A political addiction to cheap Russian gas has brought Uniper low

The cast of characters is familiar.

The boss of a critical company howling calamity, in this case played by Klaus-Dieter Maubach, CEO of German energy company Uniper; a major shareholder refusing to dig further into its own pockets, in the form of Finland’s Fortum; and a chorus of politicians protesting that taxpayers should not have to pay for the sins of speculators in the capital markets.

Yet the drama, staged in Düsseldorf, where Europe’s largest gas buyer finds itself days away from insolvency as it burns tens of thousands of euros a day supplementing missing Russian supplies, has as an obvious villain. For once, it is not a fat cat.

A potted history of Germany’s fractured energy sector may be useful at this point.

Uniper is the unloved stepchild of E. ON, spun off from the much larger utility in 2016 and left to care for the country’s coal-fired power plants in their final years, and do some unglamorous energy trading, so that its former owner could” focus on renewables”.

Having been handed this “bad bank” of the energy industry, Uniper’s management did not do too badly, by most metrics.

It navigated the opening of the Dateteln 4 coal-fired power plant in the face of lawsuits from industry, and pledged to bring down overall emissions in its generation business. It even attempted to hedge against Russian imports by building liquid natural gas terminals, but was forced to shelve those plans in 2020 after customers “showed limited interest for long-term capacity bookings”.

By the end of 2021, its share price had quadrupled to €40, albeit helped by a favorable commodity market, leaving renewables-focused rivals in the dust.

Within weeks, Russia invaded Ukraine and Uniper found itself in trouble. It was forced to write off a €1bn investment in Russia’s Nord Stream 2 gas pipeline to Germany, and as deliveries from Russia’s Gazprom dwindled, soon found itself trapped in onerous contracts, unable, under German law, to pass on soaring costs to its customers .

That’s when Maubach took to the stage. Uniper “has ended up in a very precarious situation,” he said last week, “a situation which we cannot tolerate for long.”

A rescue package of €9bn has been floated by politicians, and economy minister Robert Habeck was clear that Germany “will not allow a systemically important company to go bankrupt,” not least because Uniper has now been tasked with building those LNG terminals after all.

First, however, there is a blame game to be played out. Habeck hinted that Fortum, which owns 78 per cent of Uniper and is part-owned by the Finnish government, should cough up in lieu of the German taxpayer. After all, [Uniper] belongs to someone who is solvent and can provide support.”

Finnish politicians from across the spectrum have fired back. Riikka Purra, chair of the rightwing Finns Party, said that Germany must take responsibility for its failed energy policy. This view was echoed by minister Tytti Tuppurainen this week before she traveled to the German capital to negotiate over Uniper’s future.

Habeck, a Green, was not a part of successive administrations that have cosied up to Putin to secure cheap energy while shunning domestic coal and nuclear power, letting the Nabucco pipeline project that would have reduced Europe’s reliance on Russian gas fail, and dragging their feet on the rollout of renewables.

But neither was Fortum — a nuclear energy company that invested in a less-than-desirable asset and had to shore up the group to the tune of €8bn — nor Uniper, a company carved out to align with Berlin’s priorities.

“For several years Russian gas was very cheap and that was the business model of the German economy,” said Andreas Schröder, an energy analyst at ICIS, who once worked for Uniper.

It had become clear that there were threats to this arrangement, Schröder added, especially after the US imposed sanctions on Nord Stream 2, when Uniper’s management “had the chance to abandon the project” but didn’t.

Yet in this unfolding drama, the moral hazard is not of another boardroom behaving like Uniper, whose stewards and shareholders have hardly acted recklessly.

It is the possibility that politicians, rather than investors, will refuse to admit the consequences of their decades-long gamble.

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