Lukoil's ISAB refinery in Sicily stands to be hit by an embargo on seaborne Russian oil that comes into force on Dec. 5, putting at risk jobs in Italy's poorer south and the country's refining capacity.

Although Lukoil is not affected by the sanctions, the ISAB plant has been forced to rely solely on Russian oil after creditor banks halted financing and stopped providing guarantees the refinery needs to buy oil from alternative suppliers.

Adolfo Urso, industry minister in Italy's new government, on Thursday said a solution would be found in coming weeks.

The sources said the government was trying to find ways to ensure the plant can receive financing from lenders and remain operational.

The issue was discussed in a meeting at Italy's industry ministry on Oct. 17 with representatives from Italy's top two banks, Intesa Sanpaolo and UniCredit, and from state-owned export credit agency SACE, minutes of the meeting seen by Reuters showed.

Lukoil was not immediately available for comment.

'COMFORT' LETTER

Discussions centred around the possibility of state-backed financing provided by Intesa and UniCredit with guarantees from SACE. If guarantees are in place only from mid-December the plant risks running below full capacity until March 2023, ISAB representatives warned.

One option being discussed is a "comfort" letter from Italian authorities to reassure ISAB's suppliers and creditor banks, whose compliance departments are concerned about the risks of dealing with a Russian entity.

The goal is to allow ISAB to buy elsewhere the oil it needs, two of the sources said.

The government's safe pass would come from the Financial Security Committee, which is run by the Italian Treasury and is responsible for enforcing sanctions against Russia, one of the sources said, adding the scheme was yet to be finalised.

A sale to non-Russian buyers would avert the closure of the ISAB plant, which accounts for around 20% of Italian refining capacity and directly employs some 1,000 workers.

U.S. private equity fund Crossbridge Energy Partners is among parties interested in buying the refinery, Reuters has previously reported.

Talks between Crossbridge and ISAB's owner, Lukoil unit Litasco, are progressing, one of the sources said, adding Crossbridge is already working on a medium-term plan to convert the plant to make greener products, based on work it did on a similar plant it bought in Denmark.

(Reporting by Giuseppe Fonte and Angelo Amante in Rome, and Francesca Landini in Milan; Additional reporting and editing by Valentina Za; Editing by David Holmes)

By Giuseppe Fonte, Angelo Amante and Francesca Landini