Tata has to find a way out of UK steel operation

Tata has to find a way out of UK steel operation

Tata Steel “has to find a way out” of its UK steel operation and its giant Port Talbot plant is “structurally uncompetitive”, according the company’s former head of strategy.

Nirmalya Kumar also said Tata “cannot keep taking hundred million plus losses forever” after the firm said it was to make its UK business “self-sustaining”.

The Indian steel giant plans to sell its Netherlands-based operations

Mr Kumar said Tata’s “self-sustaining” idea is a “hope, not a strategy.”

Tata Steel said it planned to sell the European arm of its business and keep the UK business, based mainly in south Wales, running without financial support from India.

In the year to March 2020, Tata Steel UK made a pre-tax loss of £654m – before the coronavirus pandemic hit demand for steel.

The company employs around 8,000 in the UK, around half are based at Port Talbot with most others based around Wales.

Tata has said it is in dialogue with the UK Government on “potential measures to safeguard the long-term future of Tata Steel UK.”

Mr Kumar believes Tata is now “impatient” to solve the problem of its UK steel operation.

“I suspect until the Tata Group can’t afford the losses, they will continue in this,” Mr Kumar told BBC Wales Live.

“But sooner or later, they’re going to have to find a way out because you cannot keep taking hundred million plus losses forever.

“If you ask me as a pure academic, dispassionate, I say, shut it down.

“But that’s not taking the community into consideration, not taking the reputational hit on the Tata brand into consideration, not taking the lives of people impacted into consideration.”

Mr Kumar, who left when previous chairman Cyrus Mistry was ousted in 2016, said shutting the Port Talbot plant was not discussed during his time at Tata.

“The Tata group is, for better or for worse, a conservative group,” he said.

“They care in the end a lot about the communities they are serving. So we never talked about shutting it down.”

Mr Kumar believe the company has three options – continue the status quo, sell the business or go into partnership with the UK government.

Selling the UK-arm of the business could involve paying a firm to take it given the losses being made.

However if Tata decides to “keep taking the losses” and using profits from elsewhere in the group, Mr Kumar said many shareholders ask, “why are we bailing out these people in Wales, I’ve never been to Wales?”

In contrast, he said the problem of part-nationalisation is that UK taxpayers would ask “why are you bailing out a rich Indian company?”

However working with the government could be the only “long-term option” for keeping the plant open.

Mr Kumar said, during his time, the company wanted to work with the UK government on potential relief on energy cost, rates and potential investment to make the plant viable because of the size of the workforce.

“We had many talks with the governments and the talks did progress a little, but they never went anywhere at some level.”

Mr Kumar thinks the Tata leadership is now “impatient to solve this problem”

Tata announced on Friday that Swedish firm SSAB had initiated talks over the acquisition of its Netherlands-based operations.

The move would separate the UK and Dutch parts of Tata’s business, which merged back in 1999, then as British Steel and Koninklijke Hoogovens.

Wales’ economy minister said the news was “extremely worrying” for Tata’s 8,000 workers across the UK.

Ken Skates said Tata Steel Europe chief executive Henrik Adam has told him the company is “determined to find a sustainable future for operations here in the UK and to safeguard the workforce.”

Plaid Cymru thinks the Welsh Government should take a stake in the Port Talbot plant and help it become a co-operative.

Mr Skates has called for the UK Government to offer Tata “significant” support.

Discussions between the company and the UK Government over a bailout have been ongoing for months.

The UK government has said it is committed to supporting a “sustainable, long-term future for steel-making in the UK” and will “continue to work with Tata Steel and other stakeholders as the company shapes its business strategy for the future.”

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