This story was written by the ILO Newsroom For official ILO statements and speeches, please visit our “Statements and Speeches” section.

Global employment in refining industry remains stable, but pressure on jobs grows

GENEVA (ILO News) – Increasing competition, excess refining capacity and the mounting cost of investments needed to meet tightening environmental standards threaten the profitability of the oil refining industry and cast a shadow over the job prospects of oil refinery workers, particularly in OECD countries, a new ILO report says.

Press release | 23 February 1998

GENEVA (ILO News) – Increasing competition, excess refining capacity and the mounting cost of investments needed to meet tightening environmental standards threaten the profitability of the oil refining industry and cast a shadow over the job prospects of oil refinery workers, particularly in OECD countries, a new ILO report (Note 1) says.

The report, prepared for a tripartite meeting of refining industry experts, notes that despite growing concern about the climatic effects of using hydrocarbon fuels, demand for refined petroleum products is enjoying slow, steady growth in most countries. At the same time, rapidly rising demand for transportation fuels in developing countries, especially in Asia, is expected to be a major source of future growth. Nevertheless, the report says environmental considerations related to global warming and urban air quality and government fiscal measures may also serve to depress demand.

Governments from 19 countries will meet from 23 to 27 February with representatives of trade unions' and employers' organizations at ILO headquarters in Geneva to discuss these and other challenges facing the oil refining industry. It is the first ILO meeting devoted solely to the refining sector of the petroleum industry.

The author of the report, Mr. Jon McLin, a Senior Industrial Specialist at ILO, said that although wages and working conditions are generally better in oil refining than in many other sectors "industrial relations are becoming difficult in a number of countries: as pressures mount, they threaten employment levels and change the nature of the remaining jobs."

The report cites four major issues of industrial relations in the refining sector: job security, contract labour, health and safety, and wages and working conditions. In addition, it points out the widespread allegations of non-respect in many regions for the ILO's principle of freedom of association and the right to collective bargaining (Conventions Nos. 87 and 98), which remain hotly contested issues in the oil industries of many countries. Despite the ILO's insistence that "in the treatment of all such problems of industrial relations, there should be no differentiation in respect of the petroleum industry," many countries restrict independent trade union activities and prohibit industrial action in the oil sector on the grounds that the industry is an "essential service" or "a strategic industry."

The report cites a number of cases involving oil refining workers, from countries in different regions and at different levels of economic development, which have come before the ILO supervisory organs, including the Committee on Freedom of Association, or have otherwise attracted international attention. These include Brazil, the Islamic Republic of Iran, Nigeria and the United Kingdom. Other countries which have been the object of scrutiny by ILO supervisory bodies for their policies concerning strikes or imposing compulsory arbitration in the oil industry include Indonesia, Pakistan and Peru.

Countries in which the oil sector continues to be considered a special case justifying certain restrictions on the right to strike include Mexico (where the constitution designates oil as a strategic industry, and procedures to exercise the right to strike are very cumbersome); Egypt (where strikes are prohibited based on sensitivity and public sector character of the industry); Kuwait (where strikes are illegal, though they have occurred); Turkey (where legislation was enacted requiring that oil sector disputes be settled by compulsory arbitration) and Singapore (where petroleum is classified as an essential service, but strikes are authorized subject to certain conditions).

Other countries where the right to strike in the oil sector is restricted include Azerbaijan, Belarus and Costa Rica. The report notes that in practice strikes have not been common in the refining sector, even in countries where the right exists, due to the relatively good pay and working conditions.

The report says that while labour productivity varies widely from country to country, it none the less rose substantially during the past decade. Overall world employment in oil refining remained stable, at about 1 million. The bulk of job reductions came in OECD countries, where the industry is mature, and in central and eastern Europe, which, since 1989, experienced a decline in refinery employment estimated at about 200,000 jobs, with further reductions likely.

Among the major industrialized countries, France, Germany, Italy, the Netherlands, the United Kingdom and the United States all experienced sharp declines in refinery employment. The major cause of employment reduction in these countries is increasing productivity due to advances in technology, with virtually all refining companies installing integrated information systems to control production and reducing the number of management layers.

Meanwhile, employment grew in Africa, Asia, as well as the Middle East where refining capacity also grew. However, "employment levels remain modest, reflecting both the labour market situation and the relatively modern, capital intensive character of refinery installations," the report says.

Privatization and the effects of commercial liberalization are making themselves felt in a number of large refining countries, including Argentina, Brazil, Mexico and Nigeria, and are generating increasing fears of job losses. In regional terms, the report considers Latin America, where the oil industry was heavily protected as "second only to central and eastern Europe in the vulnerability of its refinery staff to employment changes associated with privatization and liberalization."

In Argentina, where the process of restructuring has gone furthest, the number of employees of the formerly state-owned company YPF was reduced from 50,000 to under 6,000 between 1991 and 1997. In Brazil, the state-owned company Petrobras has seen its protected status erode and the number of employees in the refining sector drop by 23 per cent since 1989. The report says that "Mexico has perhaps the most uncertain employment prospects in the region." Pemex, the state-owned company, "has undergone employment reductions even greater in absolute terms than those of YPF in Argentina."

In addition to increased commercial pressure, the report says that "environmental legislation related to oil products has been getting tighter in most parts of the world." It identifies a clear trend towards "an international levelling up of environmental standards." This means that refiners must not only build new plants in conformity with the tighter specifications, but also retro-fit earlier plants. Both involve major investments if the refiners are to continue operating. But even exiting the business is expensive, as "the cost of closing a medium-sized refinery in an OECD country can be in the order of US$ 200 million," the report says.

The report says that the task of refiners is further complicated by the so-called "ratchet effect" of much environmental legislation in which "tighter specifications, which are generally introduced in accordance with a phased schedule, are frequently modified before they have had time to take effect." Given the several years' lead time involved in building or modifying refineries, "the equipment to respond to last year's requirements may not yet be in place when new legislation is enacted."

Note 1:
Employment and Industrial Relations Issues in Oil Refining . Report for discussion at the Tripartite Meeting on Employment and Industrial Relations Issues in Oil Refining. International Labour Office, Geneva, 1998. ISBN 92-2-110769-8. Price: 17.50 Swiss francs.