Plight of ‘too big to fail’ Gazprom UK prompts industry alarm

Hundreds of corporations danger a cataclysmic spike in payments if ministers permit Gazprom’s UK power provide enterprise to go bust, trade leaders have warned.

Gazprom Advertising & Buying and selling Retail, which trades as Gazprom Power and whose final proprietor is the Russian state fuel firm, has put itself up on the market to guard itself from the political fallout from Moscow’s invasion of Ukraine.

The UK-based firm, which has 30,000 company prospects, has been below strain previously month as corporations equivalent to Siemens and McDonald’s say they’re making an attempt to withdraw from their contracts, whereas NHS trusts and native authorities are being inspired to search out new suppliers.

Regardless of the fast-track try and discover a purchaser, the UK authorities is on standby to place Gazprom Power into “particular administration”, a de facto nationalisation the place it will be stored as a going concern with taxpayer help.

Nevertheless, a lot of its prospects are on contracts negotiated lengthy earlier than the wholesale value of power started to surge final summer season — which means they nonetheless pay charges far under present market ranges.

Firms say that in the event that they had been compelled to chop their contracts brief, they’d wrestle to discover a new provider prepared to tackle the danger at a time of unprecedented market volatility.

Even when they might discover another provider, they’d face an in a single day surge in prices that might make them unviable, a number of informed the Monetary Occasions.

The Power Intensive Customers Group, which represents heavy trade, mentioned Ofgem wanted to “look at the dangers of contagion” and decide whether or not Gazprom Power was “too massive to fail”.

It known as on the federal government to offer a assure to underpin the prevailing power provide contracts Gazprom Power has with its members to permit them time to barter new offers if Gazprom had been to fall into administration.

Authorities officers confirmed that in these circumstances the remaining prospects must purchase their power on the “spot value” on any day moderately than on the beforehand agreed stage.

Joachim Gessner, director of world power procurement at O-I Glass, the world’s largest producer of glass bottles and jars, mentioned if Gazprom Power had been to be compelled out of the market there may very well be large penalties for UK and European trade.

“Protecting the fuel flowing is one factor however it’s equally, if no more essential to maintain fuel flowing on the proper value,” mentioned Gessner, including that “Gazprom Power is simply too massive to fail.”

“If the UK corporations misplaced their hedges with Gazprom Power it will doubtless price them a double-digit billion pound quantity because of being out of the blue uncovered to considerably elevated prevailing market costs.” 

Not like family prospects there is no such thing as a obligation on suppliers to offer power and companies’ credit score balances aren’t normally protected if their provider goes bust.

Gazprom Power’s scenario poses a political downside for prime minister Boris Johnson provided that ministers have up to now resisted calls from heavy trade for monetary assist to cope with hovering power payments.

The federal government introduced in October that it was open to offering help to “energy-intensive industries” harm by the spike in wholesale fuel costs however corporations have up to now been left empty-handed.

With chancellor Rishi Sunak delivering his spring assertion on Wednesday, enterprise teams hope he’ll lastly present help with their payments.

The Division for Enterprise, Power and Industrial Technique mentioned: “Gazprom’s retail enterprise continues to commerce within the UK and prospects ought to train their very own industrial judgment on the subject of power provide contracts they’ve in place in the mean time,” it mentioned.

Ofgem didn’t instantly reply to a request for remark. Gazprom Power declined to remark.