Essar Energy has signed an agreement to buy Royal Dutch Shell's Stanlow refinery in northwest Britain, providing it with its first entry point for products from India into Europe.

The London-listed arm of the Essar Group confirmed that it would be buying the refinery and associated assets for $350 million in cash, in a deal that will be completed in the second half of the year. The deal was signed in London on Tuesday morning. Additional payments will be made for crude oil, refined products and other items in the inventory at market prices at the time of the sale.

Essar Energy Chief Executive, Mr Naresh Nayyar, said the firm would be making operational improvements to the plant, which currently operates at around 75 per cent of its total capacity of 2,96,000 barrels a day.

The agreement marks the end of a protracted sales process for Royal Dutch Shell, which began its hunt for a buyer for Stanlow and two refineries in Germany in March 2009. Along with other European oil majors ranging from BP to Italy's Eni, Shell has slowly been reducing its presence in the European refinery market, where margins have been under pressure.

Essar Energy, however, maintains that Stanlow remains a case apart from the majority of low-grade European refineries, since it has the capacity to produce highly refined products in an increasingly shrinking market.

Essar Energy hopes that the operational improvements it will bring in will allow it to use heavier, tougher crude, alongside the sweet light crude currently used at the refinery, which will help take the pressure off margins.

In addition, the current upgrades taking place at Vadinar will allow it to produce higher grade Euro V fuels, enabling Essar Energy to sell the product in the UK through Stanlow.

The deal is still subject to the approval of Essar Energy shareholders at an emergency general meeting that will take place over the summer, ahead of the signing of the deal, though it is largely a formality.

Essar Global holds 76.7 per cent of Essar Energy, while the deal requires a simple majority's approval.

Meanwhile, discussions with employees and unions continue – an agreement does not have to be in place before the deal is completed.

A spokesperson for Essar Energy said the company had agreed to maintain a final salary pension scheme on the same terms as the current 960 workers at the plant had had with Shell. Terms for new-comers were among the issues still being discussed.

Stanlow, on the Manchester Ship Canal in Cheshire, is Britain's second largest refinery, producing around a sixth of the nation's petrol.

Essar Energy's refining capacity will rise by two thirds following the deal.

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