Tata Steel signs 500 million pound-deal with UK govt for Port Talbot plant

Company's share in £1.25 bn deal to be funded largely via internal equity

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Ishita Ayan Dutt Kolkata

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The United Kingdom on Friday announced a joint investment package with Tata Steel worth £1.25 billion (about $1.55 billion), including a government grant of £500 million ($621 million,) to secure the future of Port Talbot operations in Wales — the country’s largest steelworks — giving a fresh lease of life to the structurally weak business.

The joint investment package said to be the largest in the UK steel industry in decades would pave the way for greener steelmaking at the Welsh unit, by replacing coal-powered blast furnaces nearing the end of their effective life with a state-of-art 3 million tonne electric arc furnace (EAF).

The move is aimed at reducing the UK’s entire carbon emissions by around 1.5 per cent.

The £500 million grant -- one of the largest support packages from the UK government -- is subject to relevant regulatory approvals and consultation processes. Tata Steel's share, about £700 million, would be funded largely through internal equity.

Tata Sons Chairman N Chandrasekaran said the agreement with the UK government is a defining moment for the future of the steel industry and the industrial value chain in the UK. “It has been an absolute pleasure to work with His Majesty’s Government and the Honourable Prime Minister Rishi Sunak in developing the proposed transition pathway for the future of sustainable steelmaking in the UK,” he said in a press release by Tata Steel.

The proposed investment, he said, would preserve significant employment and it presents a great opportunity for the development of a green technology-based industrial ecosystem in South Wales.

UK Prime Minister Rishi Sunak on X posted the investment would modernise and secure a more sustainable future for the UK steel industry. “It will also protect thousands of skilled jobs in the long-term and help grow the economy.”

The announcement, however, has raised concerns about potential redundancies of 3,000 jobs in the UK. Tata Steel UK employs over 8,000 people, including at Port Talbot. The UK government statement mentioned that the proposal had the potential to safeguard over 5,000 jobs across the UK.

The company also supports around 12,500 more jobs in the upstream supply chain.

Tata Steel’s Chief Executive Officer and Managing Director, T V Narendran, said, “We will undertake a meaningful consultation with the unions on the proposed transition pathway in the context of future risk and opportunities for Tata Steel UK.”

He noted that Tata Steel UK had been facing significant challenges due to heavy-end facilities approaching their end of life. “The proposed project with one of the largest investments in the UK steel industry in recent decades, provides an opportunity for an optimal outcome for all stakeholders.”

Tata Steel’s European operations comprised two primary steelmaking units: IJmuiden, the Netherlands, and Port Talbot, Wales. It’s the latter that has mostly been a struggle since the acquisition of Corus (now Tata Steel Europe) in 2007 for £6.2 billion.

The Tata Steel management had flagged earlier that failure to secure financial support from the government for decarbonisation could lead to the closure of sites.

The deal follows the Tata group’s decision to build an electric vehicle battery plant in Britain to supply its Jaguar Land Rover factories. Under the plan, announced in July, the company would invest £4 billion and the British government would provide undisclosed financial support.

Koushik Chatterjee, executive director and chief financial officer, Tata Steel, said during an analyst call: “We are embarking on a transition that helps address issues at a structural level and sets up Tata Steel UK for a sustainable and profitable future.”

“As part of the transition, Tata Steel will restructure its consolidated balance sheet and that will reflect the non-cash impairment of any legacy investments including historical funding and support for the losses that have been incurred in Tata Steel UK.”

Tata Steel signs 500 million pound-deal with UK govt for Port Talbot plant

First Published: Sep 15 2023 | 8:28 PM IST

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