The UK government has agreed to give a grant of £500 million to help Tata Steel decarbonise its Port Talbot project at Wales, after months of negotiations to save the project, the company said in a statement.
Tata Steel and the UK government jointly announced the agreement to invest in state-of-the-art Electric Arc Furnace steelmaking at the Port Talbot site with a capital cost of £1.25 billion, which will include the government grant of £500 million. Tata Steel had sought a more substantial sum from the government to support the project during early negotiations.
On the deal, Tata Group Chairman N Chandrasekaran said, “The agreement with the UK Government is a defining moment for the future of the steel industry and indeed the industrial value chain in the UK…The proposed investment will preserve significant employment and presents a great opportunity for the development of a green technology-based industrial ecosystem in South Wales.”
Tata Steel said that the project remains subject to all relevant information and consultation processes before decisions are made. Subject to informing and consulting, it is proposed that this new investment project could be operational within 36 months of the receipt of relevant regulatory and planning approvals.
“Tata Steel UK has been facing significant challenges due to the 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. 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,” Tata Steel’s Chief Executive Officer and Managing Director, T V Narendran said.
In a conference call with analysts, the management of Tata Steel said that besides the grant, the UK government will also help the project on the policy front, especially to manage energy and infrastructure for the project.
In response to a question on the internal rate of return (IRR) or return on capital (RoC) in the long run on the planned investment in Port Talbot, Chatterjee said, “Due diligence is going on. I think it's safe to say that it will certainly meet our cost of capital. The total project, on a steady state basis, over its useful life, should be more than the cost of capital and should be in the region of 15-16 percent.”
Meanwhile British Prime Minister Rishi Sunak also announced the deal on X, formerly Twitter, saying that this will "protect thousands of skilled jobs in the long-term and help grow the economy."
Currently, Port Talbot employs around 4,000 individuals, which represents half of Tata Steel's workforce in the UK. The company had earlier said that even with government financial support, it may have to cut as many as 3,000 jobs at the site.
The Guardian reported on September 13 that the union leaders have expressed anger at being shut out of discussions between the UK government and Tata Steel that could lead to substantial job losses at two of Britain’s four remaining blast furnaces.
The Port Talbot steelworks has two blast furnaces that operate around the clock to manufacture steel for various industries. The site is among the largest polluters in the country. The decarbonisation project would bolster UK’s steel security and would be the first major step towards decarbonisation of the local steel industry, reducing direct emissions by 50 million tonnes over a decade, Tata Steel said.
Tata Steel said that the proposed project would also involve Tata Steel’s balance sheet being restructured with potential elimination of the current cash losses in the UK operations and non-cash impairment of legacy investments. During the transition period and project phase, Tata Steel UK would work intensively to ensure uninterrupted and reliable supply of products to fulfill customer and market commitments including through import of additional steel substrate from stable supply chains to feed its downstream units.
In an interview to Moneycontrol on July 31, Narendran had said, “The UK business tends to make money when steel prices are good, if not, it tends to have a negative EBITDA. That’s always been the challenge with UK business. Over the years, we have shrunk the UK business from 10 million tonnes to 3 million tonnes and the India business has grown to 20 million tonnes. So, while UK business was 40 percent of our business at one time, it is now 10 percent of our business.”
Separately, the Tata Sons steelmaker also announced that it would invest approximately £20 million over the next four years to set up two additional Centers of Innovation & Technology in the UK at the Henry Royce Institute at Manchester (for advanced materials research) and at Imperial College London (for research in Sustainable Design & Manufacturing).
(Note: This story has been further updated with Tata Steel analyst call held on September 15)
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