VNG, a 74.21% subsidiary of EnBW, will today submit an application to the German Federal Ministry for Economic Affairs and Climate Action for stabilisation measures under section 29 of the Energy Security of Supply Act. The primary cause consists of upstream suppliers that have not fulfilled their supply obligations. Consequently, it has been and continues to be necessary for VNG to procure gas quantities at considerably higher prices on the energy markets in order to maintain the ability to reliably supply VNG customers at significantly lower prices. To avert further damage and to enable the VNG Group’s business operations as a whole to continue, VNG sees itself compelled to apply for further supporting measures under the Energy Security of Supply Act in addition to the ‘gas surcharge’ (under section 26 of the Act) that has already been applied for.
This is because of the necessary replacement procurement: Gas quantities affected by Russian supply disruptions, in some cases at agreed fixed prices, now have to be procured at massively higher prices on the gas markets.
VNG has two contracts that are affected by the Russian supply disruptions. There is a direct contract for approximately 35 TWh of gas per year with Gazprom Export, which is currently not being fulfilled and is not expected to be fulfilled for the foreseeable future. This contract expires at the end of the year. As a direct importer, VNG would be able, by its own means together with further stabilisation measures from its shareholders, to bear the losses that even with the relief expected from 1 October 2022 as a result of the gas surcharge will amount to approximately €1 billion in 2022.
The larger of these two contracts relates to gas purchases of approximately 65 TWh per year with a German upstream supplier that imports the corresponding gas quantities. This contract has not been consistently fulfilled since mid-May. In August, contrary to expectations, VNG had to meet most of the cost of replacement procurement when gas prices were at an all-time high. With support from the German government, ways have been sought in recent weeks to reach a final settlement. However, this does not appear achievable in the near future in a form that is economically viable for VNG. The resulting financial burden would be unsustainable for VNG.
Despite the ongoing disruptions in Russian gas supplies, including the complete shutdown of supplies via the Nordstream 1 pipeline, VNG continues to supply and safeguard supplies to its gas customers to this day.
As a consequence of talks held with the upstream supplier and responsible government ministries from as early as May onwards, EnBW has already supported VNG as majority shareholder with guarantees and credit lines in the high triple-digit millions of euros.
From the accumulated and expected losses, a charge of approximately €550 million was recognised for the year so far in EnBW’s half-year financial statements. Since August, however, the circumstances have continued to deteriorate considerably with the rising cost of replacement procurement. Supplies have been further disrupted and in some cases stopped completely, with gas prices reaching an even higher level than before. As a consequence, VNG will continue to incur losses.
In parallel with the submission of the application for stabilisation measures under section 29 of the Energy Security of Supply Act, ongoing talks on options for stabilisation of the company also continue between VNG AG with its shareholders and the Federal Government. VNG and EnBW continue to aim here for a constructive and mutually agreed solution.
The specific impacts of the losses due to unfulfilled supply obligations, and to the stabilisation measures applied for today in consequence, on the financial position, financial performance and cash flows of the EnBW Group depend on the outcomes of the further talks and are therefore not yet able to be reliably estimated.
As the third largest German gas importer and storage operator, the VNG Group is system-relevant for security of supply in Germany and structurally relevant for Saxony and eastern Germany. The VNG Group supplies gas to approximately 400 municipal utilities and industrial operators and met approximately 20% of German gas requirements in 2021.