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Debt crisis behind Grangemouth strike

Members of the Unite trade union at Grangemouth are set for the first strike at an oil refinery for 73 years over pension rights. The dispute brings the potential impact of declining production of oil into sharp focus. The threat of a major impact on availability of fuel in Scotland and the North of England has driven already record prices higher and triggered panic buying as supplies from the North Sea oil and gas field are cut off.

What lies behind the dispute? The Grangemouth refinery became part of the Ineos Group, when it bought Innovene from BP for $9 billion in 2005. This was part of the debt-funded buying spree that in ten years created what is now the world’s third largest chemicals producer from a standing start in 1997/8.

Jim Ratcliffe, Ineos chairman and CEO, and listed by the Sunday Times as the UK’s 10th richest man in 2007, borrowed $12 billion for the Innovene deal from Barclays Capital, Merrill Lynch and Morgan Stanley. The extra cash of about $3 billion was used by Ratcliffe, known as “the alchemist”, to refinance Ineos’ existing debt. And it helped to treble Ratcliffe’s estimated personal fortune to £3.3 billion.

As Oligopoly Watch put it at the time “One warning sign: companies are now paying increasingly higher prices for assets. Part of that can be attributed to the competition with cash-rich equity firms. The world has a record amount of cash looking for a profitable home.” Three years later and things have changed. The tumbling cards of the house of fantasy finance are claiming victims.

Ineos is in trouble. Its sales and profits have been falling. In the third quarter 2007, its before-tax profits went negative – it started to make a loss. The impact of the falling value of the dollar only served to make things worse. In third quarter 2006 it made a profit of 96.9m euros on sales of 7395.7m euros. A year later, debt financing costs helped turn a gross profit of 485.9m euros on sales of 6934.1m euro into a before-tax loss of 0.9 m euros. But a tax rebate turned the loss into a profit of 1.2 m euros.

At the end of last year Ineos employed more than 15,000 people in 17 countries in 68 plants producing 50m tons of chemicals a year. Clearly Ratcliffe intends that they, not he, are going to pay to restore profitability. As his Grangemouth chief Tom Crotty put it: “The vote for strike action is hugely disappointing. We need to spend £750m modernising Grangemouth and a strike will make it virtually impossible for us to achieve this. We believe the proposed strike action could cost at least 650 direct jobs and indirectly many more. The union needs to understand that we live in the real world. If we are not competitive and we can’t get the investment, we will lose the jobs.”

Closure of the final salary pension scheme to new entrants and reduction of the value of pensions for existing workers at Grangemouth that sparked the dispute will prove to be part of a global assault by Ineos on wages, pensions and working conditions. As the global financial and economic crisis deepens, firms in every corner of the globe will be passing the burden on to their workforce if they can.

Grangemouth workers should seek support from unions across the globe in their struggle to defend conditions. They should build a campaign to transfer petrochemical production into social ownership under the control of the workforce. This will not only create the conditions for defending pensions, jobs and other rights but a necessary step in dealing with the depletion of resources and global warming that both arise from the chase for profit.

Gerry Gold
Economics editor
25 April 2008

Robin says:

Good piece. Not enough is being said in the media about the massive debts that INEOS have. There are similar issues with a number of smaller energy suppliers in the UK. Unless shielded from their debt by a serious uptick in inflation, these companies are going to start hitting difficulties, and their customers and employees with them.

I don't agree that capitalism per se is the problem, but there have been excesses in recent years that must not be allowed to repeat. It would be nice if people like me, who believe in capitalism, could work with those that have more radical beliefs to reach somewhere that both camps agree is better than where we are now.

I believe we need to have a real think about asset bubbles, black swans, deregulation and privatisation, perverse incentives, externalities, asymmetrical compensation and the worship of "talent".

Can't the socialist community and the "rational" capitalists work together to change things in the short term?

Gerry says:

You say ‘we need to have a real think about asset bubbles, black swans, deregulation and privatisation, perverse incentives, externalities, asymmetrical compensation and the worship of "talent".’

We’ve examined many of these features of 21st capitalist society, and more, in our books A World to Win and A House of Cards. There, and in the continuing analysis in our blogs, we show how the logic of profit-driven growth together with the underlying employment contract that provides for the generation and extraction of profit for distribution to shareholders – which together define capitalist production - necessarily and directly lead to what you describe as ‘excesses’, or at least most of them.

What we show confirms what Marx discovered, that the capitalist system of social relations operates according to its own laws, and that attempts to reform or regulate it – to apply ‘rationality’ – so as to lessen its necessary consequences are doomed to failure. As is now being seen, attempts at control like inflationary supplies of liquidity, are making a bad situation worse.

That’s why our approach to rationality is to identify those results of the development of capitalist society that can provide the basis for a new start, and to consciously develop them in the context of a new system of social relations based on the identification and satisfaction of need.

Either you accept the fundamental drive for profit-led growth, or you work to end it.

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