Fortum prepares for a controlled exit from Russia and takes action to provide security of supply in Europe

“After a year of extraordinary and volatile market conditions in 2021, developments in the early part of 2022 have been even more dramatic as a consequence of the Russia-Ukraine war. Together with its allies, the EU has responded in a coordinated and decisive manner to support Ukraine and to isolate Russia with broad sanctions, covering also energy. This has caused an upheaval in all commodity markets, with the European front-month gas prices spiking above 200 euro per megawatt hour over possible supply disruptions. Furthermore, high gas prices have clearly increased both demand and prices of other commodities; including oil, coal and power. With markets, political developments and additional sanctions continuously in flux, this has created unprecedented short term challenges for the entire sector in Europe since the war began, as well as far-reaching implications for the longer-term energy system and transition. The resulting industry crisis mode also significantly affects us at Fortum.

 

Fortum is managing this extreme market volatility and increased uncertainties on the commodity markets by focusing on cash flow optimisation and securing of sufficient liquidity headroom. At the end of the first quarter, we had almost EUR 6 billion of undrawn committed short-term and long-term financing. We will continue to strive for a solid investment-grade rating of at least BBB to preserve financial flexibility. In March, S&P Global Ratings placed Fortum and Uniper on Negative Credit Watch while Fitch reaffirmed our long-term rating BBB with a stable outlook.

 

Over the recent months, we have also worked hard to reduce the Group’s exposure to Russia and to support the European governments in securing and diversifying alternative energy supplies. In addition to the previously announced investment and financing freeze in our Russian subsidiaries, we have decided to pursue a controlled exit from the Russian market. As the preferred path, this decision includes a potential divestment of Fortum’s Russian operations. The divestment process for Uniper’s Russian subsidiary Unipro is also expected to be resumed as soon as possible. These processes may take some time to conclude and are subject to regulatory approvals. Irrespectively, we have decided to stop using the Fortum brand in Russia.

 

It is very clear that there is a need to decrease Europe’s dependency on Russian energy and move towards a more independent energy system in Europe. Especially Germany is currently highly dependent on the imports of natural gas and as the country’s government has repeatedly stated that withdrawing from Russian gas is not immediately possible. We are working on ways to reduce, replace or transform the use and supply of natural gas both in the short and mid-term. Uniper is in close consultation with the German government and has already taken a series of actions to secure alternative energy supplies. As one example, Uniper contracted additional capacity to land LNG at the Gate terminal in Rotterdam in The Netherlands. We have also agreed to build and operate a floating LNG import terminal in Wilhelmshaven in Germany for the German government. In Finland, the Finnish Fennovoima’s Board of Directors decided to terminate the EPC-contract with the Russian RAOS Project on the Fennovoima Hanhikivi 1 nuclear power project at the end of April due to severe delays and unability to deliver the project. Fortum is an indirect shareholder (6.6%) in the project.

 

These examples demonstrate that a lot is being done by Europe’s sector leaders, all of whom want to help address Europe’s current energy crisis and support a more independent energy system for Europe. But none of us can do it on our own. These unprecedented times call for an unprecedented level of cooperation – between country governments, between governments and companies. The energy sector needs transparency, guidance and visibility from political bodies on the desired way forward. Clarity is paramount for the sector to make the substantial investments required and to focus on the most promising solutions. While some challenges are being resolved for the short-term at lightning speed, as outlined above, others will take more time and can’t be rushed.

 

In the first quarter, our comparable operating profit turned into a loss of EUR 438 million. The result was mainly weighed down by a phasing effect in the Uniper segment’s gas midstream business due to gas storage optimisation that shifted approximately EUR 750 million of profits into coming quarters of the year. However, despite the first quarter loss, Uniper reiterated its full-year 2022 guidance. This quarter’s highlight was the Generation segment’s good performance that was mainly driven by higher achieved power price following very successful physical optimisation and higher spot prices. City Solutions’ result decreased on higher fuel and CO₂ emission allowance prices, lower heat volumes in Finland as well as on structural changes. Consumer Solutions was slightly down mainly due to a reduction in the number of customers and slightly higher cost. While production was running normally in Russia, the Russia segment’s result was impacted by weaker rouble and the ending of CSA payments for one unit while the previous year was positively affected by gains from the sale of a solar power project. In our first quarter results we recorded impairments of approximately EUR 2.1 billion related to the Group’s Russian assets.

 

I can’t stress enough that these times are very challenging for the European energy sector – and for Fortum. The urgency to accelerate the transition to CO₂-free and clean energy is clearer than ever before. Our strategy is designed to secure a fast and reliable transition to a carbon neutral economy. We will therefore continue to push forward with this execution. In doing so, I want to thank all our employees for their resilience, unwavering commitment and hard work over the past few months.”