Germany prepares energy bailout law as gas prices soar

The German cabinet on Tuesday approved plans to quickly prop up struggling energy companies as a looming Russian cut-off and soaring gas prices heap pressure on the sector.

Germany Economy and Climate Minister Robert Habeck at the SPD Economic Forum on July 5th.
Germany Economy and Climate Minister Robert Habeck at the SPD Economic Forum on July 5th. Photo: picture alliance/dpa | Bernd von Jutrczenka

Germany would “not allow system effects” to ripple through the gas market, where the failure of one company could lead others to go under as well, Economy Minister Robert Habeck told reporters.

The emergency legislation will “facilitate” stabilisation measures for energy companies, including the possibility of the government becoming a shareholder, the ministry said.

German energy company Uniper, one of the biggest importers of Russian gas, entered into talks with Berlin over a possible rescue plan last week.

A 60-percent reduction in gas supplies via the Nord Stream pipeline from Russia in mid-June forced Uniper to pay higher prices for alternative supplies on the spot market.

Unable to pass the cost on, the gas squeeze left Uniper with “significant financial burdens”.

READ ALSO: ‘Scarce commodity’: Germany raises gas alert level as Russia reduces supplies

Bailout options under discussion included extending further credit lines from the public lender KfW or an equity investment in Uniper, the group said.

Officials estimate a rescue package for the struggling energy group could cost around €9 billion, according to Bloomberg News.

Germany has criticised Gazprom’s “political” decision to limit supplies, which the Russian energy company blames on a delayed repairs.

Following the move, Berlin raised the alert level under its emergency gas plan, bringing it a step closer to rationing the fuel.

The government has mandated for its gas storage facilities to be 90 percent full by the beginning of December.

In June, Berlin also bailed out Russian energy giant Gazprom’s former subsidiary in Germany with between nine and 10 billion euros worth of loans after it had been placed under state control.

Securing Energy for Europe, as the company was renamed, is a network operator, and indirectly controls Germany’s largest but largely empty gas storage facility in the northwestern town of Rehden.

Member comments

  1. There’s surely something to be said about bailing out multi million Euro companies whilst at the same times cutting unemployment benefits. But I can’t think of anything….

    FYI Uniper last paid a dividend in May. 7 cents per share to 365.9 million shares.

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Germany plans to slash VAT on gas bills to seven percent

The EU Commission has blocked plans to dispense with VAT on gas bills. Instead, Germany will drop the tax rate from 19 to just seven percent.

Germany plans to slash VAT on gas bills to seven percent

Following the EU Commission’s rejection of a simple VAT exemption for the new gas levy, the German government has announced plans to slash the VAT rate to seven percent to ease the pressure of rising energy costs on households. 

The step will relieve gas customers significantly more than they were burdened by the state gas levy, Chancellor Olaf Scholz said on Thursday.

The SPD politician said he expected the companies to pass the tax reduction on to consumers directly. “This is another step towards relieving the burden,” he added.

He also reiterated a pledge to deliver further relief measures for households in autumn. 

“The question of social justice is decisive in order for the country to remain united in this crisis,” Scholz said.

To ease the weight of the forthcoming gas levy, the government had originally wanted to remove the obligation to pay 19 percent VAT entirely.

However, Brussels confirmed that scrapping VAT completely would be impossible under the EU’s strict competition laws.

“In principle, there is no possibility of an exemption from this tax,” Commission spokesman Danny Ferry told Tagesschau on Wednesday. “We are in very close contact with the German government to find solutions here that will benefit people in Germany and have the same effect in the end.”

READ ALSO: What is Germany’s new gas ‘tax’ and who will pay it?

Earlier in the week, Trading Hub Europe had revealed that the gas levy would be set at 2.419 cents per kilowatt hour of energy. According to initial estimates, a one-person household with an annual consumption of 5,000 kilowatt hours would see their bills rise by €121 euros without VAT due to the levy.

For a family household with an annual consumption of 20,000 kilowatt hours, the additional costs without VAT would be around €484 per year.

With the full amount of VAT included, the real cost of the levy would have risen to 2.879 per kilowatt hour of energy.

The tax cut will run until the end of March 2024, the same time the gas levy is due to expire.

Criticism of the levy

The levy is intended to compensate gas suppliers for their additional costs in light of Russia’s war on Ukraine and subsequent weaponisation of the energy crisis.

So far this year, German gas giant Uniper has posted around €12.3 billion in losses due to the scarcity of cheap Russian gas and the need to top up gas supplies elsewhere at a premium.

The gas levy is part of a rescue package for these struggling energy companies, but the plan has been criticised for not spreading the burden more evenly across society.

READ ALSO: EXPLAINED: How much will Germany’s gas levy cost you?

According to Professor Martin Booms, director of the Academy for Social Ethics and Public Culture in Bonn, a fairer way to bail out the gas firms would be through taxation.

The levy is intended to prevent the “systemic collapse of the gas supply”, Booms told WDR. This concerns the whole of society – not just gas customers “who happen to be unlucky enough to be in a rented flat that is heated with gas”.

For this reason, Booms considers taxation to be a more just solution.

“If everyone participates – namely by paying taxes – the burden is lower for each individual,” he said. “That is a very big advantage. Especially for those who are hit the hardest.”