Germany will grant loans of 100 billion euros to energy companies affected by the war in Ukraine

The federal government has announced an aid package to support companies affected by the consequences of the Ukraine war and the sanctions against Russia, the leading energy supplier to the euro zone’s largest economy.

Measures include a new €100 billion program of short-term loans from the state-owned KfW development bank for energy companies struggling to cover the sharp rise in the cost of insuring against higher oil and gas prices.

The package will also include loans from KfW worth an estimated EUR 7 billion.

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

German companies have warned against this severe consequences if the war in Ukraine leads to a disruption in energy supplies from Russia. Some car manufacturers and steel producers have already had to close production due to rising energy costs and shortage of Ukrainian-made parts.

The subsidy plan announced on Friday by Lindner and Economics Minister Robert Habeck provides for “a time-limited and strictly limited cost subsidy” for companies whose electricity costs have at least doubled since last year.

The ministers said Berlin also plans to inject capital directly into companies through equity or hybrid investments, first through KfW and then through a separate fund. They didn’t say how much they could invest.

“We will cushion hardship and prevent structural breaks,” said Lindner, adding that the plan was “targeted” so as not to complicate the transition away from fossil fuels.

The new €100 billion loan facility at KfW will offer some relief to German utilities, which have warned energy markets could falter due to the high cost of insuring against higher prices from financial derivatives markets.

A group representing Europe’s biggest energy traders – including Shell and BP and major German utilities – made one unsuccessful appeal last month to central banks asking for help with additional “margin calls” needed to cover their exposure to higher energy prices.

Uniper, the German energy supplier, had to raise 10 billion euros additional financing partly by KfW this year to avoid a liquidity crisis after gas prices skyrocketed in the run-up to the Russian invasion of Ukraine.

Brussels agreed this week Ban coal imports from Russia, which supplies 70 percent of the thermal coal imported by the block. The ban won’t come into effect until August, however, as Germany requests more time to adjust to other sources.

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

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

“It is absolutely necessary that we build the necessary infrastructure for this,” he said, adding that it is “not that easy” because it would require building new pipelines to northern Germany and installing them regasification vessels to convert liquefied natural gas. “We started before the war started,” he said. “We do what we can.”

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

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Adam Bradshaw

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