The panic-buying of petrol and diesel that gripped Britain 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 progressively receded, considerations persist in regards to the funds of refineries supplying about 25% of gasoline.
Monetary difficulties afflicting two of the UK’s remaining oil refineries have raised considerations 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, harm by the Covid pandemic crushing demand for gasoline, accounts filed at Firms Home present.
The punishing loss comes simply weeks after Stanlow oil refinery in Ellesmere Port, south of the Mersey, was granted a short lived reprieve from the prospect of a winding up order from HM Income and Customs. HMRC gave a “time-to-pay” deal to Stanlow’s house owners – 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 top of 30 September 2020.
The threadbare funds of these two refineries underline the vulnerability of Britain’s gasoline 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 about 9%.
Beforehand the refineries had been owned by the oil companies Shell and Whole, which wanted an outlet for his or her product. Now each are within the arms of far much less well-known gamers.
In response to sources conversant in discussions in Westminster, Stanlow’s place within the monetary structure of Essar, an Indian conglomerate, was a think about 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 the 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 Firms Home, it was revealed that Deloitte had resigned as Essar’s auditor, citing a necessity for improved governance, “particularly relating to loans and advances”. The loans had been made on the behest of Essar Oil (Cyprus), Stanlow’s father or mother 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 considerations, the Guardian understands. Firms 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 the Moscow-based Lukoil.
Lukoil is a £50bn oil large based from the ashes of Soviet Russia by its president and chief govt, Vagit Alekperov, who 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 govt of Litasco between 2012 and 2018, to its board as an unbiased non-executive director, which it mentioned would strengthen governance. Essar mentioned Bullock now not had a job at Litasco and owns no shares in it.
In response to the Firms Home paperwork, Litasco has a declare on Stanlow belongings that may kick in if the refinery had been to default on its (undisclosed) obligations, which means the belongings may 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 advanced, the place crude oil from around the globe is dropped off and saved earlier than being refined.
One veteran of the refining business mentioned proudly owning the storage facility may give Lukoil a “ransom strip”, a chunk of land that can be utilized to show the screw on anybody who wants entry.
Essar Oil (UK) mentioned: “Like all refiners, EOUK was closely impacted by the pandemic. Regardless of this, we’ve strengthened our stability sheet by means of personal 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 probably the most subtle refineries in north-west Europe. Total, EOUK is efficiently navigating by means of the pandemic and rising robustly. We’re assured in regards to the sturdy 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 capability to affect operations on the Stanlow terminal.
In 2017 Essar offered its large 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 big curiosity within the Lindsey oil refinery in Lincolnshire. In March the French oil firm Whole offered 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 celebration, Winston Soosaipillai, who goes by his center names of Sanjeev Kumar, isn’t noticed in public or at business occasions and has nearly no public profile. The corporate mentioned 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 fees in favour of Trafigura, the worldwide commodities buying and selling home primarily based in Singapore, a part of a provide settlement.
If Prax had been to default on funds as a result of Trafigura through that settlement, the cost paperwork say, the commodities dealer is entitled to grab management of contracts to produce gasoline to BP, Asda and Certas Power.
In Could 2020 the Guardian revealed that Trafigura was below investigation by authorities together with the US Division of Justice, which is looking into suspected corruption and market manipulation. Trafigura declined to remark on the time.
Officers in Westminster are understood to have develop into uncomfortably conscious of Prax’s ties to Trafigura in current months, significantly in mild of the US investigation.
Holding tabs on who owns the UK’s six huge refineries, to not point out the id of their collectors, is all of the extra vital because the sector creaks below hovering oil costs and risky demand.
The pandemic has been “fairly ugly”, in accordance with Alan Gelder, a refining and chemical compounds professional 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 significantly dire,” he mentioned.
Refineries have to 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 vehicles by 2035.
Refineries that survive, says Stone, shall be these with deep-pocketed house owners, comparable to ExxonMobil’s Fawley close to Southampton and Pembroke in Wales, owned by the US agency Valero.
As one business veteran put: “We’re on a route map to 2 or three refineries, it will probably’t be any completely different. Both we’re not going to decarbonise or we’re. And if we do, we’re going to shut refineries.”