Won't take any more impairment charges for UK operations transition: Tata Steel MD

Tata Steel will not be taking any more impairments charges on its books on account of the impending transition of its UK operations to cleaner manufacturing processes, TV Narendran, the managing director of the company, told ET in an interview. The negotiations with the British Government, which is lending support of £500 million for this transition, will serve as a benchmark for the company as it prepares for similar discussions with the Dutch government, Narendran told Nikita Periwal and Nehal Chaliawala. Edited excerpts:

Will there be any more impairments or restructuring costs for the UK operations?

As far as the UK is concerned, it is entirely done. We wanted to do it in one shot. Though there has been a little bit of charge this quarter, the employee pension fund is also completely sorted and has gone to insurance, and we have no exposure to it.


Is the UK government okay with job cuts during the transition given that it is lending financial support?

The UK government knows that fewer jobs will be required because it is a different process. The intention of both the UK government and Tata Steel is to build a sustainable business because the government is also putting taxpayer's money into a business.

What will the cost structure for production look like in the UK post transition?

Our expectation is that the cost of the UK business will be about £100-150 lower per tonne than what it is today. Apart from fewer employees needed, the government is also working on bringing down energy costs. For scrap, the advantage we have is that UK is an exporter of scrap, and we can use locally available scrap instead of imported iron ore and coal.

Will discussions with the Netherlands government be similar to your UK negotiations?

The proposal is different because the one we had in the UK was more about leveraging local scrap, whereas in the Netherlands it is about having a gas-based DRI (direct reduced iron) unit. The Dutch government is also keen that we have an option for hydrogen. We are committed to reducing the carbon footprint in the Netherlands by 5 million tonnes by 2030, so one of the two blast furnaces there has to be shut down and transitioned into a new process route by 2030.

What kind of impairment will you have to take for the transition in the Netherlands?

So, it depends. Whether we do an impairment or, if we have a longer period, do we do an accelerated depreciation. We'll work that out once we have the contours of the deal in place. The other thing is that the Dutch assets have always been EBITDA and cash positive. So, the size of the issue is very different there. And a lot of the value will also be in the downstream assets, which will continue. Unlike the UK, where the coke ovens are coming to end of life and there's a blast furnace relining due, in the Netherlands we're not there. So we can time it a bit better, more gradual, and we can see what is the most optimal way to do it.

Will negotiations with the UK Government be a benchmark when negotiating with the Dutch government?

To some extent, yes. Because I think the principle in Europe has been 40-60% of capex (capital expenditure) support from the government. It's not just us, if you see Thyssen or ArcelorMittal, that's been the principle. Then we will also look at some opex (operational expenditure) support if there are local costs which are higher. We will also look at what others have got in Europe because you also want a level playing field. So these are the basis on which we will have the discussion. The UK agreement is obviously going to be an input in that discussion.

In the UK, negotiations with employee unions were a big factor. Do you anticipate something similar playing out in the Netherlands?

The unions in the Netherlands also know that we have to transition to new processes by 2030. I think the discussion is always on how soon do you get there. Or how do you manage the transition in a manner which is least disruptive for their members.

What's the outlook on demand in India for the rest of the year?

With the government’s focus on infrastructure and the revival of rural markets, I expect demand to be quite strong. Pricing will depend on sentiment globally, which is currently a bit weak because China is exporting about 8 million tonnes of steel each month. But I expect Chinese exports to reduce over the next few months. I also see spreads improving because the current spreads are not sustainable with coal at $335 (per tonne), iron ore at $115 (per tonne) and steel at $540 (per tonne).