Stockholm: Electricity companies in Sweden and neighbouring countries will receive credit guarantees of up to 250 billion Swedish crowns ($23 billion) to tackle the problems that have arisen on the electricity exchange, the Swedish government announced.
If approved by parliament, the Swedish government will task the National Debt Office to issue the credit guarantees, which are expected to be in place before stock markets close on Monday, Xinhua news agency reported.
Fears for Sweden’s financial stability arose when the total amount of required collateral from companies’ trading in electricity derivative contracts at Nasdaq Clearing AB increased from about 70 billion crowns in June to 180 billion crowns recently, due to skyrocketing electricity prices, the government said at a press conference on Sunday.
Skyrocketing prices in Europe made it more expensive for utilities to buy and sell electricity because of the additional collateral required to guarantee trades on power markets. This has in turn led to a lack of liquidity for utilities and pushed them at risk of insolvency, according to the government.
A company’s inability to provide its collateral, despite sound finances, could lead to instability of Nasdaq Clearing AB, which in turn would put the whole financial system at risk.
Sweden’s energy sector is in a difficult situation which has been worsened by Russia’s announcement to cut off the gas supply to Germany, said Swedish Finance Minister Mikael Damberg.
“We are therefore acting quickly to get guarantees in place to handle the situation the electricity companies are in and ultimately avoid a financial crisis.”
(IANS)
