British Steel’s Chinese owner seeks multimillion-pound government rescue package - wima space
Wed. Nov 30th, 2022
British Steel’s Chinese owner seeks multimillion-pound government rescue package

The Chinese owner of British Steel has asked the government for a rescue package of up to £500mn to keep open its vast steel works in Lincolnshire, sparking renewed fears for thousands of jobs and the prospect of the closure of some of the UK’s last blast furnaces.

Jingye, which bought the country’s second-biggest steelmaker out of insolvency in 2020, has told ministers it needs financial support to keep its operations at Scunthorpe viable, according to three sources familiar with the situation.

The company has warned that it is losing about £1mn a day and is seeking an estimated £400mn-£500mn of support, which includes around £100mn to offset the soaring cost of carbon permits. UK representatives of British Steel have met business secretary Jacob Rees-Mogg twice in the past fortnight to discuss the need for aid.

The steel company employs about 4,000 people, most of them at the energy-intensive blast furnace works at Scunthorpe. Thousands more jobs in the supply chain are also dependent on the company. Jingye, which paid about £50mn in 2020, said at the time it planned to invest £1.2bn in the steelmaker over the next decade.

Britain’s steelmakers have faced a perfect storm of soaring energy prices and rising inflation as well as softening demand because of the wider economic downturn, which has undermined the rise in steel prices in the wake of the Covid pandemic.

The business department said the government was “working at pace with the company to understand the best way forward as it seeks to secure a more sustainable future”. 

It added: “We recognise that businesses are feeling the impact of high global energy prices, particularly steel producers,” noting that the government has provided more than £780mn of support to help the sector with electricity costs since 2013.

British Steel said the company was “investing hundreds of millions of pounds” in its long-term future but that “like most other companies we are facing a significant challenge because of the economic slowdown, surging inflation and exceptionally high energy and carbon prices”. It declined to comment on the details of its request for support.

The government last month said it would offer businesses six months’ worth of support to hold down energy prices but industry executives have privately said that more certainty on prices will be needed next year.

An added challenge looming for British Steel and Britain’s largest steelmaker, Tata Steel UK, is decarbonisation. Both companies will need financial support to help reduce carbon emissions at their blast furnace works.

Jingye told ministers it needs around £100mn alone to mitigate the rising cost of purchasing carbon permits under the government’s emissions trading scheme, according to two people familiar with the situation.

The UK government adopted its own scheme after Brexit under which heavy polluters must purchase permits to cover each tonne of carbon dioxide or greenhouse gas. They receive a certain amount of annual free allowances but that figure gradually reduces every year.

The Financial Times reported in July that Tata Steel UK’s Indian owner had told ministers that it would be forced to close its operations at Port Talbot in Wales if it did not secure support from the government to help reduce carbon emissions and invest in electric arc furnaces, which are less energy intensive.

Decarbonising the UK steel industry is a key to achieving the government’s commitment to reach net zero greenhouse gas emissions by 2050. Community, the steelworkers’ union, said members wanted to know that their jobs were secure: “The stakes are extremely high and we urge both parties to get around the table to hammer out a deal that safeguards steelmaking at Scunthorpe.”

Meanwhile, the government has restricted the information that regional grid operator Electricity North West can share with its Chinese state shareholder after deeming that the 35 per cent stake posed a “national security risk”.

The intervention was triggered under the National Security and Investment Act after China’s CNIC passed part of its 35 per cent stake to a separate company owned by Beijing’s State Development and Investment Corporation.

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By wissem

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