A dispute has broken out between Refining NZ and Z Energy over how much the fuel retailer should be paying to have fuel processed.
The refinery recently announced it would downsize production to 90,000 barrels of crude a day, a level last seen in 1995. It would also stop bitumen production.
However, Z Energy, a major customer and shareholder, is demanding a drop in overall processing costs because of reduced production.
“Z has notified the refinery that we will pay the contracted processing fee only and we will not make any additional top-up or fee floor payments while full capacity is not made available to Z.
“Additionally, Z will claim for costs incurred while the refinery is in breach of the processing agreement,” chief executive Mike Bennetts said.
Refining margins have slumped over the past year because of a glut of cheap oil and processed fuel, severely hitting Refining NZ’s revenue. That has triggered an arrangement called the Fee Floor, which guarantees the refinery a fixed amount of revenue.
Meanwhile, Refining NZ had issued its own dispute notice against Z Energy about the fee, saying it should be increased by $70 million per annum.
It also said its plans to simplify operations were covered by the Processing Agreement.
“Under the terms of the Processing Agreement, customers take the risk of periods of low margins and demand through the Fee Floor structure which provides a fixed amount of revenue to Refining NZ, independent of actual throughput.
“Refining NZ’s simplification plans result in the refinery returning to similar overall capacity levels as existed at the time the Fee Floor was set on commencement of the Processing Agreement,” a spokesperson said.
Z Energy wanted a quick resolution to both issues through a formal dispute process.
Refining NZ is in the midst of a review, with one option to stop all processing of crude oil and become solely an importer of refined fuel products. It has already moved to cut its workforce by a quarter.