Essar Oil secures £800m in refinancing

From its refinery on the banks of the Mersey Essar Oil (UK) supplies 16% of the UK’s road fuels and has secured more than £800m in refinancing after a turbulent period. Tony McDonough reports

Essar Oil UK’s Stanlow refinery on the banks of the River Mersey


Liverpool city region oil giant Essar Oil (UK) has now secured more than £800m to shore up its balance sheet following a turbulent period during the COVID-19 pandemic.

And the business, which employs around 1,000 people at the Stanlow oil refinery on the banks of the River Mersey, also says it is returning to profitability with demand for its fuels and petrochemicals back up to 95% of pre-pandemic levels.

For periods of 2021 EOUK was subject to national media speculation around its future. COVID lockdowns had sent demand for fuel plummeting. The company supplies 16% of the UK’s road transport fuels as well as aviation fuel for airports including Liverpool and Manchester.

To add to its woes, the business also faced a hefty VAT bill, owing HMRC £770m. As of September 2021 it still owed £233m but, under a deferred payment arrangement available to all businesses due to COVID, EOUK has now made further payments to HMRC.

In a trading update on Wednesday it said it had repaid 80% off the debt. This would equate to more than £600m and it expects to clear the debt by March 31.

The update says: “A stronger trading environment saw the company record its best monthly product sales for 18 months in December 2021 across both fuels and petrochemicals, with demand now back to 95% of pre-covid levels. In addition, Essar is re-entering the Irish market having recently secured a contract to supply fuel.

“Despite the significant impact of the pandemic across the entire refining industry, including a period during which fuel demand was at very low levels, Essar continued to operate the Stanlow manufacturing complex at a significant capacity to ensure adequate fuel supply to its customers across the UK.”

It also said that EBITDA, which is a measure of profitability, was now being generated at an annualised rate of around £220m. The company added: “This is approaching the levels seen in the five years prior to the onset of the coronavirus pandemic.

“Market analysts expect strong demand for refined products in the coming years on the back of a robust recovery in economic activities globally, and particularly in the UK.”

EOUK has secured financing from a number of sources over the past few months and this has totalled more than £800m. Additional financing was secured up to December 31 with “last mile” financing on track to complete in the next couple of months.

Deepak Maheshwari, Essar chief executive, said: “Over the last quarter, the company has been able to strengthen its financial performance due to improvements in the product market and delivery of reliable and stable operations at Stanlow.

“We have also closed the defined pension benefit scheme for future accruals, which will provide long-term security of competitiveness for the company. Going forward, we will invest in projects such as HyNet which will enable the country’s transition to a low carbon economy.”

Essar has unveiled plans to build two hydrogen production units on site as part of the HyNet consortium, with a planned total investment of approximately £750m. Follow on capacity growth is planned to reach 80% of the UK Government’s new target of 5GW of low carbon hydrogen for power, transport, industry and homes by 2030.

The company is also working with Fulcrum BioEnergy on a £600 million project to create a new facility to convert several hundred thousand tonnes of non-recyclable household waste each year into sustainable aviation fuel (SAF) for use by airlines operating at UK airports.

EOUK is also responsible for more than 700 ships coming in and out of the Mersey every year. Around 140 vessels, carrying up to 170,000 tonnes of crude oil in a single cargo arrive at Tranmere Oil Terminal each year. The oil is then pumped to Stanlow along an eight-mile pipeline.

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