Why is the UK bailing out US supplier of CO2 CF Fertilizers? | Supply chain crisis
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Ministers tried to avert a supermarket out-of-stock crisis by using taxpayer dollars to bail out a private U.S. company that produces carbon dioxide.
The emergency deal was designed to shut down UK supply chains and will last for three weeks.
It is a complex issue that transcends political decisions, energy prices and access to food. So what does all of this mean and why does it matter?
What was the problem ?
The UK relies heavily on two factories to produce most of its carbon dioxide, operated by CF Fertilizers in Teesside and Cheshire. These provide around 60% of CO2 needed by the UK to make soft drinks including beer, stunning animals before slaughter for meat production, and making dry ice to keep food fresh for storage and transport.
CF Fertilizers actually only makes gas as a by-product of its main production – fertilizers – but its two operations shut down last week when the cost of wholesale gas prices skyrocketed.
Iceland’s supermarket general manager Richard Walker warned the problems would start in days – not months, adding: at Christmas.
The shortages have also fueled the fire of much more serious problems with supply chains, caused in part by a lack of manpower – from fruit pickers on farms to truck drivers delivering goods.
And to make matters worse, the poorest people were already bracing for a harsh winter, with the £ 20 universal credit hike looming looming and Boris Johnson’s 1.25 percentage point hike in social security contributions. national insurance for workers and businesses.
In an attempt to avoid headlines dating back to the 1970s questioning whether the government could keep the lights on, ministers stepped in.
What did the government do?
Talks were held in an attempt to restart production of CF Fertilizers and late Tuesday night it was announced that operations would resume immediately at its Billingham plant in Teesside, although the Cheshire site remains closed.
Details remain under wraps, but the Department of Business, Energy and Industrial Strategy said it had negotiated an agreement to “ensure the continued supply of CO2“- qualifying it as” an essential component of the national economy “.
It was hailed as an “exceptional short-term deal” with the private US company lasting just three weeks, which would see taxpayer dollars used to provide “limited financial support” to CF operating costs. Fertilizers as the market âadapts to global gas prices. â.
The bill will run into “several millions, maybe tens of millions,” Environment Secretary George Eustice told Sky News on Wednesday. He told the BBC: “I’m not getting into the exact number because government lawyers are working on the terms of the deal⦠it’s a trade deal.”
What happens after the three week offer expires?
Eustice said a “perfect storm” was created because other factories that produce CO2 were also closed – but that when they reopen in a few weeks, the market may readjust.
He explained: âThere is another factory in the UK, but it is currently closed for maintenance. There is also another factory that we often source from in Norway, which is also closed for maintenance.
âSo we have this perfect storm of two factories shutting down because they don’t have a market for their fertilizer and because the prices have gone up, and because two other factories are currently closed for maintenance. Once these factories reopen, we will return to a normal, properly functioning market. “
But Jonathan Brearley, chief executive of energy regulator Ofgem, warned that the broader problem of wholesale gas prices would not go away.
He told MPs on a select committee that the increase in costs âis really something that we don’t think we’ve seen before at this rate,â and added, âUnfortunately, when you see costs like this change, at the end of the day, that will trickle down to customers. “
What other action can be taken?
There is pressure on the government to also start operations at its Cheshire plant. British Retail Consortium food and sustainability director Andrew Opie said it was “vital” that work at the second site was “restarted as soon as possible and quickly distributed to food manufacturers who needed it â.
Robert Halfon, a former Conservative business minister, also called on the government to consider removing or reducing 5% VAT on energy bills.
Ministers are also considering state-guaranteed loans to help UK’s major energy suppliers win over millions of potentially unprofitable energy customers before a supplier “tsunami” collapses this winter. Another option under discussion is a âbad bankâ type company to support customers left behind by failures of energy companies to ensure that they continue to receive energy at the price they pay. they agreed to pay.
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