by Michalis Psilos

 

 

European Commission has given permission for the German government to support troubled natural gas importer Uniper with up to 34.5 billion euros.

 

According to the Commission, the rescue plan of the energy giant that supplies millions of households and businesses with natural gas in Germany, foresees an immediate capital increase of eight billion euros. In addition, a further capital increase of up to 26.5 billion euros is planned by 2024. "Uniper was plunged into crisis due to Russia-Ukraine conflict and the consequent interruption of gas supplies," the EU Commission said.

 

European Commission also approved public aid to the state gas company Securing Energy For Europe (SEFE), a former subsidiary of Gazprom. In this case, the federal government is allowed to inject additional equity of 6.3 billion euros. Of course, the European Commission set terms and conditions for financial support, as competition is distorted. So Uniper has to sell parts of its business, including the power plants Datteln 4 and G?nyu (Hungary) and some international subsidiaries. SEFE is also set to sell businesses abroad, including Switzerland, Romania, Hungary and Mexico.

 

Domino effect

 

The Commission's intervention aims to prevent a domino effect that would cause huge effects on households and businesses, as Uniper has around 500 German industrial giants as its customers. The Commission's intervention shows Brussels' fears that 2023 will be full of obstacles for European industry: Obstacles stemming from the energy crisis and soaring natural gas prices.

 

At the heart of the alarm, is the energy crisis with the associated sharp increases in natural gas prices, a key energy resource for many industries. Energy prices are at least 5 or 7 times higher in the EU than in the US, and the Old Continent could face gas shortages and thus even higher costs in 2023.

 

Moreover, the growing gap in competitiveness with the United States should not be underestimated, which risks triggering a wave of relocation of EU companies and a new war between the two Western economies, due to nationalistic and protectionist measures.

 

A call to the EU for action

 

The latest warning comes from a study by the Business Europe Council, which represents national industry organisations in Europe. The Council calls on the Commission to take action to protect European businesses from energy costs. Because of the rapid increase in natural gas prices and the widening gap with the US in energy costs for industries, the advantage that has been gained by American companies is significant.

 

According to the latest data from the International Monetary Fund, already in 2021 the United States had become the world's leading destination for foreign direct investment, with gross inflows of nearly 5,000 billion. "This may lead to the relocation of production, as some sectors cannot adapt quickly enough and therefore decide to move their units to countries where energy is cheaper," the Business Europe report said.

 

In order not to “bury” entire sectors and keep up with the energy transition, the EU is looking for various solutions to support the industrial transformation in Europe as well: From facilitating state aid to simplifying public investments in the energy transition sector, to a greater push for the REPowerEU under the Green Deal with the possibility of higher EU funds: there are many proposals to support industrial transformation in Europe as well. But the solution will not be easy and in any case the EU always starts at a disadvantage compared to the US. European industry has many insurmountable challenges to overcome in 2023.