Essar Oil UK is in financial troubles due to the economic disruption consequent of the COVID-19 pandemic. The management is in discussions with the British government authorities and the lenders to resolve the issue in a few days, said a source in the know. The pandemic impact on the British economy and the resultant demand drop in transportation fuels affected the profitability of the refinery.
The gross refining margins have fallen during the time and are slightly recovering at present, said the sources. However, Essar Oil UK spokesperson said the pandemic affected all refiners with repeated lockdowns leading to reduced product demand and depressed refining margins.
“We have successfully traded through a very difficult 12 months and are now seeing increased demand for road transport fuels and improving refining margins, which has resulted in increased throughput at the Stanlow Manufacturing Complex,” said the company.
The Ruia family-controlled Essar group bought the refinery in Cheshire from Shell in 2011. It became their mainstay business after the group lost many of its businesses because of high debt burdens. The refinery generated earnings before interest, tax, depreciation, amortisation (EBITDA) of $300 million before the pandemic crisis, said the spokesperson.
The group had faced similar financial troubles in India and Canada and had to file bankruptcy for its steel and mining businesses. Debt-ridden Essar Steel had its 10 million-tonne plant in Hazira, Gujarat taken over by ArcelorMittal Nippon Steel in 2019 through insolvency bidding. The metals and mining project in Algoma, Canada had also filed chapter 11. In India, Essar Power Jharkhand and EPC Construction India also filed for bankruptcy.
“We are not a levered business and currently we do not have any short-term or long-term bank debt on the company, other than working capital lines,” said the spokesperson. They are confident that they would come out stronger with the recovery of the economy.
Essar group invested nearly $1 billion since the acquisition of the refinery, which directly employs over 900 people. It has an additional 800 on-site contractors and a further 5000 people employed indirectly through the extended value chain. The recent reports said that a number of executives and professional advisers exited Essar Oil UK and it turned out to become a controversy around governance.
The refinery produces around one-sixth of the UK’s transport fuels, including petrol, diesel, and jet fuel. It has 10 fuel stations across North Wales. The refinery had faced a significant oil spill due to an unplanned shutdown in 2019.
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