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Ineos to Propose Cost Cuts at Halted Grangemouth Refinery

Ineos Group Holdings SA proposed cost cuts at the 210,000 barrel-a-day Grangemouth refinery and petrochemical site in Scotland after it halted production this week in anticipation of a strike.

The company presented a plan to workers today that includes changes to pensions and working terms, Richard Longden, a spokesman for Ineos, said by phone from London. The proposal also includes options to close some inefficient units, including a naphtha cracker and benzene-processing unit, he said. Output from the site is halted indefinitely until a deal can be reached with employees.

“This is D-Day for Grangemouth,” Longden said today. “The site has not only suffered huge losses, but also needs huge investment.”

Unite, Britain’s largest union, called off a 48-hour strike yesterday which could have cut about 45 percent of the U.K.’s crude production. The site supplies power and steam to BP Plc’s neighboring Kinneil processing plant, which handles crude from the company’s Forties Pipeline System gathered from more than 80 offshore fields. In 2008, workers at Grangemouth held a two-day strike that curbed North Sea crude output and disrupted fuel supplies across Scotland.

The facility will continue to supply steam to Kinneil while the refinery is offline, Longden said. The Grangemouth oil refinery is jointly owned by Ineos and PetroChina Co. Ltd., while Ineos is the sole owner of the petrochemical site.

Union Dispute

Restoring full production after the outage will take weeks, Ineos said in a statement today. During the eight weeks it took to reach normal operations after the 2008 strike, a compressor fire and crude oil leak occurred, Ineos said.

Workers had planned a walkout on Oct. 20 because of a dispute over union leader Stephen Deans and disagreements over pay and conditions. The parties failed to reach a deal after two days of talks this week mediated by the U.K.’s Advisory, Conciliation and Arbitration Service.

Ineos started direct consultations with employees today, including a proposal to replace a final salary pension plan, the company said. The Unite union is looking to take legal action over the company’s plan, which it said introduces “pay freezes and pay cuts.”

Unite said Ineos was giving an “inaccurate financial representation of the Grangemouth site aimed at slashing jobs, pay, pensions and skills,” according to a statement today. It cited analysis by Richard Murphy, from Fulcrum Chartered Accountants, that projected the company’s chemicals unit would be profitable for several years.

Workers’ Response

The site has lost 579 million pounds ($930 million) in the last four years and is “financially distressed,” Longden said. The company aims to get a response from workers by Oct. 22 and will consult its shareholders about resuming production after that, he said.

Unite says that Grangemouth’s financial situation is less dire, saying labor costs including pensions account for under 17 percent of total revenue and that sales grew 50 percent last year.

Should the plant close, it would join a series of 15 European refineries permanently shuttered in the past five years, according to a tally by the International Energy Agency.

Scotland First Minister Alex Salmond said yesterday that the government is “happy to assist” with an “investment package,” for Grangemouth, which processes about 80 percent of Scotland’s fuel. He didn’t specify any amounts.

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