Italy’s largest refinery, which was sold by Moscow-based Lukoil after EU sanctions severed its ties to Russian oil, is facing a crisis as a conflict brews between the Greek billionaire majority investor and commodity giant Trafigura over crude supply terms.
In 2023, GOI Energy acquired the ISAB plant in the Sicilian town of Priolo, with financial backing from Trafigura in a last-minute deal brokered by Franco-Israeli mining tycoon Beny Steinmetz. While the sale was approved by the Italian government, it was shrouded in secrecy, with neither the buyer nor Rome revealing the identities of its shareholders.
Documents seen by the Financial Times reveal that the largest investor in GOI’s controlling fund, Argus, at the time of the transaction was George Economou, a tycoon whose TMS Tankers had been a major transporter of Russian oil after the full-scale invasion of Ukraine in 2022.
GOI and Trafigura secured the deal after outbidding rival trading house Vitol and US private equity firm Crossbridge Energy Partners, despite opposition from the US government.
Economou partnered with Steinmetz and former Trafigura executive Michael Bobrov to invest in the refinery, but tensions have since escalated over financial terms and the conditions of a 10-year oil supply and marketing agreement with Trafigura, according to six people familiar with the situation.
Economou has blamed Trafigura for the refinery’s struggles, arguing that the supply and offtake deal is too advantageous for the trading group, enabling it to safeguard profits while the plant operates at a loss. Trafigura, in turn, maintains that the refinery needs more investment to upgrade operations amidst difficult market conditions.
Increased operating costs, stemming from higher gas prices and carbon offset expenses, have put pressure on margins across Europe, making it tough for all but the most efficient refineries to stay afloat.
This infighting threatens the survival of the facility, which accounts for a fifth of Italy’s refining capacity, directly employs 1,000 people, and supports another 8,500 jobs in the local area.
It has also sparked criticism of the Italian government for approving the sale to GOI, given that its major investors lacked experience in refinery ownership or operations.
“These capital-intensive businesses require heavy investments, but they suffer volatile cash flow so the financial soundness of the buyer is a key element,” said Alan Gelder, vice-president of refining, chemicals, and oil markets at Wood Mackenzie.
“In hindsight one could say the Italian government should have chosen another alternative than selling to [GOI Energy].”
Under the terms of the deal, GOI acquired the refinery, and Trafigura agreed to provide working capital to fund its operations, paying GOI an upfront €30 million fee to supply the plant with crude oil and sell the refined products for 10 years.
“Trafigura’s commercial arrangements with ISAB are at arm’s length and on market-based terms, in line with similar commercial agreements around the world,” Trafigura said in a statement to the FT.
“In difficult market conditions, the Priolo refinery needs substantial performance improvements and further investment to remain competitive. We have offered our assistance to ISAB and the Italian government to help secure a sustainable future for this important asset.”
ISAB applied to Sicilian authorities earlier this year for a restructuring process through an out-of-court “negotiated settlement of a business crisis.”
Economou hopes to use this process to force a renegotiation or even cancellation of the contract with Trafigura, according to two people familiar with the matter. Economou has also considered selling the refinery, but the existing supply agreement has been a major hurdle in talks with potential buyers.
At the time of the acquisition, Economou was introduced to the Italian government as the ultimate beneficial owner of a Cypriot entity that held 52 percent of the Argus Fund subunit, which controlled 70 percent of GOI, according to the documents seen by the FT.
The remaining share of the Argus Fund subunit was held by an entity controlled by two foundations whose beneficiaries included Steinmetz’s children, the documents reveal.
Steinmetz’s connection to the refinery and his role in negotiating the deal with Italian authorities were first disclosed by the FT in 2023.
In 2023, Economou decided to lend money to GOI Energy to help it repay an outstanding debt to Lukoil. However, after GOI failed to repay the loan, he opted to convert it into equity, diluting the other shareholders, the documents show. Now 71, Economou controls 99 percent of GOI’s shares through a complex fund structure.
GOI paid around €180 million for the plant, outbidding Vitol and Crossbridge, which had each offered approximately €55 million, according to two people familiar with the terms of the bids. They also estimate that GOI paid several hundred million euros for the oil present on-site at the time of the acquisition.
The Italian government approved the investment under the “gold power rule,” which grants the government the right to veto or impose requirements on the purchase of strategic assets.
At the time, Italian officials said they were reassured by the involvement of Trafigura and Bobrov, who is also an investor in Israel’s largest refinery alongside Steinmetz’s son-in-law. GOI had also provided assurances about maintaining jobs and production levels.
