Moneycontrol PRO
Open App
you are here: HomeNewsBusiness

Net zero: Why is Tata Steel UK asking the British government to shell out £1.5 billion?

Tata Steel UK has asked for £1.5 billion for the transition to green energy, in the absence of which it might make an exit. It plans to replace the carbon-intensive blast furnaces with electric arc furnaces.

August 28, 2022 / 09:30 AM IST
Blast furnace at a steel plant in South Wales. Tata Steel UK's Port Talbot plant produces steel for the automobile, train and food industries, and employs 4,000 people. (Image: Wikimedia Commons)

Blast furnace at a steel plant in South Wales. Tata Steel UK's Port Talbot plant produces steel for the automobile, train and food industries, and employs 4,000 people. (Image: Wikimedia Commons)


In December 1941, Lord Linlithgow, the Viceroy of India, visited Jamshedpur to praise the employees of Tata Iron and Steel Company (TISCO), the largest steel-producing unit of the British Empire. A million tonnes of steel products were sent to meet the exigencies of the ongoing Second World War. The Empire is long gone, and there’s no world war, but to ensure that Tata Steel continues its presence in the UK, the conglomerate is hoping that the UK government will go beyond platitudes.

Tata Steel UK has asked for £1.5 billion for the transition to green energy, in the absence of which it might make an exit. It plans to replace the carbon-intensive blast furnaces with electric arc furnaces over the next few years.

In September, when a new prime minister takes charge in the UK, this would be one of the key decisions that the incumbent would have to make in the coming months.

India’s Tata Group and Chinese Jingye-owned British Steel own Port Talbot and Scunthorpe steelworks, respectively, both of which produce over 85 percent of the total annual steel produced in the UK. Both the sites need to transition to green energy to meet the UK's commitment to net zero. Port Talbot is the UK’s largest steel plant and employs 4,000 people, while Scunthorpe provides 3,000 jobs.

The clamour for government’s intervention in the steel sector has been a constant theme over the last few years. The right wing press has in the past criticised the takeover of the UK steel sector by ‘foreign’ entities. Recent controversy around the Liberty group, owned by Sanjeev Gupta, which is an important player, has only served to highlight the problems that beset the steel sector.

Close

The UK makes about 70 percent of the 10 million tonnes of steel it consumes, and there is pressure on the government to shoulder the green bill. Labour MP Stephen Kinnock who represents the Welsh constituency of Aberavon where the Port Talbot plant is located has been continually vocal about the need to protect the steel sector.

“Steel industry continues to be the backbone of the British economy and of British manufacturing, and it needs much more government support. We need real support for the transition to a greener way of making steel that is going to be a mixture of electric arc furnaces and hydrogen. Our steel industry needs leadership from the government, it needs support. No steel industry in the world can pay for the transition to de-carbonisation alone. It needs government support, it needs an active industrial strategy,” Kinnock said.

Now that N. Chandrasekaran, chairman of Tata Group, has told the Financial Times newspaper that unless the UK government comes forward, the Port Talbot plant could be shut, there is an increased focus on the estimated £6 billion required to reduce carbon emissions in the steel sector. Just before the 2019 general election, the UK government had pledged £250 million as part of the Clean Steel Fund, but there has been no trace of any money.

Other countries in Europe have been taking steps to help key sectors, including steel, to reduce carbon emissions. Europe’s largest steel making site in Dunkirk, France, which is owned by ArcelorMittal will see an investment of 1.7 billion Euros by the French government. The Liberty Group will also benefit from government help to its plants in France and Romania to reduce emissions.

After posting a loss of £347 million in the previous year, Tata Steel UK clocked an £82 million pre-tax profit in the year ending March 2022. The steel it produces is used in the automobile, train and food industry in the UK and employs 9,000 people, including 4,000 at Port Talbot. But thousands more are employed indirectly. The group has been in talks over the last two years with the UK government to lay out a decarbonisation plan, but clearly not much has been achieved.

In 2016, when Cyrus Mistry was the chairman, the Tata Group had announced plans to sell its UK steel operations as it was said to be losing £1 million every day. The then business secretary Sajid Javid, Kinnock and union leaders had separately visited Bombay House, the Mumbai-based headquarters of the conglomerate, to hold talks with the senior management. The group had cited rising energy costs, cheap Chinese imports and price depreciation as reasons for its decision to exit.As part of its restructuring, Tata Steel UK sold its specialty steel business to Sanjeev Gupta’s Liberty in 2017, but kept the Port Talbot plant. It already has a significant presence in the UK through Jaguar Land Rover, TCS, Tetley and Taj Hotel. The group had entered the UK steel sector when it bought Corus in 2007, to emerge once again as a key steel manufacturer for Britain.
Danish Khan is a London-based independent journalist and author of 'Escaped: True Stories of Indian fugitives in London'. He is researching Indian capitalism at University of Oxford.
first published: Aug 28, 2022 09:25 am
Sections
ISO 27001 - BSI Assurance Mark