German public sector banks are proposing a new financing model to bolster the financial stability of municipal utilities, addressing challenges arising from the nation’s energy transition. According to Iris Bethge-Krauß, CEO of the Association of Public Banks (VÖB), the organization advocates for granting municipalities increased borrowing capacity, specifically targeted at strengthening the equity base of their local utilities. The VÖB, representing institutions such as state and promotional banks, believes this measure is vital to ensure the continued operation and investment capabilities of these critical infrastructure providers.
The energy transition currently places significant investment demands on many city-owned utilities. Bethge-Krauß cautioned that some utilities are facing difficulties securing further bank loans due to already elevated debt levels.
In a recently released position paper, the VÖB suggests a model of “credit-financed strengthening of the equity of investing municipal utilities”. This proposal would allow cities and municipalities to secure municipal loans earmarked specifically for capital injections into their utility subsidiaries, circumventing existing debt capacity constraints. The association argues this approach would expand the borrowing capabilities of these local providers, opening up fresh avenues for securing credit and facilitating much-needed investment. The suggested method would allow borrowing regardless of the municipality’s overall financial performance.
