Italy approves decree to place Lukoil refinery under trusteeship

General view of the ISAB plant, the Lukoil-owned oil refinery in Sicily, which is likely to be affected by the embargo on Russian seaborne oil that goes into effect in December, in Priolo, Italy October 27, 2022. REUTERS/Antonio Parrinello/File Photo

ROME, Dec 1 (Reuters) - Italy's government on Thursday laid down a scheme to place a refinery in Sicily owned by Russia's Lukoil (LKOH.MM) in the hands of trustees in an effort to avoid it being shut down because of a looming embargo on Russian seaborne oil.

The move comes as the European Union embargo on Russian crude is set to take effect on Dec. 5, threatening to block supplies to Lukoil's ISAB refinery which accounts for a fifth of Italy's refining capacity.

The refinery has relied solely on Russian oil since banks stopped financing it and providing the guarantees needed to buy oil from elsewhere following Moscow's invasion of Ukraine in February.

The industry ministry said the government is now allowed to impose a temporary trusteeship for up to one year, extendable for another 12 months, in the hydrocarbons sector "in the event of serious and imminent danger" in the security of energy supply.

This may happen "as a result of sanctions imposed in the context of international relations between states", the ministry said, adding state-controlled companies in the same sector can be called in to support the government's commissioner.

A source close to the matter said the government's move means leaving the door open to a potential involvement of state-controlled ENI (ENI.MI) to support the special commissioner on the refinery management.

In a statement, Prime Minister Giorgia Meloni made clear the trusteeship scheme was aimed at guaranteeing the continuity of the ISAB refinery, which directly employs about 1,000 workers in an economically disadvantaged area.

A separate source told Reuters that the government was working on unlocking financing for ISAB.

While Lukoil is not affected by sanctions in Europe, banks remain reluctant to deal with a Russia-related entity as they are afraid of being targeted by future fines in the United States, where the company has been subject to sectoral sanctions since 2014.

Talks to sell the refinery are dragging on.

The Financial Times reported on Thursday that sale talks had resumed with U.S. investment platform Crossbridge Energy Partners, which would value the plant between 1 billion and 1.5 billion euros ($1.57 billion).

Crossbridge Energy Partners declined to comment.

Additional reporting by Francesca Landini in Milan; Editing by Alvise Armellini, Barbara Lewis and Cynthia Osterman

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