VNG Resolves Residual Risks from Replacement Gas Procurement

An agreement with the German government on compensation for losses incurred in connection with the replacement procurement costs from the delivers contract with Gazprom Export LLC (GPE) has enabled VNG AG (VNG) to resolve the residual risks from replacement gas procurement. Consequently, VNG withdrew its application for stabilisation measures under section 29 of Germany’s Energy Security of Supply Act today. The government will therefore not take an equity stake in VNG.

EnBW CFO Thomas Kusterer: “We are pleased with the solution now reached. This completes the main steps for the stabilisation of VNG. It removes the non-operating earnings charge of approximately €600 million that we had initially provided for the fourth quarter of 2022. As a result of the agreement with the German government and the drop in market prices– the total earnings impact from both delivery contracts for EnBW will not exceed €1.18 billion in total – irrespective of price movements through to the end of 2022.”

VNG submitted an application to the German Federal Ministry for Economic Affairs and Climate Action (BMWK) for stabilisation measures under section 29 of the Energy Security of Supply Act on 9 September 2022. The application became necessary because unfulfilled supply obligations for Russian gas under two contracts with upstream suppliers forced VNG, on an ongoing basis, to meet the resulting shortfall at considerably higher prices on the energy markets in order to maintain the ability to reliably supply its customers at significantly lower contractually agreed prices.

One purchase contract for 65 TWh per year is with WIEH GmbH, a subsidiary of SEFE Securing Energy for Europe GmbH (formerly GAZPROM Germania GmbH). Under a settlement reached for this contract on 10 October 2022, the additional costs of replacement procurement in 2022 are borne by WIEH. In addition, the parties terminated the contractual relationship as of 1 January 2023.

The second gas purchase contract for approximately 35 TWh a year is with GPE and likewise runs out on 1 January 2023. A solution has now been found with the German government for the high replacement procurement costs incurred under this contract due to the supply shortfalls and the cessation of supply in late August, with VNG receiving an amount in the mid triple-digit million range as partial compensation for the expenses it has incurred to ensure security of supply. VNG is able to absorb the losses in excess of that amount together with its shareholders. The risks from replacement procurement under the two Russian gas purchase contracts are thus fully eliminated. These solutions stabilise VNG financially across the board, thus removing the need for the government to step in under section 29 of the Energy Security of Supply Act and enabling the application to be withdrawn.