Deal to save Port Talbot steelworks could see UK Government taking a 50% stake

The UK Government could take up to a 50% ownership stake in Tata UK in a deal providing a financial lifeline to the business which employs around 4,000 at its primary steelmaking plant in Port Talbot. The Indian-owned steel venture, which employs 7,000 Wales, is in negotiations with the Treasury over a huge financial support package for its loss-making operations in the UK, which have been further hit by falling demand from the Covid-19 pandemic. While there remain a number of options, and at an early stage, in return for an up to 50% equity stake, the UK Government, under its Project Birch initiative, could provide funding of up to GBP900m to Tata.

If agreed Tata is expected to write of an equivalent level of debt to its UK steel business. Project Birch, which has already supported Cardiff-based recycled steel business Celsa Steel with a GBP30m loan, was initiated to provide support for large employers in industries deemed of national strategic importance and unable to access the UK Government's various coronavirus loan schemes. Funding from Project Birch will be  conditional on Tata, as with the case of Celsa, reducing carbon emissions and supporting the UK Government's target of the economy achieving a net zero emissions target by 2050.

There has been speculation that as a condition of funding, Port Talbot could be turned into an electric arc furnace operation. Arc furnaces while energy intensive, generate far less emissions than those produced from primary steel making plants. The Port Talbot plant is the biggest industrial contributor to carbon emissions in Wales at around 5.8 million tonnes a year.

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However, an investment in electric arc furnaces, that would recycle steel rather than making it from scratch with the need for raw materials such as iron ore and coking coal, would require far less staff.

Unions have raised concerns over the potential for significant job losses at Port Talbot if it decommissioned its two existing blast furnaces for arc furnaces, while saying the quality of steel produced from recycled steel would not be of the same quality. Tata said: "We are in active discussions with the UK Government on several options for the Port Talbot operation to create a sustainable, decarbonised footprint for the future. Given prevailing market conditions and disruption caused by the Covid-19 pandemic, it is clear that the current Port Talbot operation faces structural challenges that need to be urgently addressed.

"Discussions with the government are constructive and ongoing, and at this stage no decision has been made." As well as Port Talbot (4,000), Tata also has operation at  Llanwern, Newport, it employs 1,000, Shotton, 1,000, Trostre, 650 and Caerphilly 200. However, it supports far more jobs in its wider supply chain.

The Welsh Government, which has provided a loan and grant support package of just over GBP3m to Celsa, said it stood ready to support Tata's steel operations in Wales, but that it didn't have the financial muscle of the UK Government.

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Finance Minister Rebecca Evans said:"We recognise completely the importance of Tata to the community in which it sits, but also to the wider Welsh economy as well in terms of its support to supply chains and the importance of the steel that it produces. We have got a very long track record of supporting the steel industry here in Wales, which we are very proud of. "If what we are hearing is true, with a potential package from the UK Government, then that is very much to be welcomed.

We have been calling for that for many years and it's a shame really that it has taken a crisis for that support to crystallise.

If there is more that the Welsh Government can be doing to support Tata, and supporting these strategically important businesses, then we look to do that." 

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