Italy’s largest refinery, which was bought by Moscow-based Lukoil after EU sanctions lower it off from Russian oil, is in disaster because the Greek billionaire who’s now its majority investor and commodity big Trafigura conflict over the phrases of a crude provide association.
GOI Vitality purchased the ISAB plant within the Sicilian city of Priolo in 2023 with assist from Trafigura in a last-minute deal that Franco-Israeli mining tycoon Beny Steinmetz helped prepare. The sale was authorised by the Italian authorities however shrouded in thriller, with neither the client nor Rome disclosing the id of its shareholders.
Paperwork seen by the Monetary Instances present that the most important investor in GOI’s controlling fund, Argus, on the time of the transaction was George Economou, a tycoon whose TMS Tankers was one of many largest seaborne transporters of Russian oil following the 2022 full-blown invasion of Ukraine.
GOI and Trafigura gazumped a bid by rival buying and selling home Vitol and US personal fairness group Crossbridge Vitality Companions, and secured the deal regardless of opposition from the US government.
Economou invested within the refinery alongside Steinmetz and former Trafigura government Michael Bobrov, in line with the paperwork. Relations between the three males have since soured over cash and the phrases of a 10-year oil provide and advertising and marketing settlement signed with Trafigura, in line with six folks accustomed to the scenario.
Economou has argued that Trafigura is guilty for the refinery’s issues, complaining in conferences that the provision and offtake deal is overly beneficial to the buying and selling group, permitting it to guard its earnings whereas the power operates at a loss. Trafigura has mentioned the refinery requires extra funding to improve operations amid troublesome market circumstances.
Elevated refinery working prices ensuing from larger costs of fuel and carbon offsets are weighing on margins throughout Europe, making it troublesome for all however essentially the most environment friendly refineries to interrupt even.
The infighting may threaten the survival of a facility that gives a fifth of Italy’s refining capability, employs about 1,000 folks straight and helps one other 8,500 jobs within the native space.
It has additionally led to criticism of the Italian authorities, which authorised the sale to GOI though its largest buyers had no expertise of proudly owning or working refineries.
“These capital-intensive companies require heavy investments, however they undergo unstable money circulation so the monetary soundness of the client is a key component,” mentioned Alan Gelder, vice-president of refining, chemical compounds and oil markets at Wooden Mackenzie.
“In hindsight one may say the Italian authorities ought to have chosen one other various than promoting to [GOI Energy].”
Underneath the phrases of the deal, GOI acquired the refinery whereas Trafigura agreed to supply working capital to fund its operations and, in line with two folks accustomed to the settlement, paid GOI an upfront €30mn payment to provide the plant with crude oil and promote the refined product it produces for 10 years.
“Trafigura’s business preparations with ISAB are at arm’s size and on market-based phrases, consistent with related business agreements around the globe,” Trafigura mentioned in an announcement to the FT.
“In troublesome market circumstances, the Priolo refinery wants substantial efficiency enhancements and additional funding to stay aggressive. Now we have provided our help to ISAB and the Italian authorities to assist safe a sustainable future for this vital asset.”
ISAB lodged an software this 12 months with Sicilian authorities to restructure the enterprise by means of an out-of-court “negotiated settlement of a enterprise disaster”.
Economou hopes to make use of the method to pressure a renegotiation or cancellation of the contract with Trafigura, in line with two folks accustomed to the matter. Economou has additionally thought of promoting the refinery however the provide settlement has proved a serious sticking level in conversations with potential consumers, in line with folks accustomed to the conversations.
On the time of the acquisition, Economou was offered to the Italian authorities as the last word helpful proprietor of a Cypriot entity that held 52 per cent of the Argus Fund subunit, which managed 70 per cent of GOI, in line with the paperwork seen by the FT.
The remainder of Argus Fund subunit was owned by an entity managed by two foundations whose beneficiaries included Steinmetz’s youngsters, the paperwork present.
Steinmetz’s connection to the refinery and his position in negotiating the take care of Italian authorities was revealed by the FT in 2023.
In 2023 Economou determined to mortgage cash to GOI Vitality so it may repay an excellent debt with Lukoil. In January final 12 months, after GOI didn’t repay the mortgage, he opted to transform it into fairness and dilute the opposite shareholders, the paperwork present. The 71-year-old now controls 99 per cent of GOI’s shares by means of a fancy fund construction.
GOI paid about €180mn for the plant, considerably outbidding Vitol and Crossbridge, which had provided roughly €55mn, in line with two folks accustomed to the phrases of the bids. They estimate that it additionally paid a number of hundred million euros for the oil on website on the time of the acquisition.
The Italian authorities authorised the funding beneath the so-called gold energy rule, which supplies it the best to veto offers or impose necessities over the acquisition of strategic property.
On the time, Italian officers mentioned they had been reassured by the involvement of Trafigura and Bobrov, who can be an investor, alongside Steinmetz’s son-in-law, in Israel’s largest refinery. GOI had additionally provided reassurances about sustaining jobs and manufacturing ranges, they mentioned on the time.
