Coryton Oil Refinery

Wednesday 27th June 2012 Commons Chamber

Motion made, and Question proposed, That this House do now adjourn.—(Stephen Crabb.)

19:02

[Stephen Metcalfe (South Basildon and East Thurrock) (Con)]

Thank you, Mr Deputy Speaker, for giving me the opportunity to express the grave concern that surrounds yesterday’s announcement that the Coryton oil refinery in my constituency will close. When the company was placed into administration five months ago, many of us believed that, because of its profitability and its productivity, it would not be long before it found new owners. So, five months later, and with no buyer coming forward to operate the site as a refinery, I have to say that this is a very sad day. I had hoped that this debate would never have to take place.

The intention of my debate before the announcement was to lay out the fact that this was not just another business in administration. I would have explained to the House and the Minister the importance—strategically, economically, socially and historically—of the Coryton oil refinery. Before I proceed, I want to place on record my heartfelt thanks to everyone who has been working so hard over the last five months to keep the refinery operating.

[Jackie Doyle-Price (Thurrock) (Con)]

I associate myself with those comments and pay my own personal tribute to my hon. Friend the Member for South Basildon and East Thurrock (Stephen Metcalfe), who has worked tirelessly behind the scenes to bring all the interested parties together. He has done so with dedication to achieving the outcome rather than to generating column inches, which has been the characteristic of some Opposition Members. Does he agree that the Minister of State, Department of Energy and Climate Change, my hon. Friend the Member for Wealden (Charles Hendry), who will reply from the Dispatch Box today, has also been absolutely sincere in his commitment to achieve a positive outcome for the refinery?

[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.

[Rebecca Harris (Castle Point) (Con)]

Must it not be utterly dismaying for the work force of 900 people in what was a very successful and profitable refinery to find that that they are losing their jobs, although the parent company was able to go on leveraging debt against that successful refinery?

[Stephen Metcalfe]

Yes. When the company went into administration, finding that all the debt was leveraged against that one refinery must have come as a shock to all concerned. That just shows the mismanagement of the parent company in Switzerland.

Once appointed, the administrators stabilised the situation and began looking for a long-term solution. Two options soon emerged, although I am sure that many others were investigated: sale to a third party and financial restructuring. The financial restructuring process began very well, but it became obvious fairly quickly that there was a large funding gap and it would not be workable. As for the sale side, PWC invited expressions of interest and numerous possibilities emerged, from lift and shift to sale as a refinery and, finally, sale as a fuel terminal, which would give a fuel company greater access to the Thames and therefore to the south-east. The site has always been considered particularly attractive owing to its close proximity to London and its deep water jetty, but ironically those factors are now to be the refinery’s downfall.

I understand that following examination of the offers, a Russian consortium was identified as having presented the most favourable bid. It wanted to operate Coryton as a refinery, thus saving the 900 to 2,000 jobs that it supports. The next best bid came from a bidder that wanted to operate the site as a terminal. In the light of yesterday’s announcement, many have expressed surprise that no one wanted to buy the site as a refinery. Although I do not possess all the details, I do not believe that that is the case. What I do believe is that a number of credible, sustainable bids were presented, but that none of them ultimately exceeded the bid for an alternative use. I shall say more about that later.

Last month, despite all that hard work, the administrators, PWC, made the announcement—which I think we had all prayed we would never hear—that no credible offer was on the table and no one was willing to operate the refinery, and that therefore it was proceeding towards closure. As I have said, I believe that there were credible offers on the table, but that they were not high enough. Yesterday, PWC struck a final blow and announced that it had done a deal with Shell to operate the site as a terminal. The timing of that announcement—before tonight’s debate—made redundant much of the case that I wanted to build to save the refinery, but I ask the House to bear with me none the less.

As Members can imagine, following that announcement the situation has been very fluid over the last 24 hours. The one thing that has been constant is the contact that I have received from numerous parties expressing deep concern about the way in which the administration has been conducted. They talk of great secrecy surrounding the sale; they say that alternative outcomes could have been explored but were not, and that barriers were put up.

Following yesterday’s announcement, I have a better understanding of the events that led up to it, and I think it important to examine those events. My current understanding is that the Russian-led team bid the highest amount, and that the bid was proceeding well until something happened. I have no idea what that something was. I have a number of notions, but I cannot confirm any of them. Whatever happened, however, the upshot—so I am told—was that that information was not communicated properly by the administrators to the buyers. I have to say I find that extraordinary—although in light of my own experiences, not surprising. I still have not been officially informed by PWC that a deal has been done. Although I have attended every stakeholder meeting, I found out yesterday, when the press contacted me—although I did subsequently have an e-mail from one of the partners, Vopak.

[Jackie Doyle-Price]

Naturally, as we have reached the endgame, there is lots of rumour and speculation, and certainly the Russian bid has been trying to get its case across since discovering it has not won. Is there not the following alternative theory, however: far from this having been in the hands of the administrators, a view was taken that perhaps the company in question was not good for the money and was looking for an opportunity to drop the price? Shell is part of the winning consortium, and given that Shell Haven has been closed, and given, too, the supremacy of this location—as my hon. Friend described—would not Shell have gone for any price?

[Stephen Metcalfe]

It is difficult for me to speculate about what might, or might not, have happened and what discussions might have taken place, but I will say that more than one company has been in touch with me.

I find it extraordinary that the administrators, charged with getting the best deal for the bond holders—to whom, after all, they are responsible—did not inform the company with the largest bid at the time that there was some problem or the situation had changed. Perhaps if things had been different and if communications had not broken down, we might have been in a different position. I do not know what happened, but the upshot was that the bid was dropped. I believe that at that point trust broke down between the administrators and the Russian consortium wishing to buy the refinery. For the record, I have been aware for some time that both parties in this main bid were represented by PWC and while I make no comment about the existence of a Chinese wall I would be very interested to hear how both sides view the behaviour of the other, bearing in mind they were both from the same firm.

As I said many times in the run-up to yesterday’s announcement, there has always been another bidder. I am concerned that it might not have been given a fair crack of the whip. I do not know whether that is true. This is a complex situation and I do not pretend to have the expertise required to pick through the detail and assess the quality of the arguments, from both sides, about what happened.

[Rebecca Harris]

Is it not crucial that we get to the bottom of this for the sake of all the people who will be losing their jobs, as well as other people in the supply chain? We need to know what went on, and that everything possible was done.

[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?

[Mr John Baron (Basildon and Billericay) (Con)]

I congratulate my hon. Friend on his hard work. He knows he has had our support in his endeavours. Given the valid concerns he has raised, can he explain where the downside is of having a parliamentary inquiry?

[Stephen Metcalfe]

Having considered it, I cannot see a downside. It would reassure people that the process had been transparent, open and conducted in a way that fulfilled all the legal requirements and that there were no other options.

I do not want to give false hope, but I do want to give the assurances that there could have been no other possible outcome from the one announced yesterday. This is a sad day for the UK refining industry, a sad day for south Essex and a sad day for all those who have worked in and been connected with the refinery in the past. Above all, it is a very sad day for the hundreds of people who are currently working at the refinery and who after yesterday’s announcement will no longer have a safe and secure job and will be looking for new employment. I ask the Minister to do whatever he can to address the points I have raised.

19:19

[The Minister of State, Department of Energy and Climate Change (Charles Hendry)]

I thank my hon. Friend the Member for South Basildon and East Thurrock (Stephen Metcalfe) for securing the debate and for the way in which he has introduced it. Throughout these months, he has been assiduous in raising concerns with me and my fellow Ministers about the situation. He has pursued every opportunity to engage and to advocate the outcome that he and I would have wished, and he could not have been more diligent in representing his constituents. I also thank him for the way in which he has done that. There are some who believe that the best way of doing such things is in a blaze of media attention, but although that might sometimes secure a short-term political benefit it makes complex legal and economic discussions much more complicated. I absolutely welcome his approach, which has been quiet, persistent, focused and diligent, even if it has not delivered the outcome that he and I would have wished.

I am grateful, too, to my right hon. Friends the Members for Rayleigh and Wickford (Mr Francois), for Southend West (Mr Amess), for Rochford and Southend East (James Duddridge), for Basildon and Billericay (Mr Baron), for Castle Point (Rebecca Harris) and for Thurrock (Jackie Doyle-Price), as well as to my hon. Friend the Member for Preseli Pembrokeshire (Stephen Crabb), who takes a great interest in such matters. Although his constituency is on the other side of the country, he has a significant refinery of his own in his constituency to look after.

This has been an extremely difficult period and we are all profoundly disappointed, especially for those who have been working so diligently at the refinery, that the administrator has not been able to find somebody who would continue refining at Coryton. The inevitable job losses were something that we all hoped could be avoided, but this has been an extraordinary example of a community pulling together. It is a tribute to the management of the plant, the trade unions and the local community, as led by the local councillors and Members of Parliament. They could not have presented a more seamless and supportive case to the administrator in their work.

I want to reassure my hon. Friend the Member for South Basildon and East Thurrock that the Government are doing everything we can to ensure that the skilled people who have been working at Coryton find jobs and new posts. We are working with the Thurrock council taskforce, local agencies and Jobcentre Plus to ensure that they get the support they need at this difficult time.

We must consider some of the background. Petroplus went into administration in January and since then the administrators have been working tirelessly to find a buyer for the refinery. They put in place an innovative tolling agreement with Morgan Stanley, who agreed to supply crude oil to the refinery so that it could continue operating while a buyer was found. That was a similar arrangement to the one the French Government and Shell put in place at the Petit Couronne refinery in France.

The tolling agreement was extended until the end of May but ended on 28 May. At that point, as no similar arrangement could be negotiated to take it forward, the administrators had to take the difficult decision to start shutting down the refinery. Coryton has now ceased commercial refining and is in the process of being shut down. The first wave of redundancies is happening this week and our thoughts are with those people who are affected. The administrators have offered explicit guarantees that all workers made redundant will receive their statutory redundancy entitlements and we will do all we can to ensure that they are processed as quickly as possible.

Over the past five months, the administrators have worked exceptionally hard to find a buyer. We in Government have done everything we could to support them in this task. We worked with the administrators early on to look at options for the refinery’s future, we convened a number of stakeholder meetings to ensure that everyone involved was aware of what was happening and UK Trade and Investment was involved in looking for potential investors. My hon. Friend raised particular issues about engagement with Fund Energy. I have been reassured today by the administrators and by representatives of Fund Energy that they have met on a continual basis throughout this process. They said that they continued to do so right up until the final decision was made. I believe, from the assurances I have had from the administrators, that they have complied with their statutory duties.

[Mr Frank Doran (Aberdeen North) (Lab)]

Clearly, I share the concerns of all those affected by these matters, but the Minister is well aware that Coryton is not unique. In fact, I think it is a microcosm of the UK refining industry at the moment. There is not a single refinery in the country that is making money, and many are losing large sums. That is bound to get worse when EU emission requirements come into play later. The future of Coryton seems to be as a storage facility probably from a subsea pipeline bringing petrol in from Rotterdam. Are the Minister and the Government worried about what that implies for the security of our supplies in future?

[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—

19:32

House adjourned without Question put (Standing Order No. 9(7)).

Division 28

Ayes: 478

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Conservative: 243
Labour: 184
Liberal Democrat: 48
Social Democratic & Labour Party: 1
Green Party: 1

Noes: 9

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Conservative: 3
Labour: 3
Plaid Cymru: 3

Division 29

Ayes: 290

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Conservative: 238
Liberal Democrat: 48
Labour: 2
Green Party: 1

Noes: 197

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Labour: 186
Conservative: 7
Plaid Cymru: 3
Social Democratic & Labour Party: 1

Division 30

Ayes: 285

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Conservative: 235
Liberal Democrat: 47
Plaid Cymru: 2

Noes: 203

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Labour: 188
Conservative: 8
Scottish National Party: 5
Social Democratic & Labour Party: 1
Green Party: 1