State funding support essential for green push: Tata Steel's Chatterjee

The engagement with the Netherlands government on the terms of the tailor- made agreement and the policy conditions will be initiated after the formation of the new govt, said Chatterjee

Tata Steel Netherlands (TSN) recently signed an agreement with the Dutch government for getting 2 billion euro in state support for the first phase of its plans to cut emissions at its IJmuiden plant. Koushik Chatterjee, executive director and chief financial officer of Tata Steel, told Ishita Ayan Dutt in a video interview why state funding is key to the company’s low-carbon transition in the Netherlands and how fair-trade rules proposed by the European Union (EU) could shape its operations. Edited excerpts:

 

What’s next after signing the joint letter of intent (JLoI) with the Netherlands?

   

The engagement with the Netherlands government on the terms of the tailor-made agreement and policy conditions will be initiated after the formation of a new government.

   

The Dutch government has estimated a total investment of 4-6.5 billion euros for the project. Is this for the first phase and how long will the project take?

   

I will not comment on the capex or investment at this stage, as we are in the engineering phase, which will take some time to finalise, as we also prioritise, optimise and sequence the investment plan. The scope of the current decarbonisation is one blast furnace transition to low-carbon steelmaking configuration, while the second blast furnace transition is at least a decade away.

   

Do the upcoming Dutch elections pose any risk to the agreement’s implementation?

 

The non-binding JLoI marks the first milestone in a long, political and regulatory process where both parties have agreed on the landscape they want to work on, i.e. the aims and objectives. This is an integrated project with many sub-projects and the tailor-made agreement will have oversight from the Dutch parliament and the European Commission. In the coalition political landscape in the Netherlands, most parties are aware of the importance of steel sovereignty, and there is broad bipartisan support for this decarbonisation proposal.

   

How critical is government support for Tata Steel Netherlands’ long-term European strategy?

   

In decarbonisation, companies don’t add capacity but transition to a low-carbon process technology, such as DRI (direct reduced iron) and electric arc furnace (in this case), to structurally address the carbon economics where carbon is priced. Decarbonisation projects in Europe are typically part-funded by governments, as it also helps countries achieve their nationally determined contribution. The balance funding is done by the company, project financing and indirectly by the customer (through green steel premium and the carbon border adjustment mechanism, or CBAM, which is a carbon actualisation cost). Hence, the government funding support of 2 billion euro is critical for the transition.

   

But unlike the United Kingdom, your operations in the Netherlands have been self-sustaining

   

Yes, the two cases are very different. In the UK, the upstream assets had end-of-life issues, which are being replaced by low-carbon technology that will leverage UK’s steel scrap availability and funding support of the UK government to enhance the viability.

   

The configuration in the Netherlands is much larger, and the project configuration is very different to meet the substrate requirements of the product-mix. While TSN is a profitable business and will contribute significantly to the project, government funding support is essential for the project.

   

When do you think you are going to finalise the binding agreement?

   

In the JLoI negotiated with the Netherlands, both parties have a one-year timeline to sort out conditions, including engineering, before finalising the tailor-made agreement and the final investment decision.

   

What policy changes in the Netherlands do you seek?

   

It is important that in the same economic area like the EU, companies must have a level playing field. That’s the primary policy ask, so that there is no disparity on energy costs especially network costs, additional levies on CO2 etc. These policy redesigns are important for the viability of decarbonisation investments.

   

Where do you see European operations in three to five years?

   

A new plant in the UK will be ready in three years, as the site work has already started. The Netherlands project will take time as we have to go through the due process. The Netherlands operations is one of the lowest carbon emitters in the steel industry, yet it has taken the lead and after this phase of transition, 6 million tons out of our combined European and UK portfolio of 10 mt, will be green steel.

   

With CBAM coming into force from 2026, what would the 6 mt of green play mean for Tata Steel?

   

I think, in the next decade or so, we would certainly see that the CBAM and fair-trade measures will result in a higher level of stabilised prices for steel in Europe. That structurally enhances the profitability of the low-carbon steel footprint in Europe for Tata Steel.

   

Will you have a head start in Europe with the transition?

   

While I think this is a fairly long process of transition for everyone, our approach has been a lot more pragmatic, especially in terms of the usage of future fuels like hydrogen and biomethane.

   

How do you see the EU’s recent announcement on tariffs? What will be the likely impact on Tata Steel in Europe?

   

The European Commission’s announcement is essentially to address the issues of oversupply of unfairly priced imports that do not bear the carbon costs that EU steel companies are exposed to. The measures are essentially on reducing the tariff-free import volumes, increasing tariff on “out of quota” volumes to 50 per cent and introducing melt and pour conditions to prevent circumvention via re-exports.

   

Sovereignty in foundational industries is now critical for any country, especially in a shifting geopolitical landscape. The steel industry has a multiplier effect on direct and indirect employment, national security on the supply chain, technology access etc. Therefore, fair protection for the domestic steel industry helps restore the level playing field versus low-priced imports, encourage investments in the industry and create value.

   

Post-implementation, the EU fair-trade measures should support the pricing environment and have a positive impact on Tata Steel Netherlands.