EXCLUSIVE Germany in talks to provide more state aid for gas imports - sources

FRANKFURT, Oct 4 (Reuters) - Germany is in advanced talks to provide billions of euros in additional guarantees to Sefe, formerly Gazprom Germania, to ensure the company can honour a major contract to supply gas to German importer VNG, two people familiar with the matter said.

Under the deal, Sefe would receive additional government-backed credit lines to fulfil a contract under which it supplies 65 terawatt hours (TWh) of gas to VNG (VNG.UL) - part of German utility EnBW (EBKG.DE) - each year, the people said.

An agreement could be reached as soon as this week, one of the people said, adding talks were ongoing and the outcome could still change.

One person with knowledge of the discussions said the state could give a guarantee that could, in turn, underpin a loan to Sefe from state bank KfW (KFW.UL). That money could then be used to buy gas on the open market.

Germany's economy ministry, Sefe, VNG and EnBW all declined to comment.

Germany is scrambling for gas after Russia cut supplies to Europe, ending the country's longstanding energy relationship with Moscow, which once supplied most of the gas to Europe's top economy.

VNG and Sefe have been hit by the complete halt to Russian gas supplies, forcing them to buy replacement volumes at sky-high prices to meet contracts and forcing them to seek state help to keep going.

As a result, both companies are caught up in a legal dispute about the supply contract and who should pay the higher costs for replacement volumes.

A German court in August upheld a decision that Sefe must supply VNG under the contract until Sept. 30. The contract equates to around a third of volumes that Uniper (UN01.DE) procured from Russia each year before supplies were halted.

Sefe, which was ditched by Gazprom (GAZP.MM) earlier this year and subsequently put under German trusteeship, has so far received 9.8 billion euros ($9.7 billion) in state-backed credit lines. Sources said last month that Germany was weighing a full nationalisation.

VNG has also applied for state aid.

($1 = 1.0061 euros)

Reporting by Christoph Steitz; Additional reporting by John O'Donnell and Holger Hansen; Editing by Mark Potter and Jane Merriman

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