Essar Stanlow has 'real confidence' after fully repaying huge deferred tax bill

The oil giant's trading report for the first quarter said there had been a surge in demand for diesel, with the UK committed to banning all diesel imports from Russia by the end of the year.

Essar said it had stopped all Russian imports as of mid-April, and was sourcing its oil from the US, West Africa and the North Sea, and was maximising indigenous diesel production.

Sales had risen to the firm's highest levels since the Covid pandemic, and it had finally repaid its huge deferred tax bill.

Stanlow.

Essar hit the news in September last year as it faced a race against time to repay the huge deferred VAT bill, which totalled £770 million, as the oil giant sought to recover from the financial hit caused by the Covid pandemic.

With the deadline approaching, Essar secured a three-month extension with HMRC to repay the money required, as the firm said the recovery from the pandemic had been "slower than predicted".

The company has revealed those payments have now been made in full.

The report said: "Domestic sales volumes continued to rise to a new high since Covid. Volumes of 1.72 million tons, up 10% from the same quarter last year (Q1 2021: 1.57m). Volumes were up 8% in the first half of the calendar year 2022 to 3.2 million tons against the same period last year (Jan-June 2021: 2.96m). Consolidated revenues during the quarter (on an IFRS basis) of $3.72 billion (Q1 2021/2: $2.03 billion).

"The UK has historically been reliant on Russia to meet its diesel needs, and a key industry-wide challenge is to source these barrels from alternative domestic or non-Russian sources.

"In support of the UK Government’s announced ban on Russian imports to be implemented by the end of this calendar year, Essar ceased importing all Russian products (including diesel) from mid-April.

"The company has successfully replaced any shortfall from this strategy by maximising indigenous diesel production as well as sourcing non-Russian diesel.

"Our objective continues to be to support the UK’s longer term fuel security and resilience, and do what we can to meet the needs of our customers in the face of tighter levels of supply. All crude processed at Stanlow comes from US, West African and North Sea sources."

In terms of trading, Essar said: "During the quarter, trading was significantly ahead of previous forecasts driven by increased demand for locally produced fuel amidst the tight global supply situation.

"This stronger financial performance has enabled Essar to improve its capital structure and strengthen its balance sheet. Essar’s overall debt levels for the current fiscal year are significantly less than 1x expected EBITDA, in line with our low leverage approach to capital structure.

"A stronger balance sheet also ensures we can deliver on our strategic objectives, in particular our low carbon agenda by investing in hydrogen production, carbon capture, biofuels and other similar opportunities.

"The company confirms it has paid all historic Covid-related deferred tax payments in full."

Essar added its big future aim was to deliver the £1 billion hydrogen hub at Stanlow, which will power the equivalent of a major British city region (1GW per year) with sustainable fuels. The UK's first £45 million hydrogen-powered furnace arrived in the Port of Liverpool before heading to Stanlow later this month.

A new furnace capable of running on 100% hydrogen fuel source heading for Essar Stanlow in Ellesmere Port has arrived at the Port of Liverpool.

The new furnace (which provides the heat required for the refining process) is a vital piece of kit to support the decarbonisation of Essar’s Stanlow operations.

Deepak Maheshwari, Chief Executive Officer of Essar Oil UK, said: “After a very challenging 18 months, we have made huge progress on all fronts in the first quarter of 2022/23.

"I would like to thank our people for their hard work, dedication and commitment in what has been an unprecedented two years for our business and the sector as a whole. Volumes are now largely at pre-Covid levels and we have been able to significantly strengthen our balance sheet and operating performance.

"We accelerated our support of the UK’s transition away from relying on Russian products and have ceased all Russian imports, while ramping up production of UK-made diesel.

"We look forward now with real confidence and a very clear strategy – we will be the UK’s first low carbon refinery – supplying the fuels of the future, both in terms of low carbon processes for traditional fuels, and also biofuels and a huge investment into the UK’s hydrogen future. We are delivering on our strategy and securing the long term future of this important facility."