Grangemouth analysis: Hope lies with politicians

The Ineos petrochemical plant in Grangemouth. Picture: PA
The Ineos petrochemical plant in Grangemouth. Picture: PA
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THE total breakdown of industrial relations at Grangemouth has left ministers rolling their eyes in dismay in recent days.

Privately, there is deep frustration that a war of words between Ineos and Unite has escalated to such toxic levels, given the high stakes. Both UK and Scottish governments are united – for once – in fearing the consequences if the lights in the vast refinery on the Forth do go out permanently.

And with former Scottish secretary Lord Forysth calling hopes of finding another buyer for the site “a red herring”, both governments know their best chance of avoiding a calamitous closure is to try desperately to patch things up between the union and the firm. Thus, despite the blunt finality of Ineos’s announcement, talks continued yesterday with both.

Neither Alex Salmond in Aberdeen nor Ed Davey in Westminster was taking sides, as they sought to keep the flames at Grangemouth alive. After taking questions in the Commons, Davey spoke to Ineos founder and chairman Jim Ratcliffe, assuring him that Treasury guarantees were still available should the company opt to invest in the plant.

In Scotland, Mr Salmond also spoke to Ratcliffe and to the Unite leadership in a similar vein. Following a Cabinet meeting, Salmond also talked up the prospect of a fresh offer from Unite to Ineos, made yesterday after officials realised their members were facing redundancy. There will be hopes a cooling-off period might allow talks to succeed this time. But that prospect looked unlikely yesterday, as Unite’s Pat Rafferty accused Ratcliffe of “holding the country to ransom”.

If Ratcliffe decides to stick to his course, both London and Edinburgh will then turn to a Plan B, with the aim of finding a new buyer. Both UKTI – the UK body which brings in investment – and Scotland’s “GlobalScot” are understood to be on the case, to find a suitable partner from around the world.

The trouble is, when asked to name any potentially interested parties yesterday, politicians were distinctly vague. That suggests the real hope of any 11th-hour solution lies in diplomatic activity by the country’s political leaders.

David Bell: Ripple effect of closure goes beyond Scotland

The announcement of the closure of Grangemouth brought back memories of the 1992 closure of the steel plant at Ravenscraig. Just as Ravenscraig once had an iconic status in the history of Scottish industry, Grangemouth is now a central piece of Scotland’s manufacturing jigsaw. Between them, the refinery and petrochemical plant, which have a turnover of about £5 billion a year, probably accounts for 8 per cent of Scotland’s manufacturing output.

If the petrochemical plant closes, about 800 jobs will be lost in the plant itself. If the refinery closes a further 550 will go. But the evidence is that Grangemouth is widely linked into the Scottish economy, buying inputs principally from the oil industry but also across a wide range of other industries and services in Scotland.

The employment effects would be felt well beyond Grangemouth. Many consumers and businesses buy products that ultimately depend on fuel from the refinery and chemicals from the petrochemical plant.

Grangemouth provides a significant share of Scottish exports. Key markets for the fuel produced by the refinery include the north of England and Northern Ireland. These economies would also suffer if the fuel had to be brought in from higher-cost locations.

The refinery is closely linked to the production of North Sea oil. Closure would disrupt the transformation of crude oil into fuel products. Oil companies would have to transport crude to refineries in the rest of the UK or elsewhere in Europe.

One puzzle, though, is that the UK government yesterday launched a £40 billion scheme “to encourage long-term investment in British infrastructure”. One of the proposals accepted was for “ethane storage facilities at the Ineos Grangemouth plant”.

The probable intention is storage for gas to supply the petrochemical plant from sources other than the North Sea. The implication is that until very recently, further capital investment was part of Ineos plans. If this is the case, there is perhaps hope that Grangemouth will not go the way of Ravenscraig.

• David Bell is professor of economics at the University of Stirling.