Sanctions on Russia disrupted LNG supply to GAIL: Former Gazprom unit

New Delhi: A former unit of Russian energy giant Gazprom said sanctions by Moscow had led to disruption in its sources of supplies, leading to the default in supply to Indian gas utility GAIL. GAIL had in December last year filed an arbitration claim before the London Court of International Arbitration seeking USD 1.8 billion from SEFE for "non-supply of LNG cargoes under long-term contract."

PSU Watch is now on Whatsapp Channels. Click here to join

Last week, GAIL in a regulatory filing said SEFE had in its 'Statement of Defence' before the arbitration panel denied that "it owes anything other than an alleged contractually limited sum properly evidence."

In 2012, GAIL signed a 20-year deal to buy as much as 2.85 million tonnes per annum of liquefied natural gas (LNG) with Russian energy giant Gazprom. The deal was signed with Gazprom Marketing and Singapore (GMTS), which at the time was a unit of Gazprom Germania, now called SEFE. SEFE ownership changed after Russia's invasion of Ukraine in 2022.

Clarifying the circumstances of the default, SEFE said in April 2022 Gazprom transferred the German company to a Moscow DJ which "did not possess a foreign trade license."

"...following this transfer, the new shareholder ordered Gazprom Germania to be liquidated," it said. "On May 11, 2022, the already extremely precarious situation escalated: the Russian Federation sanctioned Gazprom Germania - at this point under trusteeship of the German Federal Network Agency - with a comprehensive, complete supply freeze. Gazprom Germania was the only energy supplier in Germany targeted in this way."

This meant that the company could not get any LNG supplies from Russia and so it stopped supplying LNG to the Indian company in June 2022. GAIL has disputed this saying the contract was a portfolio contract and supplies cannot be stopped in any way. It has sued "SEFE Marketing & Trading Singapore Pte Ltd (erstwhile Gazprom Marketing and Trading Singapore Pte Ltd)" and has sought "up to USD 1.817 billion and alternative relief, including non-monetary reliefs."

"This immediate suspension of all active supply contracts completely disrupted the company's previous business model. Essentially, Gazprom Germania, later SEFE, had to completely reinvent procurement," SEFE said. "This scenario was and remains unprecedented. There was therefore imminent danger and the company's situation was precarious (force majeure)."

After a capital cut, SEFE became 100 per cent state-owned by the Federal Republic of Germany on November 14, 2022, it added. SEFE resumed supplies to GAIL in March last year. Under the deal signed in 2012, supplies started in 2018 and the full volume was to reach in 2023.

(PSU Watch– India's Business News centre that places the spotlight on PSUs, Bureaucracy, Defence and Public Policy is now on Google News. Click here to follow. Also, join PSU Watch Channel in your Telegram. You may also follow us on Twitter here and stay updated.)