1. Why have I heard of Grangemouth before?
Its oil refinery is of huge strategic importance, providing 80pc of Scotland’s fuel and large chunks of England’s too. That’s why a 2008 strike at the site hit the news: it led to panic-buying of petrol in Scotland. The plant’s owners had, then, put forward proposals to phase in a contributory pension scheme for new workers, leading to the workers walking out for two days. Pension liabilities is the big problem (below).
2. What’s closing?
At the Grangemouth site there’s an oil refinery – one of seven in the UK – that processes oil from fields in the North Sea. There’s also a petrochemicals site which produces other chemicals, mostly used as precursors in manufactuing, and that’s what’s under threat. The petrochemicals plant depends on supplies of ethane. Production from North Sea oil and gas fields has slumped, and the owners’ agreements with North Sea operators also expire in 2017.
There are around 1,370 workers in total at Grangemouth. Up to 800 of them would be affected by the closure.
3. Why is it closing? And what do pensions have to do with it?
Ineos, the plant’s owners, say that Grangemouth is losing them money: It’s lost £150 million a year for the last four years, and it’s currently losing £10 million a month. On top of that, the pension scheme is £200 million in the red. Like many places with horrible industrial relations problems, Grangemouth started as government-owned site (British Petroleum) was privatised with a substantial defined-contribution pension fund liabilities. It was sold on with those to a private equity firm (Ineos). The pension fund shortfall matters: unlike the government, companies have to address this. Which hits the ability to invest, and in some cases pushing companies towards bankruptcy.
4. What deal were workers offered?
Reportedly, a pay freeze for two years, no bonuses for two years, reduced pensions contributions, but up to £15,000 of ‘sweeteners’. More than 650 of 1,023 union members at the site rejected the deal.
5. Why is the government giving the plant money?
Grangemouth could process ethane from fracking sites in the US, but to do that it would need to build a gas terminal to receive the ships carrying it. That’s expensive – Ineos estimate it would cost over £300 million. The government is mad keen on fracking. Danny Alexander announced today that as part of the infrastructure guarantee scheme, the government will fund the project if it can’t find private backers.
6. What happens next?
Grangemouth is too big to fail. So politicians will wring their hands, with nationalisation on the cards. The SNP administration looks for another buyer. Government support for a gas terminal at the site means the site could be viable after 2017, so Ineos and the unions wait to see who blinks first.Tags: Danny Alexander, Industry, Infrastructure, Oil, Unions