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Italy's plans to secure financing for Lukoil refinery face obstacles, sources say

By Giuseppe Fonte and Valentina Za

ROME (Reuters) - Italy's efforts to secure financing to keep an Italian oil refinery owned by Lukoil up and running despite new sanctions on Russia kicking in next month have hit obstacles, three people close to the matter said.

Lukoil's ISAB refinery in Sicily stands to be hit by an embargo on seaborne Russian oil that comes into effect on Dec. 5, crippling a plant that accounts for a fifth of Italy's refining capacity.

Industry Minister Adolfo Urso on Tuesday said it was necessary to keep ISAB in business after Dec. 5 and called a meeting on Nov. 18 with company representatives. On the same day, unions have called for eight-hour strike action in the industrial area where ISAB operates.

The plant has had to rely solely on Russian oil provided by Lukoil after its creditor banks halted financing and stopped providing guarantees needed to buy oil from alternative suppliers.

Lukoil is not under sanctions, but ISAB suppliers and lenders had been wary of dealings with a Russian entity following the Ukraine conflict.

The Italian government last month issued a "comfort letter" to reassure creditor banks and suppliers about ISAB. It also held talks with representatives from the country's top two banks, Intesa Sanpaolo and UniCredit, over financing for ISAB guaranteed by state-owned export credit agency SACE.

The comfort letter was one of several conditions set by lenders to evaluate potential funding, one of the people said, adding that finding a prospective buyer for the refinery was also a key element in any plan for the banks to agree to.

A sale to non-Russian buyers would avert the closure of the ISAB plant, which directly employs some 1,000 workers.

However the refinery owner Litasco, a Lukoil subsidiary, last week rejected a bid from U.S. fund Crossbridge and commodities trader Vitol.

At present, conditions are not in place for the financing to advance, the people said, leaving ISAB's future in doubt.

Lukoil could provide temporary funding for ISAB, based on the minutes of a ministerial meeting held on Oct. 17 to discuss ISAB financing.

Rome is also considering buying a minority stake in the refinery to protect Italian interests, one of the sources said.

Talks with Crossbridge are not over, a third source close to the matter separately said.

(Additional reporting by Angelo Amante in Rome and Francesca Landini in Milan. Editing by Jane Merriman)