Italy moves to unlock financing for Lukoil-owned refinery - sources

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Illustration shows Lukoil logo
Lukoil logo displayed in this illustration taken September 4, 2022. REUTERS/Dado Ruvic/Illustration
  • ISAB plant in Sicily at risk over ban on seaborne Russian oil
  • Government working to secure alternative suppliers
  • Preparing 'comfort' letter to reassure creditors, suppliers

ROME, Oct 27 (Reuters) - Italy is moving to keep a Lukoil-owned (LKOH.MM) refinery in business despite new sanctions against Russia kicking in next month, as Rome tries to buy time to agree the sale of the plant, three sources close to the matter told Reuters.

Lukoil's ISAB refinery in Sicily stands to be hit by an embargo on seaborne Russian oil that comes into force on Dec. 5, putting at risk jobs in Italy's poorer south and the country's refining capacity.

Although Lukoil is not affected by the sanctions, the ISAB plant has been forced to rely solely on Russian oil after creditor banks halted financing and stopped providing guarantees the refinery needs to buy oil from alternative suppliers.

Adolfo Urso, industry minister in Italy's new government, on Thursday said a solution would be found in coming weeks.

The sources said the government was actively working to help the plant receive financing from lenders and remain operational.

Italian authorities plan to provide Lukoil with a "comfort" letter to reassure ISAB's suppliers and creditor banks, whose compliance departments are concerned about the risks of dealing with a Russian entity.

The goal is to allow ISAB to buy elsewhere the oil it needs, one of the sources said.

The government's safe pass is expected to come from the Financial Security Committee, which is run by the Italian Treasury and is responsible for enforcing sanctions against Russia.

"Issuing a comfort letter would be the most effective solution to safeguard the plant and jobs," said Antonio Nicita, a senator from the opposition Democratic Party. He said he would ask the government to officialise its plans for ISAB in parliament.

Lukoil was not immediately available for comment.

The issue was discussed in a meeting at Italy's industry ministry on Oct. 17 with representatives from Italy's top two banks, Intesa Sanpaolo (ISP.MI) and UniCredit (CRDI.MI), and from state-owned export credit agency SACE, minutes of the meeting seen by Reuters showed.

Discussions centred around the possibility of state-backed financing provided by Intesa and UniCredit with guarantees from SACE. If guarantees are in place only from mid-December, the plant risks running below full capacity until March 2023, ISAB representatives warned.

The sources added that a sale to non-Russian buyers would definitively avert the closure of the ISAB plant, which accounts for around 20% of Italian refining capacity and directly employs some 1,000 workers.

U.S. private equity fund Crossbridge Energy Partners is among parties interested in buying the refinery, Reuters has previously reported.

Talks between Crossbridge and ISAB's owner, Lukoil unit Litasco, are progressing, one of the sources said, adding Crossbridge is already working on a medium-term plan to convert the plant to make greener products, based on work it did on a similar plant it bought in Denmark.

Reporting by Giuseppe Fonte and Angelo Amante in Rome, Francesca Landini in Milan; Additional reporting by Valentina Za; Editing by David Holmes and Grant McCool

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