The sale of Tata’s Port Talbot plant has been put on hold, according to media speculation. The article in the Telegraph indicates that the Indian-based owners are taking their time to think about the implications of future EU deals, and to consider any potential pension scheme liabilities.
Sales Process and future of Port Talbot Plant
Early into the sales process, Tata Steel indicated there were seven parties interested in purchasing the plant, including the steel group Liberty House, Greybull, JSW Steel and Nucor.
The number of potential buyers has since been narrowed down, and the government has made an offer to purchase a 25% share in the business, but it has rejected calls to take ownership of the business outright.
Last month there was speculation that Tata was about to make a deal with the UK government and that the company was to receive a £1 billion government loan. However, recently, a further obstacle has been placed in the way of the sales process following concerns that a heavily increased levy could be put in place by the Pension Protection Fund should the deal with the government go ahead.
In Parliament in June - in response to a question by Aberavon MP Stephen Kinnock - Prime Minister David Cameron stated that alongside business secretary Sajid Javid, the government was doing everything it could “to secure a future for Tata steel”.
The Prime Minister added that the sales process was moving along and he felt that steel “was better off in the inside the European Union”.
New potential buyer
Now, media reports indicate that Ed Truell, a private equity investor, is now in talks with the company, the Treasury and the Pensions Regulator about purchasing the plant. Rather than viewing Brexit as a problem, Truell told CITY A.M. that the decision to leave Europe has made the steel plant “a lot more attractive to potential buyers”.
Decision to Sell
Tata made the announcement that it was going to sell the plant back in March 2016 following a review of the company’s European portfolio. Tata concluded that manufacturing costs and lack of demand for steel were impacting on the competitiveness of the business.
It also stated there had been a deep concern over the “deteriorating financial performance of the UK subsidiary” in the previous 12 months. Media reports at the time speculated that the plant was losing as much as £1 million pounds a day.
Purchasing Manufacturing Index (PMI) figures released by Markit on July 1 indicate encouraging news for the U.K.’s manufacturing sector. The PMI figures showed their highest increase in five months at 52.1, up from 50.4 in the previous month.
According to the data from Markit, new orders were also on the increase, and they were accelerating at the fastest pace since October 2015. However, there was less positive news on the employment front, with further job losses in the manufacturing sector being reported for the sixth consecutive month.
Commenting on the figures, Rob Dobson, senior economist at Markit said
“With 99% of survey responses received before the end of 23rd June, the latest PMI signalled that the manufacturing sector has started to move out of its early year sluggishness in the lead up to the UK’s EU referendum.”
CBI figures indicate greater stability
In further positive news, figures released by the CBI indicated greater stability for the manufacturing industry. Its Industrial Trends Survey showed order books had gained in strength, with the food and drink sector among those receiving a boost.
Manufacturing output and selling prices also showed signs of stabilising, and manufacturers are optimistic they will continue to increase in the next quarter.
The Brexit Effect
However, it needs to be considered that both sets of figures were compiled before the results of the Brexit vote were known and it will be some time before the full effects of leaving the EU are felt by businesses.
There are concerns that the on-going certainty following the vote could impact on current business deals. In addition, it is not yet known what trade deals the UK government is going to be able to secure during its negotiations with the EU, or whether it will be possible for the UK to keep access to the single market.
As uncertainty remains, the CBI are calling on the government to draw up firm plans for the UK and its future without EU membership, and it’s urging ministers to establish a framework, which would enable businesses to work effectively with the government.
Brexit and Challenges for the Manufacturing Industry
The fall in the pound following the vote has already left some businesses concerned over the rising prices of imports, which they feel they might have to pass on to customers. Also, the manufacturing industry is likely to face further challenges due to the increase in import costs
There is speculation that plans for Hinkley Point C could face further delays. The EDF Worker’s Committee are due to make a decision this week on the future of the proposed nuclear power station and it is thought likely that they are to ask for it to be postponed.
Legal action is also being taken by unions in France in a bid to delay the project. However, while plans for the Hinkley Point C plant don’t have the support of some French unions, it has the backing of four major unions in the United Kingdom.
Union support for Hinkley Point C
Len McCluskey of Unite and Mike Clancy of Prospect are among the supporters of the new plant who have signed a letter to Vincent de Rivaz, chief executive of EDF UK urging him to make the final investment decision in “a timely fashion”.
The letter also stated:
“From an energy perspective, the UK needs the electricity. We are rapidly losing capacity and this process will continue as the UK coal stations and nuclear stations reach the end of their operating lives.
“At the same time, we are committed to making a transition to a carbon-neutral balanced energy policy in the UK, including nuclear and renewables.
“Much is at stake in both France and the UK in terms of jobs, skills, social dialogue, industrial capability and prosperity into the future.”
The consultation process was due to come to an end on July 4 and union bosses are calling for a decision on the final financing to be made as soon as possible. Previously, the announcement on funding was due to be made in May, but this was deferred until September 2016.
“Project is ready”
Despite there reportedly being some concerns over funding, at a meeting with the Energy and Climate Change Committee in May, Vincent de Rivaz announced that the “money is there”. He also noted that the French Trade Unions wished to delay the project further.
However, de Rivaz went on to say that a delay wasn’t necessary as the “project is ready”. He also added that the project mustn’t be postponed “because the UK needs the electricity from Hinkley Point C at the time it’s due to come on line”.
It is estimated that the building of the new nuclear plant will cost £18 billion, and it would generate 7% of electricity in Britain once it comes into use. It also has the potential to create thousands of jobs.