Taxpayers obligated to pay £1bn due to Lindsey oil refinery collapse

Profit from asset sales will be diverted to lenders rather than the Treasury. FTI Restructuring has been involved in efforts to stabilize the refinery and secure oil supplies from Glencore. The complexity and potential cost of decommissioning the refinery make private administrators hesitant to take on the responsibility.

The Lindsey oil refinery, which accounts for approximately 10% of the UK’s fuel production, is one of the last five facilities of its kind in the country. Placing the refinery into receivership has put over 400 jobs in jeopardy. Efforts are being made to secure crude supplies to prevent immediate closure, ensuring the continued operation of the refinery during the sale process.

Meanwhile, the parent company, State Oil, has been placed under administration by Teneo, with assets being made available to creditors such as HSBC and Orchard Global. These creditors funded a significant loan to Prax Group, totaling around $300 million. Assets including retail operations, logistics, and the upstream business will be sold to fund a payout to creditors.

The potential cost of decommissioning the refinery is estimated to be as high as £3 billion due to the infrastructure and pipelines on the site. Finding a buyer for the refinery is crucial to avoid or minimize these costs. Sanjeev and Arani Soosaipillai, the founders of Prax, aimed to grow the business into a fully integrated oil company but faced challenges due to minimal equity and fast-paced expansion.

In a statement, junior energy minister Michael Shanks mentioned that the final operating cost support would depend on market conditions and the strategy adopted by the official receiver. If the liability is called, the Treasury will seek provision for any payment through normal supply procedures. The Treasury has approved the proposal in principle to support the operations of the refinery.

Overall, the collapse of the Lindsey oil refinery has significant financial implications not only for taxpayers but also for creditors, employees, and the energy industry as a whole. The challenges of decommissioning such a large-scale facility highlight the complexities of managing operations in the oil sector. Efforts to secure a buyer for the refinery and stabilize its operations are essential to mitigate costs and protect jobs in the region.