Coryton Oil Refinery

Ian Lavery Excerpts

Wednesday 27th June 2012 Commons Chamber

[Stephen Metcalfe]

I thank my hon. Friend for her comments. Yes, I would like to thank the Minister personally for his help and support. I would also like to thank Ministers from the Department for Business, Innovation and Skills and from the Treasury for what they have done to help me work with all those involved to find a solution.

[Ian Lavery (Wansbeck) (Lab)]

Will the hon. Gentleman give way?

[Stephen Metcalfe]

I am afraid that time is limited; I am sorry, but no.

The people I want to thank the most are the staff, the management—particularly Jon Barden and Georgina Clarke—and, of course, the unions. Without their commitment, the business might well have closed months ago. Instead, it had time to search for a buyer and to explore a range of options that might have led to the securing of its long-term future.

The refinery has changed ownership many times over the years, most recently in 2007, when it was acquired by a Swiss company, Petroplus, and became one of a group of five refineries. Unfortunately, in January this year the parent company—Petroplus—got into financial difficulties and filed for bankruptcy, at which point Coryton placed itself in administration with PricewaterhouseCoopers. Of the five refineries, Coryton is far the most complex. It has a Nelson complexity index of 12, making it one of the most sophisticated refineries in Europe. It is very profitable, and I believe that, because of its complexity and its location, it is also of great strategic importance, not least because it provides 20% of the fuel in the south-east and 10% of that in the United Kingdom. However, because of the structuring of the parent company, when Coryton went into administration it had no fuel assets and nothing in its bank accounts, although it did have £2 billion of debt held in bonds that the parent company had issued.

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[Stephen Metcalfe]

I entirely agree. There could have been a different outcome if there had been more openness and transparency on all sides. I do not attribute fault to anyone, but these events need to be looked at. That different outcome could have been more beneficial to the bond holders, but my primary concern is, and will continue to be, for the work force who will pay the price for this breakdown in communications.

For those unfamiliar with the refinery, I want to put it in historical context and explain its local importance. South Essex has a long and proud industrial heritage. At one time there were three refineries along the Thames. After PWC’s announcement, there will be none. When we talk about this refinery closing, we are not talking about just another business that got into trouble and failed to meet the challenges of the modern world. On the contrary, it was a very profitable business. It met the modern challenges. It was part of our collective DNA in south Essex. It was part of the very fabric of society there; people moved to work there. If it goes, the economic blow will have the biggest impact, however.

[Ian Lavery]

I congratulate the hon. Gentleman on securing this important debate. I have experienced exactly the same situation in my constituency, and he is right in what he is saying about jobs. Thurrock council carried out an impact assessment study which showed that more than £100 million would be lost as a consequence of the closure of the refinery. Why did the Government not even ask the European Union whether state aid was available to save these jobs?

[Stephen Metcalfe]

Those discussions have been taking place behind closed doors and in private. I am sure that the Minister will tell us in his response what the reasons were and what avenues were explored. I can tell the hon. Gentleman that Thurrock council’s economic impact assessment, conducted by DTZ, estimated the impact to be closer to £1 billion. That represents a potential contraction in economic activity of 0.07% of the national economy, which is getting close to a third of the contraction we experienced in the past quarter. One of my arguments has always been: are we really willing to let that go without exploring every avenue? That is one of the questions I have asked in private, and I am hoping that we will hear it answered by the Minister in public this evening.

As the House will be aware, that call for state aid, including from me, has been growing over the past few weeks. I have raised the issue on the Floor of the House and, as I say, in private. I have asked that Ministers examine every conceivable angle, and check and double-check that there is no way they can help within the boundaries of what is possible.

We have to remember that the refinery spends tens of millions a year in the UK on maintenance, chemicals, utilities and business rates. Every three to four years it has a maintenance project, which results in approximately £150 million being spent in the UK, and that was due to take place this autumn. The impact of this closure will be felt across the whole country, but the hardest hit of course will be those in the local area. The economic cost will be great. In employment terms alone, the closure of Coryton will affect 800 families directly through the loss of employment, leaving aside those who work for suppliers. That is 800 families who will now have a more difficult time feeding their families—putting food on the table. To add salt to the wound, if the planned turnaround project had gone ahead this autumn, the number employed there may well have risen to more than 2,000. It is hard to underestimate what a blow this is; we are exporting manufacturing jobs and replacing them with service jobs, and nothing like in the same numbers.

I had also hoped, despite the work the Department has undertaken on developing a refining strategy, to persuade the Minister to look again at the issue of diesel capacity; I had hoped that he might move on that just a little. As he will be aware, I and the Government are being accused of not doing enough to support this business—not doing as much as was done for the banks—so all I can do now is to seek publicly answers to questions that I have put privately for months. I realise that the Government were highly unlikely to be in a position to purchase the business, but I wanted to look for a more imaginative solution where they support the business on a commercial basis or through some form of loan guarantee.

In light of the above, I wish to put a number of questions to the Minister. First, will he confirm that he and colleagues from across the Government looked at every conceivable angle on providing some form of financial assistance for this business so that it could be kept open? Will he tell the House whether he or any of his colleagues received a formal, structured and specific request for state assistance from the administrators, or were discussions just of a vague nature, along the lines of, “It might be helpful if some money was put across”? Can he reassure the House that the full level of economic impact was taken into account when they were deciding whether financial intervention was possible? By far the biggest impact will be on jobs, so what steps are the Minister and colleagues across the Government taking to support those who are losing their jobs, and when will that support be available?

Finally, in the light of the information that has been handed to me in recent weeks, of what I have said this evening and of the concern that has been expressed about the process, the way in which it has been handled and the fact that the refinery is of such significance, will the Minister support my call for a parliamentary inquiry into the process, if for no other reason than to ensure that everyone, from the work force and the bond holders to each and every stakeholder, has been treated fairly by this process?

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[Charles Hendry]

I will respond specifically to the hon. Gentleman’s point, which goes to the heart of the situation we face.

First, the UK faces extremely tough competition from other refineries in Europe and, increasingly, Asia. It is well known that there is overcapacity in the refinery sector in the UK and right across Europe. Eight European refineries have closed since 2009 and more closures are likely to happen in future. The International Energy Agency has reported that since 2008-09, more than 3 million barrels of oil per day of crude distillation capacity has closed and more is at risk. At the same time, significant refinery expansions are taking place in Asia in particular, outpacing expected demand growth. All this means that, as the hon. Gentleman said, profit margins are low for refineries in the UK.

Secondly, the UK’s refineries produce broadly the right amount of fuel to meet demand in the UK but not the right type. Put simply, we produce more petrol than we consume and we use much more diesel than we produce. Since 2000, demand for petrol in the UK has decreased by 35%—more than a third—while demand for diesel has increased by 34%. These are evidently sustained trends and not a short-term blip. Overall, there has been a 9% decrease in the demand for fuel in the last decade due to economic conditions and better fuel economy from new cars. We have now put in place work to develop a refining strategy. That should have happened long ago, right the way back in the previous Administration when there was a 34% drop in demand for petrol. This was an entirely evident trend and it is a great shame that that work was not started before now so that we could have had a more structured approach.

Thirdly, significant levels of capital investment were needed in the Coryton refinery to maintain refinery operations. These included the cost of the three-yearly turnaround—about £150 million—and any expenditure on adaptation to rebalance output between petrol and diesel products, which would have cost in the order of hundreds of millions of pounds. These evidently posed a massive barrier to potential new owners. In addition, the Coryton site is of exceptional value as an import terminal because of its location and amenities, with one of the biggest jetties anywhere, so it is not surprising that it has a higher sale value as an import terminal, which does not require the extra investment a refinery would need. It is clear that the market is very tough, and these conditions made the sale of Coryton as a refinery challenging.

I want to reassure the House, and particularly my hon. Friend the Member for South Basildon and East Thurrock, that the Government considered very carefully whether financial assistance could be provided. There were extensive discussions between my Department, the Department for Business, Innovation and Skills and the Treasury. Right across Government, all Departments that it was appropriate to involve were involved. Like my hon. Friend, the Government would have wished for a different outcome, but we did not believe it was right to put public money into a refinery.

[Ian Lavery]

Will the Minister give way?

[Charles Hendry]

Forgive me; this is a half-hour debate and there is not time to take further interventions.

As I mentioned, there is existing overcapacity in the refining industry in the UK and Europe, and the declining demand for petrol means that it would not have been sustainable to put public money into the refinery. It would not have been a long-term solution, as simply funding the gap between a bid for an import terminal and a bid for the refinery would not have guaranteed the refinery’s long-term commercial success. It was clear that significant investment would have been needed over time to keep the refinery open. I was reassured by the Government’s work with fuel suppliers that Coryton’s closure would not have an impact on the security of supply of fuel to London and the south-east, because many other supply points and operational refineries could be used.

To respond to the specific question asked by my hon. Friend the Member for South Basildon and East Thurrock, the administrators made a formal request on 15 May for the provision of Government assistance for one option of a number that they were considering. Such negotiations are inevitably controversial, but only one option on the table at the time required such assistance. The consideration of the case for financial assistance involved a range of issues, including the impact on security of supply, on energy resilience and on jobs in the local community. On each of those grounds, we concluded that there was not a sufficiently compelling case to intervene. Given that that was so clear, there was no case for seeking approval from the Commission, because that simply would not have been considered. While we accept that it is extremely sad that the refinery will close, I hope that there is some comfort from the investment for the new facility as an import terminal.

My hon. Friend asked whether there should be a parliamentary inquiry, but that is a matter for the relevant Select Committee. Given the work that we are doing on developing a long-term strategic approach, I would welcome an investigation that would take that approach into account, and we would work closely with the Committee. However, it would be unlikely that such an inquiry would be completed in a time scale that would mean that it would make any difference to the situation at Coryton.

In view of my hon. Friend’s comments, I shall write to PricewaterhouseCoopers in the morning to ask it to respond formally to each and every point that he made, and to seek the assurances that it should give him about the process. We have found it to be professional and thorough, and it is only right that he and his constituents have answers to every question.

We are now moving forward with Thurrock and taking a lead on the taskforce. Through the Department for Business, Innovation and Skills, we will do everything possible to bring new jobs and prosperity to the area. My hon. Friend has fought a diligent battle, and I am profoundly saddened—