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Essar’s Stanlow deal hits union bump

S Kalyana Ramanathan / London March 5, 2011, 0:34 IST

Essar Energy’s $350-million deal to buy Shell UK’s oil refinery and associated assets at Stanlow, near Ellesmere Port, Cheshire, has hit a road block. The employee union has rejected the deal in its current form due to differences over pension payout and other issues.

Union members who spoke to Business Standard after the first round of consultation on March 1 said that while they were keen to become part of the Essar Group, they would not allow Shell to wash its hands off certain agreements it had entered into with the employees.

A statement from Unite, the union, said it had lodged a complaint with Shell on behalf of all three bargaining units — operators, maintenance technicians and production team leaders/station duty officers. The group comprises around 600 employees at Stanlow out of nearly 1,000 workers. The union said it was keen to continue group negotiations for annual benefits and salary increases while Essar was keen to introduce its policy of individual appraisals.

Unite said, “Shell made a promise to our members, on joining the company, that they would enjoy the benefit of a final salary pension scheme when they retire. We cannot allow Shell to walk away from its obligations to the loyal staff.”

Ron Wood, the branch secretary of Unite in Stanlow and a Shell employee, said, “We work as a team and we should be appraised (annually) as a team and not individuals.”

Essar, however, dismissed this as a minor glitch and said it was at a very early stage of talks with the union.

A spokesman for Essar Energy in London said, “Following the signing of an exclusivity agreement with Shell, we have entered into the standard consultation exercise with employees at the site prior to signing the asset purchase agreement. The consultations are underway and both Essar and Shell are engaging with the staff at Stanlow. The discussions are progressing well, and we remain confident all issues can be resolved. But, we cannot comment on the outcome until the process has been completed.”

A Shell spokesperson here said,“Staff consultation continues,” and refused to comment further on the differences with the union.

Under UK’s laws, consultation with employees is mandatory before a takeover can be completed. However, the approval of the unions is not a pre-condition for the deal to go through. Sources involved in the deal say differences over pension and annual employee appraisal cannot legally derail an acquisition.

The deal, if approved by the unions and the regulatory authorities in the UK, will be the third largest by an Indian group in the UK after Tata’s acquisition of Corus ($8.1 billion in 2006) and Jaguar Land Rover ($2.3 billion in 2008).

Successful conclusion, even at the current capacity utilisation of around 75 per cent, should bring in an additional $7-8 billion revenue to Essar every year, at current crude prices.

The agreement between Shell and Essar is valid till the end of this month. If by March 31, Essar Energy decides not to proceed with the acquisition, it has agreed to pay Shell a break fee of $50 million. Similarly, Shell has agreed to pay Essar a break fee of $10 million if it chooses not to go ahead with the sale.

Essar will take on board 960 workers at the refinery. In the first six months of 2010, the Stanlow Refinery reported earnings before interest, tax, depreciation and goodwill amortisation (EBITDA) of $62.7 million and a gross refining margin of $4.90 a barrel. Average industry benchmark gross refining margins were $2.73 per barrel in the first half of 2010.

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