Cancelling Salford’s £1.8m contract with Russian gas provider could see bill rise by 800%

Salford is asking for help to cancel its £1.8 million contract with Russian state-owned Gazprom which provides vital public energy to Salford’s schools, libraries and hospitals.

City Mayor Paul Dennett has written to the government calling for extra cash to cover the increased costs of ending the Russian contracts in protest at the invasion of Ukraine.

The council is worried that the global surge in gas prices could see Salford schools and other public buildings paying millions more a year across the city.

Mayor Dennett took to Twitter to share the letter he sent to the Secretary of State for Housing, Communities and Local Government seeking support for local authorities which cancel contracts with state-owned Russian companies.

In his letter to Michael Gove, the Mayor stated: “State-owned and/or backed Russian organisations and services are still woven inextricably into the delivery of local government within the United Kingdom.”

The contract with Gazprom scored well ahead of the next-nearest rivals in June 2020. At the time the contract was labeled ‘excellent value’ and expected to save the council £355,000.

My letter to @michaelgove @luhc calling on government for information, advice & guidance to urgently support local government in dealing with UK subsidiaries of Russian majority state-owned multinational energy corporation Gazprom & Russian state-owned companies more generally.👇🏻 pic.twitter.com/iDHL2PJLZI

— SalfordMayor (@salford_mayor) March 3, 2022

Dennett told the council meeting: “The reason the Gazprom subsidiary won the last contract was because they were cheaper and provided a better and more reliable service than their nearest competitors, by a long way.”

This could create a situation in which other energy suppliers have leverage against local authorities that have previously relied on cheap Russian gas. This has been predicted to increase gas prices in the city as the council has little choice but to buy more expensive gas.

Cllr Brocklehurst of Walkden North asked the Mayor: “My concern is that gas producers and suppliers will profiteer from the Russian Federation’s war in Ukraine and inflate the price of natural gas, effectively as a collective cartel. My question is how will this affect our Salford schools and nurseries and our other local authority facilities.”

Swinton Park Councillor Jim Cammell replied to Brocklehurst’s question by quoting a letter sent by the council’s energy manager to schools, stating: “Given current geo-political events, energy markets are at a record high with a potential ten-fold increase being seen. Some indicative renewal prices obtained in early March see a potential average annual increase in gas costs of 826%.”

Because the gas being provided by Gazprom is neither commercial nor domestic the domestic price cap is not applicable. This is where gas prices are kept artificially low as wholesale gas prices inflate. Some reasons for this include depleted stocks following a cold 2020 winter; lower flows of natural gas from Norway; and, of course, a reduced supply from Russia following international sanctions against the regime.

Cllr Cammell continued: “Education colleagues are working closely with the energy manager to try and minimise damage to school budgets, but this is an unprecedented situation which will impact on council-wide costs as well as the schools and nurseries and indeed every household locally and nationally.”

Approximately 90% of schools in Salford are involved with the council’s contract. Some schools will be able to manage the price increase within their budgets but those that can’t may need to seek a licence deficit for their budgets.

Mayor Dennett reassured Cllr Brocklehurst that the situation will be escalated to the correct government departments, including the Treasury.

Conservative Cllr Arnold Saunders, for Kersal and Broughton Park, said: “There’s a Conservative Councillors Association conference in Blackpool and there will be senior cabinet members attending. Although I will be attending virtually, if I get the opportunity to bring that up, I will do.”

Despite this, he also attacked the council complaining that other Labour councils, such as Blackburn, Darwen and others, had already ended their contracts with the Russian company. According to data firm Tussell, UK local authorities paid £29 million to Gazprom from 2016 to 2021.

Dennett also said: “Our letter has requested that the Government takes steps to support councils who are engaged in scrutinising their contracts and determining their exposure to Russian and Belorussian owned businesses. To date, the Government are happy to talk and engage with local authorities but there’s no clear instruction or offer of financial and practical support.”

He continued: “This appears to be in stark contrast with the Secretary of State for Health and Social Care’s order that the NHS cut ties with the Russian state-owned energy firm Gazprom.”

Dennett said the longer-term solution to this issue was to remove years of Thatcherite policy and re-nationalise utilities, such as gas, water and electricity.