Oil refinery issues raise concerns in Westminster about donors | Oil


TThe panic buying of gasoline and diesel that gripped Britain in September was a reminder of how quickly supply disruption can escalate into crisis. But as the long queues on the forecourt have gradually faded, concerns persist about the finances of the refineries providing around 25% of the fuel.

Financial difficulties affecting two of the UK’s remaining oil refineries have raised concerns within the government over their little-known ties to an oil company allied to the Kremlin and a commodities trading house under investigation for corruption, according to the Guardian.

Prax Lindsey’s oil refinery in North Lincolnshire fell from a profit of £ 1.9million to a loss of £ 228million in the year through February 2021, affected by the Covid pandemic crushing fuel demand, according to accounts filed at Companies House.

map of British refineries

The punitive loss comes just weeks after the Stanlow oil refinery in Ellesmere Port, south of the Mersey, was granted a temporary stay over the prospect of a liquidation order from HM Revenue and Customs. HMRC has given a “time-to-pay” agreement to the owners of Stanlow the billionaire brothers Ruia behind the Indian conglomerate Essar allowing Breathing Space to accumulate £ 223million in overdue VAT.

Essar Oil (UK), the company that houses Stanlow, lost $ 221million (£ 162million) in the year ending September 30, 2020.

The shabby finances of these two refineries underscore the vulnerability of Britain’s fuel supply and how these crucial pillars of Britain’s infrastructure are linked to obscure sources of funding. Of the national capacity of 60 million tonnes of refined fuels per year, Stanlow can produce more than 16% and Lindsey about 9%.

Previously, the refineries were owned by the oil companies Shell and Total, which needed an outlet for their product. Now both are in the hands of much lesser-known players.

According to sources familiar with the discussions in Westminster, Stanlow’s place in the financial architecture of Essar, an Indian conglomerate, was a factor of political reluctance to consider a bailout, if it had been necessary.

The accounts of Essar Oil (UK) show that it agreed to lend up to $ 375 million to Mauritius-based Essar Oil & Gas Limited in 2019 and was planning to grant an additional loan of $ 400 million this year. of dollars.

A few days after the accounts detailing these loans were filed with Companies House, it was revealed that Deloitte had resigned his post as Essar’s auditor, citing the need for better governance, “in particular with regard to loans and advances “. The loans were made at the request of Essar Oil (Cyprus), Stanlow’s parent company, according to the accounts. This Cypriot entity has also received £ 500million in dividends from Stanlow since 2017.

The refinery’s apparent ties to Russia have also raised political concerns, according to the Guardian. Documents filed by Companies House reveal that Essar Oil (UK) has registered a charge – a guarantee for a loan – in favor of Litasco, a Switzerland-based oil trading division of Moscow-based Lukoil.

Lukoil is a £ 50 billion oil giant founded on the ashes of Soviet Russia by its chairman and CEO, Vagit Alekperov, who owns more than 20% of the company and appears to be on good terms with Vladimir Putin.

Russian President Vladimir Putin, left, shakes hands with Lukoil chief executive Vagit Alekperov at a meeting in Moscow last year. Photograph: Alexei Nikolsky / AP

In June, Essar Oil (UK) appointed Tim Bullock, former CEO of Litasco between 2012 and 2018, to its board as an independent non-executive director, which it said would strengthen governance. Essar said Bullock no longer had a role at Litasco and did not own any shares there.

According to the Companies House documents, Litasco has a claim on the assets of Stanlow that would come into effect if the refinery defaulted on its (undisclosed) obligations, meaning the assets could fall into the hands of the Lukoil subsidiary in the event. of non-payment of the debt.

This claim relates specifically to Stanlow Terminals Limited, a key part of the sprawling Stanlow complex, where crude oil from around the world is deposited and stored before it is refined.

A refining industry veteran said owning the storage facility could give Lukoil a “ransom tape,” a piece of land that can be used to turn the screw on anyone who needs to. to access.

Essar Oil (UK) said: “Like all refiners, EOUK has been heavily affected by the pandemic. Despite this, we have strengthened our balance sheet with private funding, taken steps to strengthen governance and are profitable again.

“Since the acquisition of Essar in 2011, $ 1 billion has been invested in Stanlow to make it one of the most sophisticated refineries in northwestern Europe. Overall, EOUK is successfully going through the pandemic and emerging in a robust way. We are confident about the strong recovery in demand and our future prospects in a changing low carbon energy market.

Essar claims that Lukoil and Litasco are separate legal entities and that Litasco has no ability to influence operations at the Stanlow terminal.

In 2017, Essar sold its massive Vadinar oil refinery in Gujarat, India, to a consortium including Russian state-owned oil company Rosneft and commodities trading house Trafigura in a £ 10 billion deal. sterling.

As of this year, Trafigura also owns a significant stake in the Lindsey oil refinery in Lincolnshire. In March, the French oil company Total sold the refinery to Prax, a unit of a little-known Surrey-based company called State Oil, which has seen tremendous growth, with revenues nearly increasing tenfold between 2010 and 2020.

His controlling party, Winston Soosaipillai, which goes by name Sanjeev Kumar, is rarely spotted in public or at industry events and has almost no public profile. The company said it was a “natural progression” to acquire the Lindsey refinery, but did not answer more detailed questions.

In March 2021, the same month the company bought Lindsey, it recorded charges in favor of Trafigura, the Singapore-based global commodities trading house, under a supply agreement.

Should Prax default on payments owed to Trafigura through this agreement, according to the charge documents, the commodity trader is entitled to take control of the fuel supply contracts to BP, Asda and Certas Energy.

Stanlow Oil Refinery at Ellesmere Port, England.
Stanlow’s oil refinery supplies around a sixth of UK road fuel and is owned by billionaire brothers Shashi and Ravi Ruia, through their company Essar Oil UK. Photograph: Christopher Furlong / Getty Images

In May 2020, the Guardian revealed that Trafigura was under investigation by authorities, including the US Department of Justice, which is investigating suspicions of corruption and market manipulation. Trafigura declined to comment at the time.

Westminster officials have reportedly become uneasy about Prax’s ties to Trafigura in recent months, especially in light of the US investigation.

Keeping an eye on the owners of the UK’s six major refineries, not to mention the identities of their creditors, is all the more important as the industry cracks under soaring oil prices and volatile demand.

The pandemic has been “pretty ugly,” according to Alan Gelder, a refining and chemicals expert at energy consultancy Wood Mackenzie. “[Financial failure at Stanlow] It was a very real risk a few months ago, that’s when the situation seemed particularly dire, ”he said.

Refineries have to run near full capacity to make money, but production fell 19% last year amid the pandemic. Longer term, extinction is on the cards, with the government banning new gasoline and diesel cars by 2035.

The refineries that survive, Stone said, will be those whose owners have deep pockets, like ExxonMobil’s Fawley near Southampton and Pembroke in Wales, owned by US company Valero.

As one industry veteran put it, “We’re on a roadmap to two or three refineries, it can’t be different. Either we’re not going to decarbonize or we are. And if we do, we’re going to shut down refineries.


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