The government has drawn up plans to take over the funding of the UK operation of the Russian energy giant Gazprom, should the state-backed supplier collapse as customers cut supply contracts due to the invasion of Ukraine.
Officials have drawn up contingency plans to implement a financial lifeline for the business energy supplier, which has contracts in place with about two-thirds of the UK’s heaviest gas users, in the event that Gazprom Energy enters administration in the next few weeks.
Gazprom Energy, which is facing a customer exodus following Vladimir Putin’s invasion of Ukraine, has tested the market’s appetite for a buyer as the company considers financial options.
If Gazprom were to fail, it would be put into taxpayer-funded special administration – as occurred with Bulb, Britain’s seventh-biggest residential energy supplier, in November – because it is too large to be handled by energy regulator Ofgem’s “supplier of last resort” process. Bulb remains in administration with a taxpayer loan of £1.7bn.
“We are aware that Gazprom Energy has a large presence in the non-domestic energy retail market,” said a government spokesperson. “Gazprom’s retail business continues to trade in the UK and customers should exercise their own commercial judgment with regards to energy supply contracts they have in place at the moment.”
The firm supplies 100,000 sites across the UK, Ireland, France and the Netherlands, with offices in London and Manchester and about 350 staff. It accounts for about a fifth of the energy consumed by UK businesses, including councils and the NHS, but its clients are concentrated in industries such as ceramics, glass and steel.
Earlier this month, the health secretary, Sajid Javid, said that the NHS in England must stop using gas supplied by Gazprom. Merton council in London, and Suffolk county council have also said that they were attempting to break gas supply contracts with the company.
Nishma Patel, the policy director at the Chemical Industries Association, said that members of her group had been in discussions with the government about the future of Gazprom Energy. The Energy Intensive Users Group said that it had been warning the government for weeks that energy-intensive companies, from steel to fertiliser, could face financial issues if Gazprom is put into special measures.
Richard Leese, chair of the group, said that businesses that had hedged big price increases in the market with deals with Gazprom Energy needed to be protected.
“It’s really important that those healthy businesses, that have taken the responsible thing to do, which is hedge their energy exposure, and did it with Gazprom, that needs to be honoured in terms of contractual obligations,” Leese told a panel of lawmakers on Tuesday. “The prices need to be honoured when, or if, that business gets transferred to an administrator or new ownership.”
In a statement on its website, Gazprom Energy said that it was in contact with industry regulators but was not aware of any plans to move the company to government-controlled special administration.
“We are in constant contact with the relevant regulators and are unaware of any decision taken to place Gazprom Energy under government control,” it said. “As one of the largest active members of the GB gas market, Gazprom Energy takes its responsibilities to ensure stability and protect customers seriously. Ofgem must consider all possible scenarios and formulate plans to respond to whatever events unfold – this is entirely normal.”
• This article was amended on 23 March 2022. It was the Energy Intensive Users Group, rather than the Federation of Small Businesses, that warned government of financial problems for companies if Gazprom were put into special measures.
