Councils brace for legal battle with Gazprom over cutting contracts Business

The councils are bracing for legal action as they try to free themselves from contracts with Gazprom, the Kremlin-controlled energy giant.

Local authorities are bracing for damages claims after they were told to cut ties with the gas giant over fears it was indirectly funding Vladimir Putin’s war in Ukraine.

Michael Gove, the secretary of Leveling Up, urged council leaders to review their contracts with Gazprom and set up a team in his department to help them strike business deals.

He wants to help councils avoid paying exit fees when contracts end.

But sources said local authorities should also pay damages to Gazprom. The Local Government Act prohibits councils from authorizing non-commercial matters influencing contractual decisions.

A source said: “This applies in the context of terminating contracts with Russian-related businesses, as is the case for any country, for politically or morally based decisions. Terminating a contract without a legal right to do so is likely to put an authority in breach of contract and thus open to an action for damages.”

Another source said it would be much easier to walk away from contracts if the government sanctioned Gazprom rather than asking them to make moral decisions.

A government source said Mr Gove would support councils seeking to abandon Russian society.

“Gazprom should have no doubt: if you back Putin, there will be a price to pay. They can threaten any litigation they want; we will not be deterred from acting and we will support the councils to do so.”

The government has banned Russian gas shipments from British ports, but is still looking for other ways to end the UK’s dependence on Russian supplies.

The relationship between Councils and Gazprom runs through its commercial arm Gazprom Marketing & Trading, which buys gas on the wholesale market to resell to customers, which means that the gas does not necessarily come from Russia.

Separately, Gazprom has made around $340m (£266m) from gas sales to the EU every day since the war began on February 24, according to estimates by market intelligence firm ICIS. for The Telegraph. The calculation is based on the volumes delivered and the fair value prices assumed for the long-term contracts.

It amounts to a total of nearly $7 billion paid by EU countries to Gazprom between February 24 and March 15. The EU gets around 40% of its natural gas from Russia, with countries like Germany, Poland and Estonia being the most dependent.

The UK gets less than 3% of its gas from Russia. Kwasi Kwarteng, the business secretary, wants to end Russian gas imports altogether.

Mr Gove praised the councils for trying to end their relationship with Gazprom. Merton’s board voted last week to end its deal with Gazprom and switch to Corona Energy.

Merton Chief Mark Allison said: “I’m proud that our council has stepped up and taken swift action to ensure that not a penny of our residents’ money goes to supporting the Russian state or its invasion of Ukraine.

The Leveling Up department is currently developing guidance for the councils on how to proceed on any legal issues arising from their attempt to isolate Gazprom.

It is understood the government could change the law to allow councils to bypass Gazprom if it is the cheapest supplier in a procurement process.

Officials also hope that existing laws under the Social Value Act will allow advisers to end deals with Gazprom without having to pay huge exit fees.

A spokesperson for the Association of Local Governments said: “Councils are deeply saddened by the tragic events unfolding in Ukraine and are following the situation closely.

“It is up to individual councils to decide how to act locally but, like many organisations, they are considering what action they can take in light of UK sanctions and the current situation.”

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This notice was published: 2022-03-19 15:00:00

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