The Chinese owner of British Steel has asked the government for a rescue package of up to 500 million.
Jingye, which bought the country’s second-biggest steelmaker out of bankruptcy in 2020, has told ministers it needs financial support to keep its Scunthorpe operation viable, according to three sources familiar with the situation.
The company has warned it is losing around £1m a day and is seeking an estimated £400m-500m in support, including around £100m, to help offset the rising cost of carbon allowances. British Steel officials have met Business Secretary Jacob Rees-Mogg twice in the past two weeks to discuss the need for the aid.
The steel company employs around 4,000 people, most of them at the energy-intensive Scunthorpe blast furnace works. Thousands of other jobs in the supply chain also depend on the company. Jingye, which paid about £50m in 2020, said at the time it plans to invest £1.2bn in the steelmaker over the next decade.
UK steelmakers have faced a perfect storm of soaring energy prices and rising inflation, along with slowing demand, as the broader economic downturn has eroded the rise in steel prices amid the Covid pandemic.
The economics department said the government was “working with the company to identify the best way forward to secure a more sustainable future”.
It added: “We recognize that businesses are feeling the impact of high global energy prices, particularly steelmakers,” noting that the Government has provided more than £780m in support since 2013 to help the sector with electricity costs .
British Steel said the company has invested “hundreds of millions of pounds” in its long-term future but “like most other companies we face a significant challenge from the economic slowdown, rising inflation and exceptionally high energy and carbon prices” . It declined to comment on the details of its request for assistance.
The government said last month it would offer companies six months of support to keep energy prices low, but industry executives have privately said more certainty about prices is needed next year.
An additional challenge for British Steel and Britain’s largest steelmaker Tata Steel UK is decarbonisation. Both companies need financial support to reduce CO2 emissions in their blast furnace plants.
According to two people familiar with the situation, Jingye told ministers around £100m is needed just to mitigate the rising cost of buying carbon allowances under the government’s Emissions Trading Scheme.
The UK government introduced its own post-Brexit system, requiring heavy polluters to buy permits to cover every tonne of carbon dioxide or greenhouse gases. You get a certain amount of annual free certificates, but this number gradually decreases each year.
The Financial Times reported in July that the Indian owner of Tata Steel UK had told ministers it would be forced to close its Port Talbot operations in Wales unless it secured government support to cut costs reduce CO2 emissions and invest in electric arc furnaces. that are less energy intensive.
Decarbonising the UK steel industry is key to meeting the Government’s commitment to net-zero greenhouse gas emissions by 2050. Community, the steelworkers’ union, said members wanted to know their jobs were secure: “The stakes are extremely high and we urge both parties to come together to negotiate a deal that will secure steel production at Scunthorpe. “
Meanwhile, the government has restricted the information regional grid operator Electricity North West can share with its Chinese state shareholder after believing the 35 percent stake posed a “national security risk”.
The intervention was triggered under the National Security and Investment Act after China’s CNIC gave part of its 35 percent stake to a separate company owned by the Beijing State Development and Investment Corporation.
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