Germany girds for gas supply pain, targets $93 billion price relief plan



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Proposals agreed unanimously after 35 hours of talks

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Total proposed relief 96 bln euros thru April 2024

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Plan aims to ease cost of living

By Holger Hansen

BERLIN, Oct 10 (Reuters) - Germany on Monday said it plans to urgently implement a 96 billion euro ($93 billion) plan to ease pressure on consumers from surging gas prices as it was warned that the supply situation heading into winter remained tense even with full reserves.

Berlin said it supported the commission's proposals to give households and small and medium-sized businesses a one-off payment worth one month's gas bill this year and a mechanism to limit prices from March, and it was working to implement them.

"The supply situation remains tense despite the filled storage facilities," Michael Vassiliadis, head of trade union IG BCE and one of the commission experts, told a news briefing, adding that the panel hoped their plan would curb inflation.

If adopted, the plan would be paid for by a 200 billion euro relief package Chancellor Olaf Scholz's government announced last month to reduce the impact of energy prices on Europe's largest economy, which experts have estimated needs to cut consumption by a fifth to get through winter and beyond without rationing.

The package will be funded through additional loans that will be authorized this year, but the debt will not be included in this year's budget or next year's debt calculations. This would allow the government to uphold Finance Minister Christian Lindner's call for the debt brake to be reimposed next year after it was suspended in 2020.

The money will be provided through reactivating the Economic Stabilisation Fund (ESF) which was originally introduced in 2020 to bail out the airline Lufthansa during the pandemic.

"Is it perfect? Certainly not. Does it include guidelines that can help? We think so," said Siegfried Russwurm, president of Germany's BDI industry association and member of the commission.

German inflation hit its highest level in more than a quarter of a century in September at 10.9%, driven up by higher energy costs that have piled pressure on Scholz to address a cost-of-living crunch exacerbated by Russia's invasion of Ukraine.

Shares in Germany's energy-intense companies soared on the prospect of financial help, with Covestro 1COV.DE , BASF BASFn.DE , Heidelberg Materials HEIG.DE , Lanxess LXSG.DE and Thyssenkrupp TKAG.DE all up 6% to 10%.

'PREVENT PERMANENT DAMAGE'

European Union members have been drawing up a range of initiatives to cope with plummeting supplies from Russia, which once supplied 40% of Europe's needs, and rocketing gas prices TRNLTTFMc1 , although Germany has faced some criticism for pressing ahead with plans that poorer EU members cannot match.

Under a second stage of Germany's plan, the brake would cut the gas price to 12 cents from March through to the end of April 2024 on 80% of usage. For large industrial customers, a price brake of 7 cents is to apply to the procurement price from January 2023.

Hans Juergen Kerkhoff, president of the German Steel Federation, said the scheme was a key building block to support companies during the energy crisis.

"It is important to prevent permanent damage to the industrial base," Kerkhoff said.

Experts say the advantage of a one-off payment is that it provides immediate relief. The disadvantage is that it does not encourage reduced energy use.

Comparison portal Verivox said its calculations showed that the brake proposal would reduce household gas costs by around 41%.

"Nevertheless, households are facing a very expensive winter because most of the relief will not take effect until next March," said Thorsten Storck, energy expert at Verivox.

The VCI Chemical Industry Association welcomed the plan.

"The gas price brake is a very important first step that gives many companies back some confidence that they can overcome the crisis," VCI Managing Director Wolfgang Grosse Entrup said in a statement, calling for an electricity price brake as well. ($1 = 1.0308 euros)



FACTBOX-How Germany's gas price brake is helping reeling
industry ID:nL8N31B2AG



Reporting by Andreas Rinke, Holger Hansen, Rene Wagner, Riham
Alkousaa and Christoph Steitz; Writing by Sarah Marsh, Paul
Carrel and Rachel More; Editing by Cynthia Osterman, Robert
Birsel, Barbara Lewis, Alexander Smith, Mark Porter and Aurora
Ellis

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