GAIL Moves U.K. Court For Arbitration Against Gazprom Supply Disruption

GAIL (India) Ltd. has filed for arbitration against Russian gas supplier Gazprom International Ltd. in the U.K. Court to recover the damages in the 20-year long-term gas supply contract, which got disrupted in May 2022 following the Russia-Ukraine crisis.

"The force majeure alleged by the supplier was not as per the contract," Sandeep Kumar Gupta, chairperson and managing director of GAIL (India), told BQ Prime in an interview. "It was a portfolio of contracts, and they should have supplied them by sourcing gas from other geographies."

"We have taken it up to press for the specific performance under the contract and to claim the damages that we have incurred due to non-supplies," Gupta said.

There were around 40 cargoes that were to be supplied under the contract. The total disruption was 30 cargoes since May 2022, valued at $1.7 billion, or Rs 14,057 crore.

"In the last two months, the supplies have resumed, and we have received full supplies," Gupta said. "We hope to receive full supplies in the future as well."

The disruption happened due to the Russia-Ukraine war. Moscow sanctioned the step-down subsidiary—Gazprom Marketing and Trading Singapore, which supplied gas to GAIL—after its acquisition by the German government.

GMTS signed an agreement with GAIL to supply 2.5 million tonne of liquefied natural gas per annum for 20 years from 2018–19. Till April 2022, GMTS was a subsidiary of Gazprom Germania GMBH.

However, Gazprom gave up its ownership of Gazprom Germania without giving any explanation and imposed sanctions. At the same time, Berlin seized control of Gazprom Germania and said it was "doing what is necessary to uphold the security of supply in Germany".

The disruption impacted the company's numbers, as the net profit in fiscal 2023 dropped by half, while the fourth quarter profit plunged 81.5% year-on-year to Rs 642 crore. This happened despite the company reporting an all-time high in revenue in the fiscal.

Green Hydrogen And Transition Plans

GAIL plans to start commercial production of 4.3 tonne per day of green hydrogen in December at its Vijaipur plant in Madhya Pradesh. This will help GAIL substitute grey hydrogen with green hydrogen when blending with natural gas.

The company started blending 2% of grey hydrogen with natural gas, which increased to 5% recently through its joint venture, Avantika Gas Ltd. The natural gas supplier has undertaken a study with IIT Kanpur on the impact of this blend on the metallurgy of pipelines and consumer assets. "Likely, the impact will not be adverse; we will ramp up the blend to higher levels," Gupta said.

According to an Indian Oil Corp. survey, around 18% blend in volume terms can happen, but that does not involve the pipelines, Gupta said.

Capex Plans

For fiscal 2024, the gas distributor has planned a capital expenditure of Rs 10,000 crore towards pipeline expansion for petrochemicals and the acquisition of JBF Petrochemicals Ltd. that it won in March. In FY23, the company had a capex of Rs 9,100 crore.

The capex will be funded through Rs 5,000–7,000 crore of borrowings and Rs 3,000 crore of internal accruals, Gupta said.