In the midst of all the problems with petrol at the pumps – caused by a Remain-leaning BP executive or hostile to the government RHA official leaking information about supply chain woes to the press, if you believe Grant Shapps (does anybody believe Grant Shapps?) – or by the knock-on effects of Brexit if you read information coming from hauliers themselves, the name ESSAR has been mentioned, with some speculation about what it is, how it impacts the petrol supply chain and why its demise – if it does actually fold, as it has been speculated that it might – would affect our ongoing crisis.
First, an update on the petrol situation. The government has said that it has nothing to do with Brexit, it’s all because people are panic buying. Of course they are panic buying: the government told them there was no need to. The government told them it wouldn’t raise NIC or Taxes. It has raised the former, and may well be obliged to raise the latter. The government told them that it knew what it was doing with coronavirus. Too many families have lost loved ones for anyone to believe that – and even the much-hyped rollout of the vaccine has ground to a halt, with other countries overtaking us in the percentage stakes.
So, psst, found any good petrol stations recently? Y’know, those with, actually petrol? Possibly, and then again possibly not, as up to 80% of petrol stations outside the motorway services and main arterial roads are now reported to be unable to sustain supply. One cannot help feeling, that yes, people’s idiocy in this matter has massively exacerbated an already difficult situation, but an electorate that trusted its governance would not, when the government tells it not to do something, immediately rush out and do it because it hasn’t a blind bit of faith in what that government says. Lyndsay Hoyle might like to reflect on that when he insists that he cannot stop MPs lying to the house; once a government has a reputation for being thoroughly untrustworthy, then that can’t be retrieved at the drop of a hat.
In any case, this morning, the government reports that the army will be brought in to drive petrol tankers if necessary. God help the army: its tasks are many and various these days: almost certainly not what many of its troops signed up for. Of course they can always call up reservists . . . many of whom, apparently, are lorry drivers. And let us not forget that driving explosive substances around actually requires training if it is not to end in disaster. Would you like to know what it takes to drive a petrol tanker? Read on! (Yes, we’ll get to Essar in a minute.)
The transport of dangerous goods by road is governed by The Carriage of Dangerous Goods and Use of Transportable Pressure Equipment Regulations 2009 (SI No. 1348). SI 1348, in turn, implements a EU Directive, known as the RID/ADR/ADN Framework Directive, which, in particular, requires all 27 Member States to apply the European Agreement Concerning the International Carriage of Dangerous Goods by Road (the ADR) for both domestic and international transport operations. Apart from a few permitted national variations, there has to be a seamless divide between the requirements for domestic and international road transport across the whole of the EU.”
“But we’re not in the EU,” I hear you cry. No, we’re not. But in the rush to divest ourselves of the membership of the EU, a lot of legislation relating to our daily lives was kept, as no-one had time to pass it all again, and this is some of the “retained legislation.” Onwards:
Training requirements for driving dangerous goods vehicles
The ADR contains extensive requirements for the training of drivers of dangerous goods vehicles, which are set out in Chapter 8.2. This chapter requires all drivers of vehicles carrying significant quantities of dangerous goods to hold a training certificate issued by the national competent authority stating that they have “participated in a training course and passed an examination on the particular requirements that have to be met during carriage”. Be in no doubt that the carriage of liquid hydrocarbon fuels in tankers, such as petrol, diesel, kerosene and so on, counts as a significant quantity and that these drivers must hold what is usually referred to as an ADR certificate. For GB purposes, the competent authority for issuing the certificates is the Department for Transport (DfT). In Northern Ireland, the HSENI acts in a similar capacity.”
One cannot call the authorities in the UK at the moment competent, but no matter:
“Competent authorities are required to approve the training providers. Would-be trainers must apply in writing for approval. They must submit a detailed training programme specifying the subjects to be taught, information about the qualifications and fields of activity of the teaching personnel, information on the premises where the courses will take place and the teaching materials to be used, as well as facilities for carrying out the required practical exercises. These are onerous stipulations on the part of both the would-be training providers and on the DfT to ensure that the training is provided at a high standard across the whole of the EU. On top of this, continuous quality monitoring is undertaken.
The DfT entrusts the task of ensuring that the training providers and their training material, instructors and premises are satisfactory to the Scottish Qualifications Authority (SQA). The SQA produces a detailed Manual of Practice (81 pages in length), which sets out the criteria for granting approval. This manual, of course, has the approval of the DfT. The ADR, as noted above, requires drivers not only to attend an approved training course but also to take exams. There are detailed requirements in the ADR concerning how the exams shall be devised and administered, and their purpose is to ensure that candidates have the knowledge, insight and skill to be professional drivers of dangerous goods vehicles. For tanker drivers, they would be required to answer at least 40 questions about the hazards of dangerous goods with at last 15 of these questions directed specifically towards the hazards associated with tanker transport.
The ADR goes further: it actually specifies the minimum duration of each course. What is required is that all drivers, no matter what kind of vehicle they are going to drive, must attend a basic course. The duration and content of this basic course are set out in chapter 8.2.”
This isn’t something that can be done quickly, then. How many army drivers have an ADR? I don’t know. I wonder if anyone in the government does.
There are no less than 15 different subjects that all drivers must be taught, ranging from the main types of hazard through to tunnel restrictions and (anti-terrorism) security awareness. This basic course has to be a minimum of 18 teaching units, with a “teaching unit” defined as a 45-minute period. Normally, a maximum of eight teaching units is to be delivered on any one day, meaning that even before drivers start to qualify as tanker drivers, they must have attended two and a quarter days of training.
The ADR then requires all tanker drivers to attend a specialisation course on tanks. This additional course must be at least 12 teaching units, i.e. one and a half days long. Tanker drivers must be taught about the behaviour of tankers on the road (movement of liquids) and acquire knowledge of the different filling and discharge systems, and so on. Thus, to become a petrol tanker driver, the length of the training should be three and three-quarter days long. On top of this, time has to be allowed for the drivers to sit the examinations for both the basic qualification and the tanker specialisation. When this is taken into account, it becomes clear that the time needed to complete the course will easily cross over into a fourth day.
There is one small caveat to this. The DfT and SQA recognise that there are many different kinds of road tankers, portable tanks, tank-containers and swap body tanks used to carry dangerous goods. These can range from the tanks for deeply refrigerated liquefied gas tanks (cryogenic tanks), arguably the most complex of all, through tanks for gases like LPG to tipping tanks for solids and specialist tanks for waste.
Not all drivers need to know about cryogenic tanks or waste tanks, and certainly this kind of detailed knowledge would not be needed by petrol tanker drivers. Nevertheless, the DfT and SQA acknowledge that operators must give their drivers further specialist training on the particular kind of tanks they are going to have to operate. As a concession, therefore, the SQA states in their manual that: “The minimum number of teaching units for each part of the syllabus is generally aligned with the recommendations contained in Chapter 8.2 of the current edition of ADR.
However, the ADR recommendation of a minimum of 12 teaching units to cover the initial tanker training syllabus has been reduced to 10 classroom-based teaching units. The shortfall of two teaching units is expected to be completed by the employer of the trainee providing training relating to the specific aspects of the tanker technical equipment and operation.”
This means that no operator could put qualified tanker drivers onto working with petrol tankers until this mandatory training on the tankers has been completed. This could entail, for example, ensuring they know that these are “gravity discharge” tankers, understanding how vapour return systems work and the special requirements for deliveries to forecourts.
Summing up, it might be possible for an operator to convert an existing packaged-goods driver who holds an ADR training certificate (i.e. for having attended a basic course) in two days or so. However, they could only do so if the driver attended a government-approved additional training course for tankers, took the additional examinations for this specialisation and then waited for the examination results to be processed and the additional qualification for tankers added to his or her existing certificate.
Latest statistics to hand show that it is taking around two weeks from taking and passing the exam to drivers being provided with their new or updated certificate. Thus, even if it were possible to complete an additional specialisation training course in two days or so, the newly qualified drivers may still have to wait two weeks or more before they can drive a petrol tanker.”
I don’t know if this fills you with confidence, but it doesn’t make me happy. Either the government will attempt to cut corners on the training, or the government will try to put untrained or partially trained people put there. And those untrained or partially trained people will be in charge of a large tanker full of volatile, flammable, explosive liquid: liquids which vapourise easily, and the vapour of which can be ignited by a spark.
It is unlikely, therefore that the problem at the pumps is going to be dealt with any time soon. I can’t tell you what the government is going to do: we may all just have to sit this one out. A final word before we move on to Essar. Those EU drivers who are grudgingly being allowed to come here for 12 weeks and go home on Christmas Eve, having “saved Christmas” so Johnson can have his “Boris Saves Christmas!” headlines? They’re not coming.
Succinct and to the point – and seconded by the head of the European Road Haulers Association, Marco Digioia, who said that the measures fall short of what’s required and that drivers would not be attracted to the UK, telling the Observer that “much more would be needed” and adding that “there is a driver shortage across Europe. I am not sure how many would want to go to the UK” – one Polish driver’s take on the situation was “You told us to f_ck off, so we f_cked off. You’re on your own now.” And who can blame him for saying so?
Digioia also pointed out that driver salaries are higher in Europe, with EU rules having improved working conditions on the continent and billions of euros had been pumped into funding for parking areas and support companies. He explained: “The UK doesn’t have access to any of that. Tempting European drivers back to the UK when they also have to face the reality of customs and border checks, all the uncertainties of Brexit… We have to be realistic.” And Andrew Opie, from the British Retail Consortium, said that the 5,000 limit would, in any case “do little to alleviate the current shortfall.”
So no help for the increasingly beleaguered government there then: how galling to have your “magnanimous” offer so rudely rejected!
Anyway, Essar. Background first:
Essar Group is an Indian multinational conglomerate and construction company, founded by Shashi Ruia and Ravi Ruia in 1969. Essar Global Fund Limited (EGFL) controls a number of assets across the core sectors of energy (oil refining, oil and gas exploration and production, power), infrastructure (ports, projects), metals and mining, and services (shipping, oilfield services, IT).
Essar Oil UK owns and operates the 9 million tonnes Stanlow Refinery located on the south side of the Mersey Estuary in Ellesmere Port, UK. Stanlow produces approximately 16% of UK road transport fuels, including 3 billion litres of petrol, 4.4 billion litres of diesel and 2 billion litres of jet fuel per year. The company has also started petroleum retailing and has over 45 outlets in the UK, with a target to open 400 outlets in the next five years. Essar’s Stanlow Refinery enjoys many advantages such as its close location to Liverpool and Manchester, impressive scale and Europe’s largest residue catalytic cracker.
On 6 February 2019, Essar Group unveiled the latest phase of its strategic business development after announcing the acquisition of some assets from BP to further strengthen the company’s logistics infrastructure network which will fuel growth ambitions in the UK. The latest expansion of its UK interests means Essar has now invested nearly US$1 billion in building a profitable and sustainable UK business, since first acquiring the Stanlow Manufacturing Complex in July 2011. Under the agreement, Essar will acquire an equity stake in the UKOP pipeline, a share of the contractual joint venture (with Shell) which runs the Kingsbury Terminal and a 100% interest in the Northampton Terminal.
In 2017, Russia’s energy giant Rosneft, Trafigura, and UCP Investment Group acquired Essar Oil for US$12.9 billion, making a grand entry into the world’s most sought after energy market with plans of grabbing a larger share of the fuel retail market in India and significantly better financial performance. This also included Rosneft paying off a lot of the company’s debts. Rosneft and its partners now hold a 98+% share in Essar Oil.
So what is the problem with Essar in the UK?
The UK’s second biggest oil refinery is locked in talks with tax officials over a deferred tax bill amid reports that it could be on the brink of collapse. Essar Energy is negotiating with HM Revenue and Customs (HMRC) over a £223m VAT payment, delayed because of the pandemic.
Essar Oil UK (EOUK) used the government’s pandemic VAT deferral scheme last year, which allowed businesses to delay tax repayments. It still owes £223m, and was reportedly due to start repayments this week. Essar, which employs more than 900 people at the Stanlow site, with a further 800 on-site contractors and 5,000 more through the extended value chain, says it is in positive discussions with HMRC for a short extension to its “time-to-pay (TTP) arrangement” agreed earlier this year, having repaid £547m of the £770m originally deferred.
“All companies under the TTP have been given until January 2022 to meet their commitments. EOUK had agreed to an accelerated schedule to make this payment. However, the recovery from the pandemic has been slower than predicted,” the company said, adding that it hopes for a resolution soon.
Essar Oil UK, which is being advised by EY, also insists it has made “considerable progress” to strengthen its financial position and agree new financing.
“As a result of that work over the past few months, EOUK has $1.1bn [£800m] in liquidity secured. Further, the company has now returned to EBITDA positive Earnings Before Interest, Taxes, Depreciation, and Amortisation] and is therefore in a much stronger position to weather the continued challenge presented by the pandemic,” it said.
But the Sunday Times reported that the government was on alert in case Stanlow collapsed, and that it could go into insolvency if it could not raise more funds. It that happened, the refinery would be likely to be taken on by the official receiver, to keep the refinery running.
With regard to the current crisis, Essar Oil UK said Stanlow was operating as normal during the current fuel crisis, and supplying fuel to north-west petrol stations as normal, as panic buying hits forecourts across the country.
What has Essar said about this situation?
Essar Oil UK has responded to what it calls ‘press speculation’, reaffirming that the trading environment is more positive, and that despite the concerns over potential fuel shortages across the UK, it had been able to deliver fuel to forecourts where necessary. It acknowledged it was seeking “a short extension” with HMRC, as the recovery from the pandemic had been “slower than expected”.
In a statement, it said: “EOUK [Essar Oil UK] set out in detail its current financial status in a statement last week, in which it confirmed the considerable progress the company had made to strengthen its financial position and agree new financing. “As a result of that work over the past few months, EOUK has $1.1 billion in liquidity secured.” (This was done in April.)
“Further, the company has now returned to EBITDA [Earnings Before Interest, Taxes, Depreciation and Amortisation] positive and is therefore in a much stronger position to weather the continued challenge presented by the pandemic.
“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 in fact increased vehicle shifts per day considerably, ensuring security of supply to its customers at this critical time.
“In early August EOUK was operating with about 52 vehicle shifts per day to over 70 shifts per day today. The shift plan is set to increase this further to well over 80 by the end of October according to current scheduling, bringing much-needed fuel to EOUK’s forecourt customers.
The firm added it was continuing to discuss matters with HMRC.
“On 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 been given until January 2022 to meet their commitments. EOUK had agreed to an accelerated schedule to make this payment. However, the recovery from the pandemic has been slower than predicted. EOUK is therefore in discussions with HMRC over a short extension to make those deferred VAT payments.
“Those discussions are positive and EOUK looks forward to a resolution soon. EOUK has made positive changes to its internal governance in recent months, having adjusted its board, constituted an Advisory Council, appointed a new independent director and has adopted the Wates principles.
“It continues to work with leading advisers, including E&Y. Since the refinery was acquired by Essar, Essar has invested more than $1 billion in the refinery 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.”
The payment to HMRC were due to begin this week, at the same time as HMRC’s moratorium on winding-up petitions ends, which is why there has been so much speculation, with concerns raised about the refinery’s future.
Why was Essar affected by the pandemic?
Before the pandemic, Stanlow, supplied road fuel to northwest England, and jet fuel to Manchester and Birmingham airports. As roads emptied and planes were grounded during the pandemic, demand for fuel plummeted, plunging Essar Oil UK into financial strife. In March, Lloyds pulled the plug on a key borrowing facility, raising concerns about the company’s immediate future. The energy group said it had replaced most of the facility through alternative funders and secured a further six months of breathing space from the taxman.
Why did the auditors, Deloitte, resign? Was it because the company was going bust?
At the same time as the companies finances tanked, banks and advisers began to cut ties with the company amid concerns about corporate governance.
Deloitte resigned as auditor of EG Group, the UK petrol stations company whose billionaire owners just agreed a £6.8bn takeover of grocery chain Asda, because of concerns over its governance and internal controls. Their concerns were, in particular around loans shifted out of Stanlow. The Sunday Times revealed this year that hundreds of millions of pounds has been moved out of the company in loans and dividends to the Ruias. PwC, one of its financial advisers, also parted company with Essar Oil UK.
EG Group, which owns nearly 6,000 petrol stations and reported more than €20bn of revenue last year, informed its bondholders in a private that KPMG had been appointed as its auditor after Deloitte resigned with “immediate effect”. EG Group did not specify the reason for Deloitte’s resignation in its notice, However, four people briefed on the matter told the Financial Times that the company’s auditor for the past four years had resigned because of governance concerns. One of these people added that the resignation was triggered by concerns at Deloitte that EG Group’s controls had not improved in line with its growth.
EG Group said in a statement to the FT: “As in previous years, Deloitte signed a clean audit for EG Group’s 2019 financial statements, and there have been no disagreements on any auditing or accounting matters. We are pleased to be working with KPMG going forward, and remain committed to making continued progress with our internal processes, controls and governance.”
KPMG and Deloitte declined to comment. (Always a bad sign.)
Does Essar own ASDA?
The Issa brothers and TDR agreed this year to buy Asda, the UK’s third-largest supermarket chain, from Walmart in a £6.8bn deal. The brothers and TDR will hold equal stakes in Asda, but EG Group itself is not a party to the supermarket deal, which is the largest private equity purchase of a UK company since KKR’s £11.1bn acquisition of Boots in 2007, according to figures from Refinitiv.
Earlier this year the Issa brothers were made CBEs in the Queen’s Birthday Honours list for “services to business and charity”. Chancellor Rishi Sunak hailed their acquisition of Asda, tweeting that the supermarket chain was “returning to majority UK ownership for the first time in two decades”.
So where does that leave us with Essar?
The government is on alert in case Stanlow collapses. Unless it finds more cash, sources said it was likely to go into insolvency and be taken on by the Official Receiver to keep the refinery running. The government is thought to have ruled out a bailout. EY is advising Essar Oil UK on its options.
The government will undoubtedly apply heavy pressure to HMRC to allow Essar more time to pay its deferred VAT: if paying it before January sends the company into liquidation it will be a disastrous blow for the UK because of its exposure to Essar going down. There will be an impact on jobs, an impact on petrol supply, and of course, indirectly, an impact on aviation, already struggling, if planes can’t get the fuel to fly our of Manchester.
Will the government bail Essar out even though it has said it won’t?
It shouldn’t: if it bails Essar out, then undoubtedly it will be expected to bail out other companies. The government can direct HMRC – one of its own departments – to allow Essar more time to pay. The question is whether Essar can, in fact, pay. The chances are that the company has been asset stripped before being abandoned – especially if the Sunday Times is correct when it says that “hundreds of millions of pounds has been moved out of the company in loans and dividends to the Ruias.” If there is not enough working capital in the company, then it can’t go on. Interestingly, the Wall St Journal does not recommend it as an investment opportunity, describing it as “slightly overvalued with an imperfect balance sheet” and giving it a red rating for negative shareholders’ equity: a red flag for investors because it means a company’s liabilities exceed its assets.
So yes, watch this space. Bottom line is that the government may want to let it go under, but may, politically, not be able to in view of supply issues with fuel and what would happen to that supply if 16% of it was unable to continue.