Govt holding bilateral talks over Gazprom-GAIL issue, won’t seek penalty

The central government is bilaterally dealing with the failure of Russia’s Gazprom deal with the state-run Gas Authority of India Limited (GAIL) (India) to supply liquefied natural gas (LNG), reported Livemint quoting officials aware of the development.

The centre may neither pursue arbitration with Gazprom, the world’s largest natural gas explorer, nor accept a penalty from the company after it halted supplies to GAIL in May, the officials told Livemint. The government officials added that bilateral efforts are underway to resolve the vexed issue.

Gazprom’s former subsidiary, Gazprom Marketing and Trading Singapore (GMTS) signed an agreement with GAIL to supply 2.5 million tonnes (MT) per annum for 20 years, starting in 2018-19. However, after the outbreak of the Ukraine war, supplies from Gazprom have been stalled since May this year.

Also Read: Russia economy may not reach pre-war levels until 2030, says report

“This is being taken up diplomatically, and it will get sorted out because, at the end of the day, Russians have to sell their gas. And this is not being viewed only in terms of commercial interest, but India is one of the countries that has sided with Russia in the Ukraine conflict,” one of the officials told business daily.

The official added, “While it may look like we are sitting on the fence, we are actually siding with Russia as we have not voted against them in any forum. It is just not only one perspective.”

Supplies to GAIL stopped in May after GMTS got housed under Gazprom Germania GMBH, after which Gazprom gave up its ownership of the company in April, without any explanation, and imposed sanctions. At the same time, Germany seized control of Gazprom Germania in April.

Germany’s move came in the wake of winters, as Berlin wants to stock up on gas for domestic usage, rather than supplying it to consumer countries. Explaining the nation’s step, the German economy minister, Robert Habeck, had said, “The Federal Government is doing what is necessary to uphold the security of supply in Germany.”

Berlin’s action of seizing control of the oil company hit India as the nation meets its 85 per cent of oil and 55 per cent of natural gas needs from imports. Any hike in global crude prices affects India’s import bill, stokes inflation, and widens the trade deficit.

The government official told Livemint, “The problem arose because the contract is not with Gazprom. It is with GMTS. There are sanctions against GMTS, and they have declared a force majeure (meaning it did not have to meet its contractual obligations). We are telling that with Gazprom being the parent company, therefore they shall provide the gas. That is why this diplomatic move is coming.”

“We won’t accept the penalty. Arbitration doesn’t make sense… We just want gas. Right now, what we are saying is that please make gas available to us from any of your global portfolios,” the official told Livemint.

Dear Reader,

Business Standard has always strived hard to provide up-to-date information and commentary on developments that are of interest to you and have wider political and economic implications for the country and the world. Your encouragement and constant feedback on how to improve our offering have only made our resolve and commitment to these ideals stronger. Even during these difficult times arising out of Covid-19, we continue to remain committed to keeping you informed and updated with credible news, authoritative views and incisive commentary on topical issues of relevance.

We, however, have a request.

As we battle the economic impact of the pandemic, we need your support even more, so that we can continue to offer you more quality content. Our subscription model has seen an encouraging response from many of you, who have subscribed to our online content. More subscription to our online content can only help us achieve the goals of offering you even better and more relevant content. We believe in free, fair and credible journalism. Your support through more subscriptions can help us practise the journalism to which we are committed.

Support quality journalism and subscribe to Business Standard.

Digital Editor