By Colm Rapple
Irish Mail on Sunday January 28, 2007
The decision of ConocoPhillips to sell Irelandâ€™s only oil refinery for an asking price of â‚¬380 million highlights yet another example of governmental incompetence. The oil giant will be laughing all the way to the bank while the Irish taxpayer bears the cost.
Itâ€™s only five years since the refinery, together with the massive Whitty oil terminal in Bantry Bay, was sold by the Government for a mere â‚¬77 million. The dollar price of $100 million was worth a little more in euro terms then but that matters little since only a fraction of the agreed purchase price, perhaps as little as â‚¬30 million, ever found its way into the Exchequer.
Taxpayers didnâ€™t get the benefit of even that small sum since the State had to assume responsibility for maintaining our strategic oil reserves. These stocks could previously be held at no cost in Bantry and Whitty but since we no longer own either facilities the Irish National Petroleum Corporation (INPC) is currently paying over â‚¬17 million a year in storage fees to private oil companies including ConocoPhillips.
Indeed it is likely that the bulk of our oil reserves is held in Bantry. While it is selling the refinery, ConocoPhillips is holding onto the terminal which has a capacity of 8.5 million barrels. With its deep water access and the Irish State as a guaranteed customer for storage facilities, it is clearly a very valuable asset.
So why did we sell both the terminal and the refinery so cheaply. We havenâ€™t just lost money on the deal, weâ€™ve also lost control over assets that are of prime importance to our national security. The importance of having at least one oil refinery in Ireland has been long recognised. It prompted the Government decision to originally buy Whitegate in 1982 when the then owners, a group of oil majors, threatened to close it down.
The State owned INPC took over the operation and in 1986 acquired the Whitty Island oil terminal when another oil major, Chevron, surrendered the lease. The terminal had been out of operation since the tragic explosion and fire that cost 51 lives and damaged the jetty in 1979.
INPC did a good job with both facilities. In 1997 it upgraded the refinery at a reported cost of â‚¬86 million while in 1998 the Bantry terminal was reopened. A requirement that oil companies buy at least some of their supplies from the State owned refinery provided an effective subsidy in some years but by the time it was sold in 2001 that requirement was no longer an issue and INPC was making a profit.
The Government decision to sell can be explained mainly by the ideological based belief that the less the Government owns and runs, the better. Even firm believers in that adage must accept that there are assets that are best kept in State control. The Stateâ€™s only oil refinery and large scale oil storage facilities may well be examples.
But even if that isnâ€™t accepted, it must make sense to get the best possible price for any assets sold. The sale of Whitegate and Whitty didnâ€™t make sense. The Minister responsible Mary Oâ€™Rourke admitted in the DÃ¡il at the time that the net proceeds from the sale were going to be substantially less than the $100 million â€œheadline considerationâ€ that was used in selling the deal to the public.
There was also a claim that the deal would help to bring down the price of fuel although internal Departmental documents later released revealed that there was no expectation of any significant impact on consumer prices.
Any potential opposition from management and staff were bought off with benefits and guarantees that helped to offset the move from State to private sector employment. Lump sum payments were made. Over â‚¬10 million of the purchase price was used to buy shares in Phillips Petroleum for the staff and jobs were guaranteed for 15 years.
As part of the deal the State had to give the new owners an â‚¬80 million guarantee to pick up the tab for any claims made in respect of environmental or other damage caused prior to the take over. And since they were only selling the assets of INPC, the State retained responsibility for the companyâ€™s debts which amounted to almost â‚¬90 million.
In reality the taxpayer got little or no benefit from the sale. In retrospect the guarantee that the refinery would stay open for 15 years was worthless. The State could itself have continued to run the refinery at a profit for that period but instead it gave away a very valuable asset for next to nothing.
Industry sources are quoting a current value for Whitegate alone of $500 million (â‚¬380m) and itâ€™s easy to believe that the refinery is worth that. ConocoPhillips has continued to develop it with a reported investment of about â‚¬30 million. But it has also got some Government assistance. Last year a biodiesel project using soybean oil was grant aided. Rather strangely the Department of Energy didnâ€™t require it to use rapeseed oil which could be produce in Ireland although it is said that the refining process would be the same.
Adding insult to injury the State owned Bord GÃ¡is had to do a deal with ConocoPhillips to use part of the Whitegate site for a proposed generation station while the new Government development plan includes proposals for building additional strategic oil storage capacity. That 2001 decision to effectively give away the Whitegate refinery and the Bantry oil terminal continues to cost us money.
It might even make sense at this stage to buy them back.