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Why Brisbane fuel refinery may turn its back on $1 billion government handout

Business

Ampol will be getting up to $108 million a year in taxpayer subsidies to keep the Lytton fuel refinery open and up to 550 workers employed – for now.

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The company has accepted the Government handout after a long review of the viability of the refinery, but said it retained an option to pursue a conversion of Lytton to an import terminal “should the package not be successfully legislated or, in future, in the case of persistently low refinery margins or other adverse events”.

Earlier this year, Ampol announced its Lytton refinery lost $145 million for the December year. Earnings have been hit by the drop in demand for fuels caused by the pandemic and the dramatic cuts in travel.

Ampol said the Government payout would support the refinery during periods of low margins, but there would be no subsidy paid when margins were high.

It would also receive up to $125 million for infrastructure upgrades to accelerate the introduction of low-sulphur fuels.

Investors cheered the deal and Ampol’s shares were up more than 6 per cent this morning.

Ampol managing director Matt Halliday said the deal delivered value for shareholders and provided clarity for workers.

“The outcome will also allow Ampol to progress alternative future energy uses for this strategic site, preserving manufacturing skills that will be critical for success in the energy transition,” he said.

The deal was welcomed by the Australian Workers Union which represents a large number of the Lytton workers.

The deal was part of a broader fuel security package from the Federal Government which will also keep open the Viva Energy refinery in Geelong.

Prime Minister Scott Morrison said the Government was delivering on its commitment to maintain a self-sufficient refining capability in Australia. The package will protect the jobs of 1250 direct employees across the two refineries and create another 1750 construction jobs.

“This is a key plank of our plan to secure Australia’s recovery from the pandemic, and to prepare against any future crises,” the Prime Minister said.

“Shoring up our fuel security means protecting 1,250 jobs, giving certainty to key industries, and bolstering our national security.

“Earlier investment in Australia’s ability to produce better quality fuels, including ultra-low sulfur levels, will also improve air quality and deliver an estimated $1 billion in lower health costs.

“Major industries like agriculture, transport and mining, as well as mum and dad motorists, will have more certainty and can look forward to vehicle maintenance savings and greater choice of new vehicle models.

The support package includes a variable Fuel Security Service Payment to the refineries, up to $302 million in support for major refinery infrastructure upgrades, $50.7 million for the implementation and monitoring of the FSSP and the minimum stockholding obligation (MSO), ensuring industry complies with the new fuel security framework.

The variable FSSP has been costed up to $2.047 billion to 2030 in a worst-case scenario.

Payments will be made between the following ranges, limiting the downside risk for refineries: refineries will receive nothing when the margin marker hits $10.20 a barrel. Refineries will receive a maximum of 1.8 cents a litre when the marker drops to $7.30 a barrel.

 

 

 

 

 

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