October 1, 2022

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Energy giant Fortum receives government funding – E24

The Finnish company Fortum gets 23 billion NOK in government funding. It should help the company secure sufficient funds in a turbulent market.

Fortum CEO Markus Rauramo.
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Finnish energy company Fortum receives 2.35 billion euros (23.3 billion kroner) in bridge financing from the Finnish state, according to message.

The money will ensure that the company can provide enough funds as collateral for its trading in the energy market, which has increased a lot recently.

In recent days, both Sweden and Finland have promised to provide guarantees to energy companies to prevent them or the Nasdaq Clearinghouse from getting into trouble and creating financial instability.

So-called margin requirements have increased a lot lately, due to large fluctuations in energy prices. This means that companies have to pay more money that is put into collateral in the energy trade.

49 billion had to be posted as collateral

Fortum’s demand for safety through energy trading via Nasdaq was €3.5 billion (34.6 billion NOK) at the end of the trading day on September 5.

This is outside the requirements of Germany’s Uniper, in which Fortum owns about 70 percent.

In a worst-case scenario, Fortum was forced to put up a full five billion euros (NOK 49.4 billion) as collateral at the end of the trading day on August 26, the company said.

Fortum CEO Markus Rauramo is unhappy with market rules that set the same security requirements for financial players and energy companies. He believes that the rules must be changed (EMIR, European Market Infrastructure Regulation).

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The EMIR rules regulating commodity trading do not discriminate between financial traders and companies that secure their energy production in the future, and both have the same monetary security requirements, Rauramo says according to the report.

Energy companies that secure their production should be allowed to use their future production as collateral. I am convinced that Finland plans to bring up this topic at the meeting between EU energy ministers this week, says Fortum CEO.

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Water outside the other owners

Fortum receives funding of about NOK 23 billion through the Finnish state holding company Solidum.

If Fortum benefits from the funding, Solidum will be entitled to buy 8.97 million new Fortum shares, increasing state ownership to 51.26 percent. The company wrote in its letter that this will weaken other shareholders.

In addition, the scheme places restrictions on Fortum’s management, whose salaries will not be increased in 2022 and 2023. No restrictions have been placed on Fortum’s ability to pay dividends.

The ongoing energy crisis in Europe is due to Russia’s decision to use energy as a weapon, and is now also affecting Fortum and other energy producers in the North, says Rauramo.

Market uncertainty remains high after we witnessed historically high energy prices in recent weeks. However, in the past week, spot prices, futures prices and therefore safety requirements have fallen from peak levels. He says that the Finnish state scheme enhances our access to liquidity in light of this turmoil.

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The guarantee from the Finnish state cannot be used to cover the margin requirements of the German Uniper of Fortum. This company also struggles significantly with increasing margin requirements.

Uniper recently said that the company is losing about 1 billion a day because Russia is not supplying gas as agreed, and the company has to buy gas on the market at high prices.

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