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Finnish government sets out strict conditions for loans to energy companies

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THE FINNISH GOVERNMENT is ready to borrow another 10 billion euros this year to finance the emergency financing plan he announced last weekend for electricity producers.

The Ministry of Finance underlined on Monday that the effects of the scheme on central government debt remain unknown due to uncertainty over the number of power producers who will have no choice but to resort to the loans and guarantees offered. under the scheme.

“It is clear that in a situation as uncertain as this, where it is not known whether companies will come to the state loan window, it is very unlikely that we will prepare to grant the full 10 billion euros in loans,” he added. Teppo Koivistothe Director of Finance of the Public Treasury, was saying quoted by YLE.

If loan demand exceeds expectations, central government debt could increase to €18.9 billion in 2022.

Ministry of Finance Annika Saarikko (Center) said the funding should not be construed as financial aid or a grant.

“It’s a loan,” she pointed out. “Companies must repay in two years. And the government would only lose money in the extreme circumstances where the company becomes permanently insolvent. Even then, like an ordinary loan, a share of the company’s collateral – such as power plants or electricity production – corresponding to the [loan] the value would end up in the possession of the State.

The emergency financing scheme allows the government to provide loans and guarantees to companies with power generation capacity of more than 100 megawatts that have exhausted all other financing options, which are deemed critical to the operation in the electricity market and are threatened with insolvency due to skyrocketing collateral requirements.

The terms and conditions of the financing are extremely strict to ensure that it is only used as a last resort.

They will be granted on a case-by-case basis after consulting the Ministry of the Economy and Employment. The Ministry of Finance further reserves the right to commission an external review of the risks associated with each loan.

The loan cannot be granted to a company that is experiencing or has experienced financial difficulties.

The financing will be available until the end of next year with a maximum repayment period of two years and with a total interest rate of 10% for the first six months and 12% for the rest of the repayment period. repayment, according to Helsingin Sanomat.

The borrower, in turn, will be prohibited from paying dividends or otherwise redistributing profits until the loan has been repaid. Offering bonuses, salary increases and other management incentives will also be prohibited between 2022 and 2023. The borrower must also invite the government to take a 1% stake through a free issue of shares or agree to an increase of three percentage points. in the interest rate.

“The loan conditions are exceptionally strict,” confirmed Saarikko. “It is a message from the government to businesses that this is aid of last resort. You must first look to your landlords, such as public sector municipalities, and to market-based financing solutions.

The government introduced the emergency funding scheme due to the increasing collateral requirements faced by energy companies active in the power derivatives market. Guarantees may be demanded by customers as a form of guarantee for their future electricity supply as their value is equal to the difference between the price defined in the futures contract and the current price.

Energy prices soared following Russia’s invasion of Ukraine.

The Ministry of Economic Affairs and Employment has estimated that Finnish energy companies have around five billion euros in liquid assets tied up as collateral. Most of the total is represented by Fortum.

With Russia announcing an indefinite halt to gas deliveries via Nord Stream 1, the crisis is set to worsen. Dmitry PeskovKremlin spokesman, Monday declared that a full resumption of deliveries is “undoubtedly” conditional on the lifting of sanctions against Russia.

Aleksi Teivainen – HT