'The UK is more of a structural problem, and that’s why we’re doing the restructuring.'
Tata Steel, recently, announced its decision to transition from legacy blast furnaces at Port Talbot in Wales, UK, to a greener electric arc furnace (EAF) technology in a phased manner to reverse a decade of losses.
In an interview, Tata Steel managing director and chief executive officer T V Narnedran tells Ishita Ayan Dutt/Business Standard why it was the "least bad option".
On a standalone basis, Tata Steel recorded a net profit of Rs 4,653 crore, while consolidated at Rs 513 crore was dragged by European operations.
What is the outlook for Europe?
We've had poor numbers both in the Netherlands and the UK.
In the Netherlands, the second blast furnace, which has been down for relining since April, took longer than we thought, and it's now finally ready and should get back into production.
I do believe the worst is behind us, as far as the Netherlands is concerned.
The UK is more of a structural problem, and that's why we're doing the restructuring.
But we expect the losses to be lower as we start shutting down blast furnaces and doing the restructuring.
You are expecting lower losses in the UK; can you give an estimate?
Next year (2024-25), losses should be half of this year's losses.
Trade unions in the UK have reacted sharply to your decision to shut down the blast furnaces at Port Talbot.
Are you confident that the transition to EAF will go through?
This is the least bad option. We had said last year that if there was no support from the government, we would have anyway had to close the blast furnaces without building anything new because the assets were coming to the end of life and we were bleeding.
Even this quarter's results show that this kind of bleed is not sustainable.
When the government concluded the conversation with us, we had a lifeline.
The government is putting in Pound 500 million, we'll put in Pound 750 million, and we can preserve steelmaking at Port Talbot by building an EAF, which uses scrap available in the UK, and be in a more competitive position than we are today, using imported iron ore and coal and making steel through the blast furnaces.
That would have meant fewer jobs, but at least we would have saved the 5,000 jobs that are also at risk if we did nothing.
What is the cost of letting the blast furnaces run during the transition period, as was proposed by the unions?
When we evaluated the union proposal to run one blast furnace until the EAF was built, we came across multiple challenges: a Pound 600 million impact on the financial performance, a Pound 200 million impact on project costs, and a ten-month delay in project timelines.
Then the CO2 reduction would have been slower.
Then we also saw that, operationally, it's very challenging. For all these reasons, we felt that this was not a viable proposal.
Unions have raised questions about why you are shutting down blast furnaces in Wales to cut emissions while building one of the largest blast furnaces at Kalinganagar for the second phase of expansion.
Closing the blast furnaces was driven by the financial performance of Tata Steel UK, the regulatory environment in Tata Steel UK, and the conditions of the grant that we were getting because that was available only if we brought down the CO2.
And it is more competitive to use scrap to make steel in the UK. That was the logic.
But I don't think we ever said we would not build new blast furnaces in India, which has a growing market. And there is no gas or scrap in India, so how do you make steel?
How confident are you of achieving this 40 million-tonne capacity by 2030, or are you advancing it?
We have the option because we have the land, and we can pace it depending on our appetite, both in terms of the balance sheet and demand.
Tata Steel's net debt at the end of December stood at Rs 77,405 crore. When do you see getting back to the $1 billion debt reduction target?
We expect net debt to improve between now and March. I think next year is a good year to get back on track with the debt reduction because Kalinganagar will have started production, the Netherlands will be back to normal, and hopefully, steel prices will be better.
Feature Presentation: Aslam Hunani/Rediff.com
