Close of pension scheme to help de-risk biz: Tata Steel UK chief

Tata Steel has reached an agreement with trade unions to work towards closure of the British Steel Pension Scheme (BSPS). Successful negotiations on contribution terms, employment pacts and investments terms could bypass the need for a ballot. In conversation with CNBC-TV18, Bimlendra Jha, CEO of Tata Steel UK, said the company is trying to launch consultation process to close the pension scheme to future accrual and it will start next week. He said consultation to close pension scheme will help de-risk business and he expects closure of BSPS by end of FY17. A new competitive contribution scheme will also be launched and only existing employees will be part of it. Keeping the new scheme in mind, the target is to reach sustainable earnings before interest, taxes, depreciation, and amortization (EBITDA) of 200 million pounds in 2 years, said Jha.He further said all steps are targetted towards affordable EBITDA.Below is the verbatim transcript of Bimlendra Jha’s interview to Kritika Saxena, Reema Tendulkar & Nigel D'Souza on CNBC-TV18.Kritika: Can you take us through what was the short fall that you were incurring as a result of the old pension scheme and now that you a revised pension scheme or you have begun discussions for it can you take us through how exactly that will come down the specific short fall?A: This question is a more complicated question than one can answer very quickly. Let me just tell you what exactly we are trying to do, we are trying to launch a consultation process for British Steel Pension scheme closing to future accruals. Why is it necessary? It is to de-risk the business. It is not a specific short fall but what happens is that during the valuation times based on the valuation parameters the actuarial valuation parameters there can be huge gap on a given day and that gap can disappear during the year. However, it doesn’t matter. It matters on the day of valuation and that can be sometimes a huge gap. Now you would imagine that 1,30,000 members of the British Steel Pension scheme are currently being supported by about only 10,000 active employees. Now this is an imbalance that remains and would continue to become worse as some more businesses like speciality are hived off. Now when only 8,000 employees are supporting such a huge Pension scheme any difference in valuation can cause huge stress on to our business which becomes it sponsor. Now what we are trying to do is that well run pension scheme we are trying to protect from the vagaries of the future by preventing future accruals and therefore burgeoning its deficit. That is the move and this move is only possible by working forward together with a trustees and pension regulators and to ensure that at least half of the members of the British Steel Pension scheme who would be worse off should this fall into the pension life boat cal PPF – Pension Protection Fund in UK, at least they should not be worse off. That is the responsible thing to do that we are trying to attempt and that is only subject to one de-risking factor of Tata Steel UK. Other, of course comes from the transformation plan being successful that allows us to make investments in to the future.Kritika: There is I billion pound investment across 10 years can you take us through the break up? Will this be completely internal accruals and I also believe that there is a breakup of employee contribution as well how exactly will that work? Is there a certainty that you have got from the Unions?A: First of all we have with the unions shared our transformation plan which includes raft of changes and various stakeholders who are supporting that including for example yesterday I was with a wage government in the evening and they have reiterated their commitment to support our innovation, research and development (R&D) training, energy schemes etc. There have been promises in the past from the UK Government to try and bridge the gap between the energy cost of Germany versus UK. For example and that is not just a Tata Steel issue it is a entire industry issue which is being hard lobbying. So, transformation plan has many elements including things that the employees are doing internally to improve efficiency, to have lower costs etc and of course in to differentiated products. However all this must target towards afford EBITDA which we have shared with everybody with trade unions which is around 200 million pounds of EBITDA which is necessary to service the capital expenditure, the interest and changes in working capital before any money is taken out from the system.