German cabinet approves law allowing bailouts of energy companies

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German Economy Minister Robert Habeck gives a statement on the topics of energy and security of supply, in Berlin, Germany June 23, 2022. REUTERS/Christian Mang

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BERLIN, July 5 (Reuters) - Germany's government will have the power to bail out utilities under proposed legislative changes approved by the cabinet on Tuesday, according to the economy ministry.

"The situation on the gas market is tense and unfortunately we cannot rule out a deterioration in the situation," Economy Minister Robert Habeck said in a statement.

New amendments to the Energy Security Act will give the government additional tools to help utilities if they falter under rising energy prices as Russian gas imports decline.

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Under the legislation, the government can take action to stabilise energy companies that are facing financial difficulties and thereby avoid a cascading effects in the energy market that could hit consumers, the ministry said.

It also introduced an alternative mechanism to share the costs of rising gas prices equally among all consumers, in addition to the possibility of triggering a general price adjustment clause if there is a significant disruption to gas imports.

"Both instruments ... are subject to strict conditions and are currently not to be activated," the ministry said, adding that stabilization options for energy companies will be prioritised over the two price adjustment mechanisms.

The law is to be voted on by the lower and upper houses of parliament on Friday.

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Reporting by Markus Wacket and Riham Alkousaa; Writing by Miranda Murray; Editing by Paul Carrel and Maria Sheahan

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