UK Government to Provide Partial Funding for Tata Steel UK's Green Transition

31 Aug, 2023

UK Government to Provide Partial Funding for Tata Steel UK's Green Transition

Tata Steel UK is at a pivotal juncture as negotiations with the UK government for a £1.5 billion financial aid package remain inconclusive. The company's key assets, including the upstream blast furnace and coke oven plant at Port Talbot, UK, are approaching the end of their operational life within the next 1-2 years. In response, Tata Steel aims to transition to environmentally friendly technologies during this period.

In its recent annual report, the company's management stated, "Active and detailed discussions with the UK Government have taken place regarding the future of our UK business. Given the UK's commitment to decarbonization and the escalating costs of carbon emissions, it has become evident that to ensure the long-term viability of steel production, Port Talbot must shift to alternative green technologies."

To facilitate this transition, Tata Steel has requested government support in two key areas. Firstly, the company seeks policy measures that promote the adoption of green steel technologies and create a competitive economic environment. Additionally, Tata Steel is seeking financial partnership from the government, considering the substantial investment required and the financial constraints faced by its UK business.

Initially, the steelmaker had requested £1.5 billion in government funding to establish a scrap-based steel manufacturing plant in the UK. However, the government's initial offer in January amounted to £300 million. Since then, ongoing discussions between Tata Steel and the government have aimed to increase this level of support.

The management of Tata Steel UK stated, "We will thoroughly assess all possible scenarios regarding the future structure of the business and will engage with stakeholders prior to making strategic decisions. Our decision-making process will also take into consideration market dynamics, customer needs, supply chain effects, and the safety of our employees."

N Chandrasekaran, Chairman of the Tata Group, recently highlighted challenges faced by Tata Steel in the UK, Netherlands, and Canada. While the Netherlands unit is progressing toward sustainable steel production by transitioning from coal to gas and hydrogen-based methods, the UK business confronts hurdles such as fluctuating commodity and energy prices, along with sluggish demand.

In the previous fiscal year, Tata Steel's European operations produced 9.35 million tonnes of liquid steel, a decrease of 8% compared to the prior year's 10.11 million tonnes. Deliveries also declined by around 10% to 8.16 million tonnes, primarily due to reduced market demand caused by a broader economic slowdown in Europe.

Although operational turnover slightly improved from ₹90,023 crores to ₹90,300 crores, driven by higher average revenue per tonne, earnings before interest, tax, depreciation, and amortization (EBITDA) plummeted from ₹12,164 crores to ₹4,632 crores.

Analysts reported that the UK business experienced a cash burn of $150 million during the latter half of the previous fiscal year. In contrast, Tata Steel Netherlands holds £600 million in cash reserves."