Opinion

VAT deal secures Stanlow refinery production

A lifeline, in the form of a phased tax payment deal, has been thrown to Essar Oil UK allowing it to keep producing as the UK struggles with supplies at fuel stations after a panic-driven buying frenzy.

Essar Oil UK, which runs the 200,000 barrel-per-day Stanlow refinery, had been in talks with HMRC about extending a January deadline to repay hundreds of millions of pounds in deferred taxes.

“With this time to pay arrangement, we now have significant runway to stabilise our balance sheet which has been adversely impacted by the pandemic,” EOUK’s chief financial officer Satish Vasooja said in a statement.

As previously reported, EOUK has been navigating an extremely challenging trading environment, given the significant impact the pandemic has had on the UK’s refining industry. EOUK and its advisers have been working on its financing and trading plans, with significant progress made to date, supported by a more positive trading environment, with the refinery moving into positive EBITDA in the last few months.

Further to the May announcement of over $850m funding, EOUK has confirmed that additional funding has been secured, bringing the total to $1.1 billion. This leaves USD$300m to raise to meet the original financing plan. Discussions are on-going with the company expecting to close these by year-end resulting in a stable balance sheet to meet all requirements and enabling the business to continue with its energy transition programme.

Time to pay arrangement
With regard to future VAT payments, EOUK entered into a time-to-pay (TTP) arrangement with HMRC for a total of £770 million in April 2021. EOUK has already repaid HMRC £547 million leaving a balance of £223 million, as part of the Government opt-in scheme available to all corporates in the UK. All companies under the TTP have until January 2022 to meet their commitments. Having agreed an accelerated schedule to make this payment EOUK is in discussions with HMRC to agree a short extension due to recovery from the pandemic being slower than predicted but still fully expects to meet all payments by the January deadline.

Response to speculation
The financial update was issued following press speculation over a potential Stanlow financial collapse with EOUK also highlighting the many positive changes made to its internal governance in recent months. Since it acquired the refinery, Essar has invested more than $1 billion and is committed to developing initiatives that support its vision for a low-carbon future.

EOUK remains confident in its future, not least as the air travel market continues to open up and demand recovers.

Prashant Ruia, Chairman of EOUK, commented: “The pandemic has led to extremely challenging time for the refining industry in the UK in particular, as a collapse in demand for our end products placed considerable financial and management strain on the business.

“The overall environment remains difficult, but given the considerable steps we have taken, we are now in a stronger financial position, and importantly, we are seeing improved levels of demand as the market recovers. We remain cautious about the medium-term outlook for the business.

“I am pleased with the progress we have made on our VAT repayments and would like to thank HMRC for their continued engagement.”

Meeting customer commitments despite supply disruption
Notably, EOUK has at this point successfully managed through the current supply disruption. By taking action in early August to retain its driver base, plus sign up smaller hauliers, EOUK has increased vehicle shifts per day – from 52 in August to over 70 today – ensuring security of supply to its customers at this critical time.

With EOUK committed to continuing to meet the demands of its customers the shift plan is set to increase to well over 80 by the end of October, bringing much needed fuel to EOUK’s forecourt customers.