The panic-buying of petrol and diesel that gripped the UK in September served as an unwelcome reminder of how disruption to provides can quickly escalate into disaster. However whereas the lengthy queues on forecourts have step by step receded, issues persist in regards to the funds of refineries supplying about 25% of gas.
Monetary difficulties afflicting two of the UK’s remaining oil refineries have raised issues in authorities about their little-known ties to a Kremlin-allied oil enterprise and a commodities buying and selling home below investigation for corruption, the Guardian understands.
Prax Lindsey oil refinery, in north Lincolnshire swung from a £1.9m revenue to a £228m loss within the 12 months to February 2021, damage by the Covid pandemic crushing demand for gas, accounts filed at Corporations Home present.
The punishing loss comes simply weeks after Stanlow oil refinery in Ellesmere Port, south of the Mersey, was granted a brief reprieve from the prospect of a winding up order from HM Income and Customs. HMRC gave a “time-to-pay” deal to Stanlow’s homeowners – the billionaire Ruia brothers behind India’s Essar conglomerate – permitting respiratory area to stump up £223m in overdue VAT.
Essar Oil (UK), the corporate that homes Stanlow, misplaced $221m (£162m) within the 12 months to the tip of 30 September 2020.
The threadbare funds of these two refineries underline the vulnerability of Britain’s gas provide – and the way these essential pillars of UK infrastructure are tied to obscure sources of funding. Of the nationwide capability of 60m tonnes of refined fuels per 12 months, Stanlow can produce greater than 16% and Lindsey round 9%.
Beforehand, the refineries had been owned by oil “supermajors” – Shell and Complete – that wanted an outlet for his or her product. Now, although, each are within the arms of far much less well-known gamers.
And, in accordance with sources acquainted with discussions in Westminster, Stanlow’s place within the monetary structure of Essar, an Indian conglomerate however far much less well-known within the UK, was a consider political reluctance to think about a bailout, had one been required.
Accounts for Essar Oil (UK) present it agreed to lend as much as $375m to Mauritius-based Essar Oil & Gasoline Restricted in 2019 and was this 12 months contemplating extending an additional $400m mortgage.
Days after accounts detailing these loans had been filed at Corporations Home, it was revealed that Deloitte had resigned as Essar’s auditor, citing a necessity for improved governance, “specifically concerning loans and advances”. The loans had been made on the behest of Essar Oil (Cyprus), Stanlow’s guardian firm, accounts present. That Cypriot entity has additionally collected £500m in dividends from Stanlow since 2017.
The refinery’s obvious hyperlinks to Russia have additionally raised political issues, the Guardian understands. Corporations Home filings reveal that Essar Oil (UK) registered a cost – safety for a mortgage – in favour of Litasco, a Switzerland-based oil buying and selling division of Moscow-based Lukoil.
Lukoil is a £50bn oil big based from the ashes of Soviet Russia by its president and chief government, Vagit Alekperov, who additionally owns greater than 20% of the corporate and seems to be on convivial phrases with Vladimir Putin.
In June, Essar Oil (UK) appointed Tim Bullock, a former chief government of Litasco between 2012 and 2018, to its board as an impartial non-executive director, which it stated would strengthen governance. Essar stated Bullock not had a task at Litasco and owns no shares in it.
In accordance with the Corporations Home paperwork, Litasco has a declare on Stanlow property that will kick in if the refinery had been to default on its [undisclosed] obligations, that means the property might fall into the arms of the Lukoil subsidiary if the debt was defaulted on.
That declare is particularly over Stanlow Terminals Restricted, a key a part of the sprawling Stanlow complicated, the place crude oil from all over the world is dropped off and saved earlier than being refined.
One veteran of the refining trade stated that proudly owning the storage facility might give Lukoil a “ransom strip”, a bit of land that can be utilized to show the screw on anybody who wants entry.
Essar Oil (UK) stated: “Like all refiners, EOUK was closely impacted by the pandemic. Regardless of this, we’ve strengthened our stability sheet via non-public financing, taken motion to bolster governance, and are buying and selling profitably once more.
“Since Essar’s acquisition in 2011, $1bn has been invested in Stanlow to make it some of the refined refineries in north west Europe. Total, EOUK is efficiently navigating via the pandemic and rising robustly. We’re assured in regards to the robust demand restoration and our future prospects in an evolving low carbon vitality market.”
Essar says Lukoil and Litasco are separate company entities and that Litasco has no potential to affect operations on the Stanlow terminal.
In 2017 Essar bought its big Vadinar oil refinery, in Gujarat, India, to a consortium together with the Russian state-controlled oil agency Rosneft and the commodities buying and selling home Trafigura in a £10bn deal.
As of this 12 months, Trafigura additionally has a major curiosity within the Lindsey oil refinery in Lincolnshire. In March, the French oil firm Complete bought the refinery to Prax, a unit of a little-known outfit headquartered in Surrey known as State Oil, which has grown at meteoric tempo, its revenues surging practically tenfold between 2010 and 2020.
Its controlling social gathering, Winston Soosaipillai, who goes by his center names of Sanjeev Kumar, isn’t noticed in public or at trade occasions and has virtually no public profile. The corporate stated it was a “pure development” to accumulate the Lindsey refinery however didn’t reply extra detailed questions.
In March 2021, the identical month that the corporate purchased Lindsey, it registered expenses in favour of Trafigura, the worldwide commodities buying and selling home based mostly in Singapore, a part of a provide settlement.
If Prax had been to default on funds resulting from Trafigura by way of that settlement, the cost paperwork say, the commodities dealer is entitled to grab management of contracts to provide gas to BP, Asda and Certas Power.
In Might 2020, the Guardian revealed that Trafigura was below investigation by authorities together with the US Division of Justice, which is trying into suspected corruption and market manipulation. Trafigura declined to remark on the time.
Officers in Westminster are understood to have turn out to be uncomfortably conscious of Prax’s ties to Trafigura in latest months, notably within the gentle of the US investigation.
Conserving tabs on who owns the UK’s six large refineries, to not point out the identification of their collectors, is all of the extra necessary because the sector creaks below hovering oil costs and unstable demand.
The pandemic has been “fairly ugly”, in accordance with Alan Gelder, a refining and chemical compounds knowledgeable at vitality consultancy Wooden Mackenzie. “[Financial failure at Stanlow] was a really actual threat a few months in the past, which is when the state of affairs was trying notably dire,” he stated.
Refineries must run near capability to earn cash however their output fell by 19% final 12 months amid the pandemic. Long run, extinction is on the playing cards, with the federal government banning new petrol and diesel automobiles by 2035.
Refineries that survive, says Stone, shall be these with deep-pocketed homeowners, resembling ExxonMobil’s Fawley close to Southampton and Pembroke in Wales, owned by the US agency Valero.
As one trade veteran put: “We’re on a route map to 2 or three refineries, it may well’t be any totally different. Both we’re not going to decarbonise or we’re. And if we do, we’re going to shut refineries.”