling a one percentage-point hike, while the United Kingdom and Switzerland are expected to announce more increases.

Asian markets were back in the red, reversing Tuesday’s bounce.

Tokyo, Hong Kong, Sydney and Manila were all down more than one percent, while there were also losses in Shanghai, Seoul, Singapore, Wellington, Taipei, Mumbai and Jakarta.

London rose in early trade, but Paris and Frankfurt were down.

Adding to the dour mood was Vladimir Putin’s announcement of a “partial mobilisation” as he upped the ante in his battle against Ukraine after his forces were routed from several cities in recent weeks.

He added that he would annex the territories his forces have already occupied and backed weekend referendums in four regions in Russian-held parts of Ukraine.

“We will definitely use all means available” to protect Russian territory, he warned, adding: “That’s not a bluff.”

The moves mark an escalation of the seven-month war, which has roiled markets and sparked an energy crisis.

Oil prices, which have wilted in recent months owing to worries about demand caused by any recession, surged more than three percent.

And the dollar, a safe haven in times of uncertainty and turmoil and which was already elevated ahead of the rate decision, rallied further.

It hit a fresh 37-year high of $1.1305 against sterling and a new 20-year peak of $0.9885 per euro, with the eurozone already in economic trouble owing to sanctions on Russian oil and Putin’s decision to cut off gas supplies to the continent.

The announcement and possible escalation in the war “raises a whole new set of uncertainties”, Rabobank’s Jane Foley said.

“This is set to weigh on the euro and on the currencies of eastern Europe.”

– Key figures at around 0810 GMT –

Tokyo – Nikkei 225: DOWN 1.4 percent at 27,313.13 (close)

Hong Kong – Hang Seng Index: DOWN 1.8 percent at 18,444.62 (close)

Shanghai – Composite: DOWN 0.2 percent at 3,117.18 (close)

London – FTSE 100: DOWN 0.3 percent at 7,210.45

Euro/dollar: DOWN at $0.9909 from $0.9977 on Tuesday

Dollar/yen: DOWN at 143.71 yen from 143.72 yen

Pound/dollar: DOWN at $1.1345 from $1.1384

Euro/pound: DOWN at 87.35 pence from 87.63 pence 

West Texas Intermediate: UP 3.2 percent at $86.62 per barrel

Brent North Sea crude: UP 3.1 percent at $93.39 per barrel

New York – Dow: DOWN 1.0 percent at 30,706.23 (close)

— Bloomberg News contributed to this story —