The amount the Essar Group will actually shell out for global oil major Royal Dutch?s three oil refineries in Europe would turn out to be much less than the originally reported $1.2 billion. This is because Royal Dutch has significant unmet liabilities on its books, ranging from personnel and pensions to health, safety and environment.
The Essar Group is looking to acquire the assets in an all-cash transaction.
The Essar Group, which has presence in steel, power, oil, shipping and telecom, is in talks with Royal Dutch to acquire its three refineries?Stanlow refinery in the UK and the Heide and Hamburg plants in Germany?to boost its sales by selling fuels in Europe. The two sides have entered into exclusive negotiations.
When contacted an Essar Group spokesperson said, ?We are in discussion with Shell but we will not like to comment on our negotiations and time line?. However, sources said that talks are on for resolving pension-related liabilities.
In the past, issues relating to pension liabilities have slowed down Tata Motors? bid for Jaguar and Land Rover and Tata Steel?s acquisition of Anglo-Dutch steel firm Corus. British pension schemes usually have unfunded liabilities that may require topping up on a periodic basis in line with the law.
?Negotiations are going on with Shell,? Shashi Ruia, chairman of the Essar Group had told a news agency a few weeks ago. He had, however, declined to indicate as to when the talks between the two parties would end.
Shell plans to sell about 15% of its global refining capacity, or about 600,000 barrels a day, in the next few years as part of a restructuring programme aimed at improving profitability and efficiency.
Essar Oil, which currently operates a 210,000 barrel-a-day refinery in Gujarat, has been looking at acquisitions as it aims to have a global refining capacity of 1 million barrels a day. The company has, however, not given any time frame for the expansion.
The refineries that Essar is looking at acquiring from Shell have a combined capacity of 26 million tonne per annum (mtpa) along with associated infrastructure, though the utilisation is between 20 and 23 million tonne.
A fortnight ago, a team of Essar Oil was in London, discussing the issues relating to integration of assets. Group chief executive Prashant Ruia has already completed few rounds of talks with the Shell management, a company source said. Recently, Essar bought a 50% stake in Kenya Refineries Ltd.