HomeBlogFinanceLukoil rejects US buyout group’s offer for Sicily refinery

Lukoil rejects US buyout group’s offer for Sicily refinery

Russia’s Lukoil has turned down an offer to sell its Italian refinery to a US private equity group in a decision that risks bankrupting the Sicilian plant and costing thousands of jobs.

Commodity trader Vitol had offered financing to Crossbridge Energy Partners to help with the acquisition of the Priolo refinery after the Russian group raised concerns about the US buyout group’s ability to pay for the deal.

However, according to several people close to the talks, Lukoil remains reluctant to sell to the US buyout fund. Vitol was willing to extend credit to Crossbridge at a rate better than the US group could get from a traditional lender as it stood to benefit from supplying crude to the Italian refinery.

The deal would have helped avoid Italy nationalising the Sicilian plant, which is facing a cliff-edge in its crude supplies when EU sanctions targeting Russian seaborne oil exports come into full effect next month. 

Before the outbreak of the war in Ukraine the refinery sourced its crude from a variety of countries but lenders stopped providing financing after the EU imposed sanctions on Moscow, forcing the refinery to rely exclusively on its Russian parent company for crude.

A sale to non-Russian owners would allow the plant, which supplies 22 per cent of Italian road fuels, to seek alternative sources of oil.

Economic development minister Adolfo Urso said the government was working to avoid the plant’s shutdown, with nationalisation among the options on the table.

Italian officials close to the talks said the ISAB Lukoil refinery had asked a pool of banks for €700mn in financing as it was struggling to pay its energy bills; however, Italian banks are reluctant to take on such risk.

Publicly-backed lender SACE could back part of the loan to ISAB Lukoil, the people said. However, the banks are refusing to budge, according to two Italian officials, even after the Italian treasury’s director-general, Alessandro Rivera, sent them a “comfort letter” to confirm the company and its owners were not targets of EU sanctions.

“If the Russians don’t want to sell to the Americans and the banks refuse to reopen the credit lines, nationalisation is the only option left,” said one of the Italian officials.

Several European nations have opted to nationalise Russian-owned energy assets to keep prices down and save jobs. Italy has so far refused to explore a nationalisation of the Lukoil plant despite the threat to domestic jobs and fuel supplies.

The Sicilian plant employs more than 1,000 people in one of the poorest areas of the country and indirectly supports thousands of jobs in satellite activities in the area.

Diego Bivona, president of a Sicilian chapter of Italy’s national industry body Confindustria, told local media “nothing happened over these past months and it’s unclear how anyone wants to solve this problem which is not merely local but national and strategic.”

The Financial Times reported in September that Crossbridge had emerged as the frontrunner to acquire the refinery after spending 12 days carrying out due diligence at Lukoil’s ISAB facility.

The buyout firm had explored a joint bid with Vitol but at the time the US firm said it favoured buying the asset on its own.

Vitol and Crossbridge also held talks with members of the previous government led by prime minister Mario Draghi but failed to reach a breakthrough.

The last Russian crude oil order will be submitted on Monday, according to Italian media reports.

Vitol and SACE declined to comment. The Italian treasury did not immediately respond to a request for comment. ISAB Lukoil did not respond to a request for comment.

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