INSIGHT: Shutdown drama, but not in the US. INEOS Grangemouth in focus

17 October 2013 16:59  [Source: ICIS news]

By Joseph Chang

NEW YORK (ICIS)--Employees staying home, failed negotiations, a shutdown and brinksmanship – you’d think this was about the US government shutdown. Rather it is all about the INEOS refinery and petrochemical site in Grangemouth, Scotland, UK where management and the labour union are locked in a bitter dispute.

The battle between management and the union has taken a stunning turn, with the threat and then withdrawal of a planned strike being turned into what appears to be a management lockout.

In the meantime, the INEOS site at Grangemouth remains shut down, with a final decision on what to do next set for Tuesday 22 October.

INEOS has been pushing for pension reforms for the employees there as it maintains the site is not economically viable as is. The company also said it requires £300m in investment at the site, in large part to build infrastructure to receive US ethane feedstock.

The site has lost £579m (€681m, $919m) from 2010 to date, according to INEOS and its auditor PwC. That includes £110m from operations on an earnings before interest, tax, depreciation and amortisation (EBITDA) basis, and £468 in capital expenditure.

The union has questioned the numbers, and has offered to have an independent auditor conduct a review.

Management said it would close the site by 2017 if it a solution is not reached. Meanwhile, the union at the site threatened a strike. The strike by the union Unite was announced on 11 October and was planned to take place over 48 hours between 20-22 October. This was in protest over INEOS’ decision to launch an investigation into site union representative and local Labour party member Stephen Deans, as well as the use of agency workers.

Unite first announced that its workers voted in favour of industrial action on 27 September in response to the INEOS investigation of its union representative.

INEOS is investigating whether Deans’ activities – regarding conduct in the replacement process for departing Labour MP Eric Joyce – were in line with his role as an employee and union representative at the Grangemouth site. Unite notes that Deans was already cleared of any wrongdoing by a Labour party investigation in early September.

Things took a turn on 15 October when INEOS, frustrated by the lack of progress in talks, announced that in anticipation of the strike, it was shutting down production units to a “cold standby” which would take longer to restart than a “hot standby”. INEOS claimed that a hot standby would be too dangerous to guarantee the safety of the site during the shutdown.

After a strike in 2008 at the site, it took more than three weeks to restart the units, INEOS said.

However on 16 October, Unite all of a sudden called off the planned strike “to protect national assets”. Grangemouth is Scotland’s only refinery and provides utilities for the crude pipeline link with the Forties field in the North Sea.

The union also slammed INEOS’s cold standby. “[INEOS CEO Jim Ratcliffe] is now systematically running the Grangemouth refinery and petrochemical sites into a damaging cold shutdown which will impact on fuel production and supply across Scotland,” said Pat Rafferty, Unite Scottish Secretary.

It called off the strike even as it said INEOS representatives walked out of talks after 16 hours of negotiations.

The issue? According to Unite, it was because Ratcliffe instructed management representatives to demand an apology on his behalf for public comments made by Unite that INEOS have described as "defamatory". Assuming the apology was not forthcoming, there was no deal.

But INEOS has now turned the tables on the union. Signalling that the union appears to have overstepped in its call for a strike, it announced that the Grangemouth site is shut down, and will remain shut down until 22 October at the earliest.

INEOS said it will submit its proposals to the workforce on 17 October. The Grangemouth workforce will have the weekend to consider the proposals, and an answer will be expected on Monday 21 October, the company said.

“A decision is going to be made on Tuesday (22 October) on whether the plant is going to re-open or remain shut,” a source familiar with the situation said.

The situation is now effectively a classic management lockout, where the company shuts out workers to compel them to accept its terms – a reverse strike, or strike by management.

The brinksmanship does bring to mind parallels with the US government shutdown and standoff with the debt ceiling.

The shutdown of the US government began on 1 October as Republicans in the House of Representatives would not allow a vote to continue funding the government without major changes to the new health care law known as Obamacare. The shutdown lasted for weeks as Democrats and Republicans wrangled for a compromise.

But a greater issue loomed – the US debt ceiling, where the US would essentially run out of funds to operate by 17 October. If it could not borrow additional funds, it would eventually have to make choices on who and what to pay – including social security recipients, military personnel or the interest on its debt.

The threat of a default brought Democrats and Republicans in the US Senate to a deal – one that is largely favourable to the Democrat position and President Barack Obama – lifting the debt ceiling and ending the shutdown until next early next year - without major changes to the health care law, but calling for budget negotiations to reign in the debt.

That turned the tables on the House Republicans, who were unable to put together a deal with their Democrat counterparts.

The US Senate deal was presented to the House, and on the day before the 17 October deadline, the House Republican leadership had little choice but to put through that deal for a vote, resulting in end of the shutdown and standoff over the debt ceiling – for now.

($1 = £0.63; €1 = £0.85)

Additional reporting by Tom Brown in London

By: Joseph Chang
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