Michael Gove plans to exit Gazprom contracts Business

Michael Gove is preparing to use a loophole to help councils exit contracts with Russian energy giant Gazprom.

The Communities Secretary is hatching plans to use arcane legislation that says public bodies must favor contracts that represent good social value.

Officials hope laws under the Social Value Act will allow councils to exit Gazprom deals without having to pay huge exit fees.

The councils are trying to abandon their contracts with the British branch of Gazprom, fearing they will inadvertently fund Vladimir Putin’s war in Ukraine.

In a letter sent to council leaders late last week, Mr Gove urged local authorities to “carefully review their contracts” with Russia.

He said: “I am grateful to all of you who have already expressed your support for the people of Ukraine and our collective response to Russian aggression.

“I am also aware that many local authorities have already taken a leading role publicly, announcing their intention to terminate their contracts with Russian companies, including Gazprom. I commend those who have taken the local decision to do so.

“We are ready to speak to any local authority with concerns about their financial situation, service delivery or where they may face pressures that they cannot take steps to manage locally.

“I can confirm that the government is looking at possible options to help local authorities who are reviewing their contracts. I hope to update you all as soon as possible.”

It could take weeks to issue new guidelines on how to enforce the Social Value Act. Officials are also exploring other ways to support councils seeking to exit Gazprom contracts. There was no final decision on the best course of action.

Councils are facing huge bills to switch energy providers after prices rose further following the invasion of Ukraine. Many were forced to choose Gazprom as their supplier because it offered the best value for money.

Mr Gove is therefore also considering legal changes that would allow councils to choose a more expensive option if there were ethical or political issues with the cheaper provider.

Gazprom is one of the largest suppliers of energy to commercial and public sector customers in Britain. It has a 21% share of the professional gas market, according to Cornwall Insight.

According to energy market sources, Gazprom is unlikely to attract new tenders from commercial customers. They warned that the company’s UK business could dry up over the next five years.

Most commercial customers seek fixed price offers, but these have become rarer due to the intense volatility in global energy markets.

Louis Fairfax, managing director of brokerage firm CUB UK, said: “There are fixed price offers, but they are rare. It is increasingly common that we have to tell clients they will be lucky if they can only get one deal on the table on any given day. But before that, we were seeing four or five deals a day for a fixed-price client. That’s definitely a problem.

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This notice was published: 2022-03-17 06:00:00

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