Tata Sons is considering Tata Steel’s exit from its UK business with little hope of a £1.5 billion subsidy package for the proposed transition to green energy from the British government led by Liz Truss, said people with knowledge of the matter. Tata Sons has said the funding is needed to replace the carbon-intensive blast furnaces with electric arc furnaces over the next few years to keep the plant operational. Tata Sons doesn’t see much point in an endless wait for help from the UK government, which is “sitting on the fence” and various exit options are being looked at, said one of the persons cited above.
The Tata Group, which has had a significant business presence in the UK for several years, has been vocal about the need for support from the government to be viable.
“Exiting businesses which are also supporting local communities have never been our group philosophy, but it has to be acknowledged and supported by the government too,” said an executive close to the development.
High Operating Costs
“We have been in discussions over the last two years and there should have been a resolution to this already, with the only other option being closures of sites,” said the executive. The Port Talbot plant has a capacity to produce 5 million tonnes of steel a year.
Tata Sons did not comment.
A Tata Steel spokesperson said it was still in “active and detailed discussions with the UK government” and that it “is not currently in any discussions with potential buyers for the UK business”, responding to ET’s queries. “As previously stated, as part of the UK’s de-carbonisation journey and rising carbon costs in the country, it is necessary for Port Talbot to transition to alternative technologies to remain viable.”
Tata Steel is seeking support from the UK government in two forms, the spokesperson said. First, through policy by encouraging transition to green steel and ensuring a cost-competitive landscape and second through partnership in financing of the project, given the size of investment and the financially constrained position of Tata Steel’s UK business.
At the heart of the matter are the UK government’s decarbonisation efforts and the inherently high operating costs of Tata Steel UK. To cut its carbon footprint, Tata Steel is looking to close its two blast furnaces at the Port Talbot plant in Wales that are also nearing the end of their operational life. These are proposed to be replaced by electric arc furnaces.
The restructuring is expected to cost as much as £3 billion, as per reports. But the steelmaker is of the view the business does not justify such a huge investment and hence it is reportedly seeking half the capital from the British government. The Port Talbot plant employs around 8,000, which is a key incentive for the Tory government to consider funding its continuation. However, with the British economy facing the pinch of record-high inflation and the budget stretched by an ambitious energy prices support package estimated to cost £150 billion, Prime Minister Truss may find it difficult to concede to Tata Steel’s demands.
Without government support, Tata Steel would even consider closing the UK’s largest steel mill, its executives have said.
“Even if you look at today’s performance, they justify running the business, but they don’t justify investing in a huge capex programme,” Tata Steel managing director TV Narendran had told ET in an earlier interview. The UK operations have structural disadvantages such as higher energy costs as well as the lack of a pellet plant and sufficient coking oven capacity, Narendran said. This results in the UK operations always being at a disadvantage of £30-40 per tonne of steel compared with the Netherlands steelworks of Tata Steel, he said. The steelmaker split its Europe operations into separate British and Dutch units in 2021 owing to these inherent differences.
While Tata Sons may be sounding out potential buyers, experts said that if the group can’t run the steelworks sustainably, it would be a gargantuan task to find someone else who is willing to commit capital to the cause. For shareholders, an exit of Tata Steel from the UK will have limited impact.
