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April 1982

Sale of the Refinery in Belgium

Effective March 1, 1982, Marquard & Bahls has sold the refinery it had only just bought in fall of 1979, to a Swiss group, sustaining a loss of DM 190 million. Owing to changes in the oil markets and, especially due to contractual disputes with the Belgian government, the refinery has incurred losses for Marquard & Bahls. The company is in litigation with the Belgians over a contract with the state-owned Belgian company Distrigaz, whereby Marquard & Bahls has contracted to process 0.5 million tons of crude oil per year in the Albatros refinery, and the Belgian government has committed to buying the refinery's output. But when the price of crude oil dropped from $40 to $30 per barrel, the contract became ever more expensive for Marquard & Bahls, especially when the Belgian government failed to comply with its purchase commitment, and market prices for the products continue to fall. The contract also compelles Marquard & Bahls to process the oil exclusively within Belgium. Marquard & Bahls then sued the Belgian government.

This foray into the refinery business is without doubt an expensive exercise. Yet it was by no means a rash decision. Following a profitable year in 1979 and the tax-saving "Operation Stumm", the acquisition of Albatros was a great opportunity to lift the Marquard & Bahls trading company to a whole new level. Being able to process crude oil within the company, right on the Rhine, would have boosted the business no end.

Not every new development or venture can lead to success – but their level of risk has to be acceptable for the company. As in any decision involving risk, when considering Albatros, the company had not only calculated the potential gains, but also the risk of failure. The maximum sustainable loss that Marquard & Bahls could suffer on the Albatros venture had already been calculated and deemed acceptable. When it becomes apparent that the company is heading for this figure, it resolutely withdraws from the refinery in accordance with the business plan.

In hindsight, it is clear that the refinery venture was not a good idea – but this knowledge was not available to the decision makers at the time. The important thing is that the rest of the group is not impeded, either financially or in its development, by the Albatros venture.