Grangemouth chemical plant shut in blow to Scottish economy

* Refinery and plant employ 1,400 staff

* UK government urges dialogue

By Simon Falush and Sarah Young

LONDON, Oct (KOSDAQ: 039200.KQ - news) 23 (Reuters) - Scotland's economy suffered a blow on Wednesday when the owner of the Grangemouth site shut the petrochemical plant and threatened to close the adjoining refinery, putting 1,400 jobs at risk.

Swiss owner Ineos halted production last week at the 210,000-barrels-per-day refinery, which provides most of Scotland's fuel, due to a labour dispute with Britain's largest union, Unite. Ineos says the site makes a loss.

The decision to close the petrochemical plant comes despite the protestations of Prime Minister David Cameron, who had called on all sides to continue talks. The move is also a setback for the Scottish National Party, which is leading the campaign for Scotland to become independent.

On the banks of the Firth of Forth estuary in east Scotland, Grangemouth is one of only seven refineries left in Britain and is the biggest industrial site in Scotland. Around 1,400 staff work at the 7-square-kilometre (2.7-square-mile) site, with 800 of those employed at the chemical plant.

Opened in 1924, it accounts for around 8 percent of Scotland's manufacturing industry, according to David Bell, a professor of economics at Stirling University.

Ineos said liquidators would be appointed within a week for the petrochemical plant and it would now decide whether to restart the refinery, which would be dependent on the removal of the threat of further industrial action.

WORST FEARS

"This is the outcome that matches our worst fears," Scotland's first minister Alex Salmond said, adding that the Scottish government was trying to find a buyer.

"The Scottish government strongly believes the site has a positive future and we will continue to work with the UK government and all other parties concerned to find a solution that supports the workers affected and the wider Scottish economy."

Stirling's Bell (Swiss: BELL.SW - news) said the shutdown of the petrochemicals plant would be the "heaviest blow" for Scotland since the disappearance of a number of electronics companies collectively known as Silicon Glen in the 1990s and early 2000s.

The Trades Union Congress, an umbrella group for British unions, condemned Ineos's actions.

"This is a savage blow to the Grangemouth workforce and the wider Scottish economy. This is irresponsible capitalism at its worst," Frances O'Grady, the TUC's general secretary, said.

"The government always has contingency plans when workers go on strike. Now ministers need to show they are as well prepared when owners go on permanent strike."

Talks took place with the company on Wednesday morning and would continue during the day, Pat Rafferty, Scottish secretary of Unite, said.

"We have made further proposals in a last-ditch effort to stave off these catastrophic job losses, which we believe are tantamount to economic and industrial vandalism," Rafferty said.

Scotland will vote on whether to become independent in a referendum in September next year. Many Scots polled on the issue have said their biggest concern will be the likely impact a separation would have on the economy.

Ed Davey, Britain's energy minister, said he stood ready to help with discussions between the management and the union.

The refinery moved closer to permanent closure on Monday this week after a clear majority of union workers rejected a plan that would have cut pensions and benefits.

PetroChina owns 49.9 percent of the refinery. Ineos operates the site and fully owns the attached petrochemical plant.

"We hope a consensus can be reached between Ineos, the ... union and other parties involved," PetroChina said in a statement.

Grangemouth could be the latest in a line of refinery casualties, including Coryton in Britain - victims of competition from Asia and the Middle East, and falling demand for gasoline in Europe.

Grangemouth also powers BP (LSE: BP.L - news) 's Kinneil terminal, which processes North Sea crude oil coming ashore via the Forties Pipeline System, a grade that helps set the benchmark for global oil prices.

Analysts said the Grangemouth dispute was supporting Brent crude oil prices.

Ineos had begun winding down operations at Grangemouth ahead of a planned strike over the treatment of Unite representative Stephen Deans, who the union said had been victimised by the company.

Unite called off the strike last Wednesday. Ineos, however, carried on with its plant shutdown, saying that unless the threat of industrial action was removed it would not be safe to restart the plant.

Underlying the immediate dispute was a plan by Ineos to cut jobs and pensions at the petrochemical plant, which it had said would have to close unless costs were reduced.