Eddie Barnes: Five lessons from Grangemouth

Grangemouth Oil Refinery. Picture: Greg Macvean
Grangemouth Oil Refinery. Picture: Greg Macvean
Share this article
Have your say

The events of the past week contain stark warnings for the UK and Scotland in business and politics, finds Eddie Barnes

1. Cash is king

A week last Tuesday, Ineos and Unite had spent the entire night at the conciliation service Acas going over a plan to keep open the plant at Grangemouth. According to Unite chiefs, just as dawn was sliding into the horizon, Jim Ratcliffe, the chairman and founder of the firm, intervened. The Manchester-born billionaire, and majority shareholder of the chemicals giant, wasn’t present, but the Unite chiefs claim they were told that “Jim wants an apology” for the “defamatory” statements it had levelled at the company.

“I have never come across anything like this in over 30 years of employment relations and it is utterly reprehensible,” fulminated Unite Scotland’s general secretary Pat Rafferty. The talks by then had broken up without a deal. But the cold truth is that Ratcliffe was not being rash; rather, his demand was an act which recognised the fact that, as the private owner of the plant, he held all the cards.

There was no other buyer scrambling to take Grangemouth off his hands. Eight years earlier, BP had willingly sold it to his firm, eager to get out of the struggling petrochemicals market. And nor – as head of a private firm with no public profile – did Ratcliffe have to worry about reputational issues. As Labour MP Ann McKechin notes: “The thing with this company is that it doesn’t have any institutional shareholders. If you were dealing with a ScottishPower or similar, they are listed companies and they have institutional investors and they all have relationships that mean they don’t want to fall out with government.” Not Ineos, though.

Nobody but the cash-rich firm itself was offering a plan. So there was little stopping Ratcliffe and Ineos acting as they wanted, and ensuring the unions did exactly as they wished them to. Both Westminster and Scottish governments tried their best to broker a deal between the two. It had taken intense lobbying by Energy Secretary Ed Davey just to get Ineos to come to Acas in the first place. And, a week last Thursday, First Minister Alex Salmond had held meetings with both sides convinced that a way forward had been found. But by the following morning, it was in pieces.

As the only player in town, Ineos was making it clear it wanted things done its way. Politicians like McKechin question whether it can possibly be right that one of the United Kingdom’s most important strategic energy assets can be held by a firm which has no dog in the UK fight – and can walk away if it chooses. But they have little in the way of a concrete plan to tackle it. The blunt reality, as ministers acknowledged last week, was that options there were none. Private capital investment and reform in the form of Ineos’s plan was the only game in town.

Scottish Secretary Alistair Carmichael said: “Is there an ideal situation here? I don’t think there is. We’re looking for the least bad. I don’t think it would have been in anyone’s interests to nationalise the plant; it is losing £10 million a month so I can’t see that being approved by civil servants.” Can it be changed? “I have to deal with the world as I find it,” replied Carmichael. And with Ineos being the only group willing to invest its cash in the site, and keep paying staff, that cash is king.

2. Unite ignored reality and overplayed its hand - and it is hurting Labour

Ratcliffe was not looking to asset strip or shut down Grangemouth. He had a deal on the future of Grangemouth which should, on the surface, have been relatively straightforward to organise. In the face of harsh market conditions, the plant clearly needed reform. The supply of North Sea gas at the site had declined by 60 per cent in the past decade, and agreements with operators there were due to expire in 2017. Ineos had provided a survival strategy – pledging a £300m investment to land gas instead from the United States’ huge new shale supplies. Government cash and loan guarantees had been lined up to support it. As for cuts, there was a clear case for reducing employment costs and perks denied to many other workers across the country, such as final-salary pensions. Government sources noted that, so good were the pay and conditions, the firm was finding it more cost-effective to hire agency staff.

However, all that was overshadowed by a bitter mano-a-mano feud between Ineos and Unite, sparked by the firm’s decision to pursue an investigation into union convener Stevie Deans, and his role in Labour’s Falkirk selection battle.

Ineos may well have deliberately goaded Unite into a fight. But where the union miscalculated disastrously was in thinking for a second it could win. Even some workers at Grangemouth were heard to blame its “naive” confrontational approach which, when faced by the hardball tactics of Ineos, melted away to nothing. The result is that, as ministers acknowledge this weekend, Ineos has “got pretty much everything that it wanted”.

That represents a serious blow to Unite’s up-and-at-’em style, and its overt political efforts to influence the Labour movement. For in overplaying its hand, the union’s authority has been clearly eroded. And for Labour party chiefs in Scotland, and Unite member Johann Lamont it begs questions as well.

Lamont and her Scottish colleagues had all lined up loyally behind Unite, attacking the firm’s “Dickensian” style of negotiation. According to now independent Falkirk MP Eric Joyce – formerly of the Labour Party – it ensured that Lamont and her team had ended up looking like “the Scottish Unite party”, having been “bounced into an anti-employer position when it’s clear than Unite has handled the dispute appallingly”.

3. The blast of global forces has exposed the limitations of Scotland’s referendum debate

For a year now, Scotland’s politicians have focused relentlessly on the question of whether businesses would be better off under independence or within the wider Union. But the Grangemouth stand-off has shown that huge firms such as Ineos are first and foremost influenced by global forces, whose importance puts the difference between the UK’s “two futures” into a little more perspective.

Those global forces, for Ineos, are defined by the shale-gas revolution in the US; speaking recently, Ratcliffe spoke of the “enormous impact” it was having on his own business model. It meant that the supply of cheap gas was cutting costs dramatically for manufacturing firms such as his own, and shifting both profit and investment across the Atlantic. Consequently, business chiefs such as Ratcliffe were looking at the UK and parts of Europe and wondering why they would want to go there.

He added: “Taxes are high, the unions are difficult, pensions are expensive, energy costs are extremely expensive.” By contrast, he continued: “If you look at America, it has got lots of USPs [unique selling points] and it has this enormously strong new one which is cheap energy”.

The future of plants like Grangemouth would be in its ability to capitalise on the impact of that new revolution, Ratcliffe declared. It seems likely that the question of whether Grangemouth is situated within the wider UK or an independent Scotland has barely been factored in.

4. The affair has exposed the inner-wiring within the British Isles that unites even warring politicians

For once, both Scottish and UK governments had their self-interest aligned. At a UK level, ministers were fearful that the death of Grangemouth would dampen the narrative of a country emerging from economic recession. In Scotland, SNP ministers could see the catastrophic effect the loss of such a massive part of Scotland’s economy would have on the nation, less than a year before the referendum. So, mutual antipathy was put to one side, and the two governments worked in concert.

Ed Davey spent a weekend on the phone to Ineos, persuading them to get to Acas. Scottish Secretary Alistair Carmichael arranged meetings with the firm on Thursday last week, and ensured the Scottish finance secretary, John Swinney, went along as well.

Meanwhile, Alex Salmond ended up playing go-between on Wednesday evening last week after Ineos had announced it was pulling out. First he spoke to shell-shocked Unite leaders who, it became clear, were prepared to make massive concessions to rescue the plant. He then contacted Ratcliffe to tell him that Unite was prepared to go down on bended knee. Both sides in the referendum debate will resume hostilities this week, but the desire to find a joint solution last week was genuine given Grangemouth’s importance to Scotland, Northern Ireland and the north of England.

5. Innovate or die

Much as the firm’s tactics have put people off, Ratcliffe argues that it is only what he describes as the “nimble and entrepreneurial” structure of Ineos that has allowed it to make a success of the struggling refinery and petrochemical industry – thereby keeping 15,000 people across the world in well-paid jobs. Hence the plan to ship in gas from the US to replace declining stocks from the North Sea.

What, though, of alternatives to the private-sector model? In the wake of Ineos’s announcement that it would be shutting the petrochemical plant, one Labour MSP, Elaine Smith, called for immediate nationalisation of the Grangemouth site. Slamming Ineos’s treatment of its workforce as an “unjustified attack on their wages and working conditions”, Smith added: “It is only by democratic ownership that we can ensure that this vital public resource is run for the benefit of those who work there.”

But, unlike in the case of Prestwick Airport two weeks ago, it is unlikely any government could contemplate buying into such a complex and volatile industry, and one which appears to be losing cash hand over fist. Instead, as Unite acknowledged, the only way forward is for the site to innovate and hope to compete in the global market-place.

For Grangemouth workers, it may mean a less comfortable future – although Ineos has promised to keep actual redundancies to a minimum. But it may, as Alex Salmond suggested yesterday, mean that the site will both see out its centenary in 2024, and succeed long beyond that as well.

Nationalisation was never an option and nor, as Ratcliffe made clear yesterday, was sale to a private bidder. The only other option was death.

The message both for Grangemouth and the Scottish and UK economies this weekend is that only constant innovation – assisted by the assent of workers – will ensure that business can survive and prosper. «

Twitter: @EddieBarnes23