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Germany getting ready for sudden halt in Russian gas Supply

BERLIN, May 9 – German authorities are quietly preparing any Russian gas suspension for an emergency package that could include controlling critical firms, three people familiar with the matter told.

Arrangements led by the Department of Economic Affairs show a critical state of awareness about the supply of gas that empowers Europe’s largest economy and is critical to the production of metal, plastics and automobiles.

Russia’s gas accounted for 55% of goods purchased in Germany last year and Berlin was under pressure to end business relations with critics who say it helps fund the Russian war in Ukraine.

Germany has said it wants to free itself from Russian resources but expects to rely heavily on Moscow for gas by mid-2024.

It is unclear whether a sudden suspension will happen and officials say Germany wants to curb the increase, such as supporting European gas embargo, as it already supports sanctions against Moscow on coal and oil.

But now they fear that Russia could cut off gas supplies inconsistently and want to be able to deal with it if it does.

Although there is a broad framework in place and the government is willing to help, details on how to use the system are being scrapped, officials said.

The government will support additional loans and guarantees to finance power plants, help them cope with rising prices, and could take critical companies, such as refineries, into their control, the three officials said.

Asked to comment on the measures, the German Ministry of Economy pointed out a statement by its head, Deputy Chancellor Robert Habeck, that the country had made “significant efforts” in recent weeks to reduce Russia’s use of force.

Last month, Berlin approved a legal change to allow it to regulate energy companies as a last resort.

It is now discussing how to use the measure in practice, such as controlling the PCK cleaning facility operated by Russia’s Rosneft (ROSN.MM) in Schwedt near Poland, two people said. It claims the remaining German oil that has been exported and may be hit by a European Union oil ban.

Rosneft declined to comment on any possible German action.

ENERGY NATIONALISATION?

One of these people said the inclusion of national energy companies is a viable option but would have to be carefully considered and justified for reasons of obtaining electricity rather than punishing Russia.

Germany could also participate in other companies, say two people familiar with the matter. In 2018, it made a similar move when national development bank KfW purchased 20% of the 50Hertz power network operator to block supply from China State Grid.

The government’s final emergency package has not yet been completed. One of the people warned that taking small shares in companies and intervening in the Schwedt refinery is still under discussion but has not been decided.

Officials are also exploring how KfW can reduce pressure on sensitive companies by backing up extra loans, or emergency credit lines that they can use if prices go up and create expensive margin calls in their market positions.

Earlier this year, KfW helped German power company Uniper (UN01.DE), EnBW’s (EBKG.DE) VNG gas component and Leag coal-fired power station operator to deal with the energy market fluctuations.

KfW declined to comment on which companies helped.

Germany is also exploring how it will supply gas in an emergency. Its regulator considers whether to prioritize the industry rather than homes, which could be a change in the current policy in which businesses will be terminated first.

Negotiations are underway against Ukraine’s military base and growing tensions between Moscow and Brussels, which have backed severe sanctions on Russia.

Russian President Vladimir Putin told his troops at a rally on Monday that they were fighting for their country but did not say how long the invasion of Ukraine, the Kremlin, would call a special military operation.

ECONOMIC PIRAL

Russian company Gazprom (GAZP.MM) suspended gas exports to Poland and Bulgaria last month after refusing to pay in rubles but the Kremlin dismisses allegations by the European Commission that Moscow was using natural gas as a shortage.

The Kremlin and Gazprom have repeatedly stated that Russia is a reliable supplier.

Kremlin and Gazprom did not immediately respond to a request for comment.

After doubting support for sanctions on coal and oil, Berlin also now wants to draw the line, four officials said.

They worry that blocking gas could trigger inflation, allow Moscow to earn money by exporting to the EU and thus failing to clear its military chest.

The officials said Germany had reached a level of sanctions that I could impose without creating economic tension, even those in a coalition that strongly condemned Moscow’s warning of imposing sanctions on electricity.

Berlin was also influenced by the captains of the German industry, including senior executives of its largest listed companies and representatives of Russian-affiliated firms, who regularly met and urged officials not to shut down gas, said one source.

Company officials have told Berlin they are preparing to postpone Russia’s power relations in any case, but have urged the government not to force them to do so immediately, a second person who knows the talks said.

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