Tata Steel is considering shutting down its UK operations if the government does not provide adequate funding support for the decarbonisation transition project.

The company had demanded a financial package of £1.5 billion from the UK government to support its decarbonization plans, which would include replacing blast furnaces with electric furnaces to lower carbon emissions.

However, the UK government had offered £300 million to Tata Steel early this year and the company has since been discussion with the government for higher support.

Read: Tata plans UK’s first industrial-scale carbon capture plant 

TV Narendran, Managing Director, Tata Steel told businessline that the next 12-24 months will be crucial for operations in the UK as the company is still in conversation with the government for higher support.

No sufficient cash flows

The UK business does not generate cash flows to support the transition.

Moreover, some of the upstream assets such as coke oven, blast furnaces and steel melt shops in the UK are close to end-of-their-life (obsolete) and have to be shut down as it is unsafe to use them without making fresh investments, he said adding that the downstream business will remain operational.

“The UK government has come up with a proposal which is not close to what the company had asked and hence there is a conversation going on but the clock is ticking continuously,” said Narendran.

“We do not have an infinite amount of time available with us. Of course, when we decide to shut down the UK plant we will follow the due process such as consulting with the unions and other statutory procedures,” he said.

EBITDA loss

Tata Steel’s Europe business, especially the UK unit has been a drag on the company for a while now. During the fourth quarter ended March 2022, Tata Steel Europe reported EBITDA loss of ₹1,641 crore compared to positive EBITDA of ₹4,349 crore in the year-ago quarter. On a sequential basis, Tata Steel Europe saw EBITDA loss widen from ₹1,551 crore in the December quarter. 

The auditors of the company said Tata Steel Europe will continue as a going concern dependent on the outcome of future funding requirements, which may have a consequential impact on the carrying amount of investment of ₹19,685 crore in TSH as at March 31, 2023.

Helping hand

Tata Steel Europe through its UK business, has received a letter of support from TS Global Holdings Pte to either refinance or repay its revolving credit facility and uncommitted facilities due to expire on or before June 2024.

T S Global Procurement Company has also provided a letter of support to the UK business for access to £300 million of additional working capital, which is more than estimated to be required under a severe but plausible downside scenario over the next twelve months.

The letters state that they represent present policy, are given by way of comfort only and are not to be construed as constituting a promise as to the future conduct of the entities or Tata Steel. Accordingly, there can be no certainty that the funds required by Tata Steel Europe will be made available, the auditors added. However, Narendran said that Tata Steel unit in the Netherlands is not under stress and will continue to operate with its own cash flows.

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