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Scotland dodges blow as deal saves big refinery, plant

A general view of the Grangemouth oil refinery in east Scotland October 23, 2013. REUTERS/Russell Cheyne

By Simon Falush and Alexander Winning

LONDON (Reuters) - Scotland dodged a heavy blow to its economy on Friday with a deal to rescue its biggest industrial site and safeguard up to 1,400 jobs.

Operator Ineos said it would continue to operate the Grangemouth petrochemical plant and refinery after the Unite union agreed to a three-year pay freeze and a cut in pension benefits and pledged not to strike for three years. Britain and Scotland also pledged to provide financial support.

"Redundancies will be very limited. There's a future for this site, and it's long-term sustainable," Calum MacLean, chairman of Grangemouth UK, said at a news conference.

Ineos had previously said losses would force it to shut the petrochemical plant and could also threaten the future of the 210,000 barrel-per-day refinery, Scotland's only refinery which provides around 70 percent of its fuel.

A Grangemouth closure would have damaged the governing Scottish National Party as it campaigns for independence from Britain ahead of a referendum in September next year. Many Scots have told pollsters that their biggest concern will be the likely impact a separation would have on the economy.

Switzerland-based Ineos said shareholders would invest 300 million pounds ($485 million) in the site to cover losses.

Around half of this will go to fund a new terminal for importing gas from the United States, which is due to be built by 2017.

The rest would cover Grangemouth's ongoing losses, said Tom Crotty, a director at Ineos Group. Ineos has said the complex was losing 10 million pounds per month.

"We've given the chemicals business another 15 to 20 years on the back of new raw materials, new contracts and significant investment," MacLean said.

Crotty said the company was restarting both plants from Friday and they could be fully operational within two weeks.

Ineos is the full owner of the petrochemical plant and a joint owner of the refinery along with PetroChina, which holds 49.9 percent.

Union members, among other concessions, agreed to give up a final-salary pension plan for a defined-contribution plan.

"Obviously today's news is tinged with sadness. Decent men and women are being asked to make sacrifices to hold onto their jobs, but the clear wish of our members is that we work with the company," Pat Rafferty, Unite's Scottish secretary, said in a statement.


The Scottish government has agreed to provide a 9 million pound grant to support Grangemouth, and the British government has given initial approval for a 125 million pound loan guarantee, Ineos said. The loan would contribute to the shareholders' 300 million pound investment.

"A really important petrochemical plant will stay open, savings thousands of jobs, not just at that plant but in the supply chain," British Prime Minister David Cameron told the BBC.

A closure of the refinery, which provides power for a major oil pipeline, might also have reduced supplies of the major North Sea crude that underpins the Brent oil benchmark, used as a basis for setting oil prices around the world.

Europe's oil refining industry is under extreme pressure from lower-cost competitors in the United States, the Middle East and Asia, while regional demand has declined.

Such market pressures led to the closure of British refiner Coryton near London in 2012 after its parent company, Swiss-based Petroplus, filed for bankruptcy.

Unite had been in a dispute with Ineos for weeks over the dismissal of a union representative. The company halted operations at the two plants earlier this month and demanded changes in terms and conditions to restart them.

"Grangemouth is the powerhouse of the Scottish economy. It now has a fighting chance of upholding this crucial role into the future," Unite's Rafferty said.

Employment lawyer David Fenton at Keystone law said the closure was an extreme tactic to force the union to back down and could set a worrying precedent.

"This should not be used as a tactic for future disputes - i.e. accept our terms or we will close down. It is after all a tactic that can only be used once if your bluff is called." ($1 = 0.6186 British pounds)

(Additional reporting by Dmitry Zhdannikov; editing by Jane Baird)