A struggle for power

With memories still fresh of the closure of the BP Forties pipeline, emergency fuel being shipped in from Europe and senior politicians rushing for talks at the site, this time an even bigger threat is looming.

The management has warned that unless it gets its way, it will close half of the plant in four years' time. It has confirmed the prospect that the rest of the site would end up closing as well.

The dispute is different this time around, yet underneath it is much the same. As in 2008, the ­management wants to close the final-salary pension scheme to new members as part of a drive to cut employee costs.

But where on that occasion this was the subject of the strike, this time it remains in the background while a disciplinary issue about one member of staff is centre stage.

Stevie Deans, one of the Unite conveners, made a name for himself this year as the chairman of the Labour constituency party for Falkirk West. The row over his alleged efforts to have Karie Murphy installed as the Labour candidate to replace disgraced MP Eric Joyce may have subsided, but it has carried on for him after his employers took an interest in what he was doing during working hours.

Deans is being investigated for allegedly having used his convener's position to recruit supportive staff to the constituency party. He was duly suspended for a few days in the summer, only to be reinstated after Unite general secretary Len ­McCluskey telephoned the management, threatening a strike.

Nevertheless, the ­investigation by Ineos is continuing. The union balloted its members over the matter, arguing that the site management both knew about Deans's activities and then cleared him of wrongdoing after an investigation - claims the company denies.

Although the management insists this row has got nothing to do with the plant's future, Unite begs to differ. Pat Rafferty, its Scottish head, says: "Jim Ratcliffe wants to lower the costs, lower the pensions, but the only way he can do that is to break our organisation on the site. The attack on Stevie is an attack on the organisation so that our members are defenceless."

Either way, the company rolled the two issues together in the letter that it sent to members ahead of the ballot. It rehearsed several points that have appeared in the press in recent weeks: the site has lost around €200 million (£168 million) per annum in each of the last three years; there is a circa £200m pension deficit with annual costs running at about 65% of salaries, making it "vital the important matter of pension reform is addressed"; and the petrochemicals business "will not be sustainable" without immediate investment.

The Ineos business at Grangemouth divides into two halves. There is the refinery, which breaks down crude oil from the Forties pipeline from the North Sea and the Finnart pipeline in Argyll into products including petrol, naptha, diesel, bitumen and natural gases.

It supplies 30% of the UK's fuel requirement, including 85% of Scotland's. This makes it vital to national security, which was one of the key reasons why Unite won in 2008 (along with the enormous cost to Ineos of shutting down the plant, at £100m for the two days).

Following the debt problems that nearly brought down Ineos after the Lehman crash, the company sold half of the Grangemouth refinery and its sister plant at Lavera in the south of France to PetroChina for ­ $1 billion (£620m). This was probably necessary to cut debts, but Ineos is also generally more focused on chemicals.

This is what it does with the other half of Grangemouth, converting feedstocks into hydrocarbons that are used in the manufacture of everything from nylon to detergents. The most important is ethylene, which is converted at additional plants on-site into more complex vital products, and also piped for supply to the rest of the UK.

Between Ineos and ExxonMobil's plant at Mossmorran in Fife, Scotland produces more than two-thirds of the UK's entire ethylene supply. This helps to support a burgeoning chemicals industry in Scotland, with some 200 companies.

Both parts of the Grangemouth business have been toiling for different reasons, although not as badly as Ineos claims. Calum MacLean, chairman of Ineos Olefins & Polymers Europe, confirmed in an interview with the Sunday Herald that the €200m annual loss is actually a reference to cash flow, meaning the profit minus any investment.

This is a departure from ­standard accounting presentation, though perfectly proper, which treats investment separately from profit and loss because it is a means of producing future profits. In fact, MacLean confirms that both parts of the business are currently profitable.

The refineries side never does well in recessions because demand for petroleum ­products drops, but this has been aggravated by the trend towards more fuel-efficient vehicles and ­biofuels, not to mention the high oil price.

In the most recent year for which figures are available, 2011, the refinery lost £48m before tax on sales of £226m. In a recent interview, Ineos majority shareholder Jim Ratcliffe claimed it had "not been a successful asset".

It is understood that 2012 was pretty grim as well, although 2013 is looking better.

Calum MacLean says the ­business will be profitable this year, albeit with "pretty depressed margins" that he expects will continue over the next couple of years. ­Consequently, the refinery will still be losing cash after investment. A plant insider adds that Ineos has had to spend ­heavily on investment because the assets it inherited from BP when it bought Grangemouth in 2006 were in poor condition.

Like all heavy industrial businesses, both parts of the complex are having to factor in environmental regulations coming into force over the next few years. Analyst Purvin & Gertz estimates meeting regulations will cost the UK's seven remaining refineries £5.5bn over the next seven years.

This doesn't count the impact on Ineos's petrochemicals ­business, which MacLean says is "more precarious" than the refinery.

The business is based around two "cracker" plants - one from the 1960s called G4, which cracks naptha into ethylene and propylene, and one from the 1990s called KG that cracks a lightweight gas called ethane into ethylene.

As North Sea crude has declined in recent years, there has been less ethane available for the KG plant. The company had intended to have this fixed three years ago by upgrading KG to be able to also use other feedstocks like propane and butane alongside the ethane, but it deferred the investment.

As a result, KG has been running at only half capacity for the past couple of years and is making a loss. The upgrade work is now taking place, with several hundred contractors on site at present, with a view to completing by next autumn and then doubling capacity. That would enable Ineos to close G4.

The latter plant and several offshoots are nevertheless holding up overall profitability at present. According to the 2012 results of Ineos Chemicals Grangemouth, the business achieved a £76m pre-tax profit on sales of £288m, compared to £6.2m pre-tax profits on sales of £191m the year before.

The market is tough, however. The market consensus is that a number of Europe's 45 crackers are heading for the buffers over the next few years.

One expansive country is the US, which is planning to boost ethylene production by one-third over the next four years because the shale gas boom has driven down the cost of ethane to about one-tenth that of the UK.

US shale is also being seen as an opportunity by Ineos. The company done a deal to become the first importer of ethane to a cracker it owns in Norway in two years time, and is looking to do the same with KG at Grangemouth when its current North Sea ethane supply deal with BP comes up for renewal in 2017.

This is expected to roughly half the site's ethane bill, even after shipping, but requires further modifications to KG. The price tag is about £150m, to which end the company is in negotiations for a £9m regional selective assistance grant from Edinburgh and a loan guarantee from Westminster.

On top, it is demanding a deal with Unite over the staff pension that goes at least as far as the 2008 attempt. With MacLean pointing out that Grangemouth has among the highest staff costs of its 51 sites, the management logic is that it must become more competitive because European rivals will do shale gas deals with the US too. Ineos is also pointing out that it will lose £200m over the chemicals business in the run-up to 2017, though again this refers to investment, not accounting losses.

This position makes the Stevie Deans sideshow confusing to some bystanders, since it would seem to reduce the chances of clinching a deal. The union is convinced the management is gearing up for a strike in November and lifted Deans's suspension earlier because it was not ready for a strike last month.

MacLean says: "We are not trying to pick a fight with Steven Deans. We will treat him in exactly the same way that we would treat any other employee."

While the management awaits the union's next move, MacLean says the investigation will conclude on October 25.

Meanwhile - perhaps surprisingly under the circumstances - the management and the conveners (including Deans) had a meeting about the pension scheme last Wednesday where the management outlined what it wanted to achieve. The union has indicated it is prepared to negotiate and is mulling its position on that as well as the successful ballot over the weekend. However, it questions the £200m deficit figure. Pat Rafferty says that at the most recent trustee meeting, it was said to have been £117m.

Other interested parties are also positioning themselves. Labour MP for Linlithgow and Falkirk East, Michael Connarty, accused Ratcliffe of "megaphone diplomacy" on Friday, saying the site would be more profitable had Ineos invested more in diesel and kerosene capacity and made the shale gas decision on KG earlier. He supports giving the company government assistance, but not its action against Deans or desire to cut staff benefits.

Where things go from here is anybody's guess. This is battle chess, industrial style. To avoid missing the next move, the last thing to do is look away.