Welsh Affairs Committee
Oral evidence: Steel Industry in Wales, HC 508
Wednesday 31 January 2024
Ordered by the House of Commons to be published on 31 January 2024.
Members present: Stephen Crabb (Chair); Ben Lake; Beth Winter.
Other Members present: Sarah Atherton; Stephen Kinnock; Mark Tami.
Questions 84-141
Witnesses
I: Vaughan Gething MS, Minister for Economy, Welsh Government.
II: David T.C. Davies MP, Secretary of State for Wales, UK Government.
Witness: Vaughan Gething.
Q84 Chair: Welcome to the second part of today’s Welsh Affairs Committee sessions on the future of the steel industry in Wales. This morning, we heard from trade unions who are active at the Port Talbot site, and from senior management at Tata Steel about their plans. Later, we will hear from the UK Government’s Secretary of State for Wales, but I am pleased that we are joined now by the Welsh Government’s Minister for the Economy, Vaughan Gething. Good afternoon, Minister, and welcome.
This morning, the unions told us about two potential alternative schemes for investing in Port Talbot that, they argue, would save jobs but are not being considered sufficiently by Tata or the UK Government. We heard from the chief executive of Tata Steel Global that the plan they have put on the table is the only realistic one and that it will be the future of steel making, certainly in Europe and perhaps elsewhere around the world, but that the door is not shut to further investment and more optionality at the Port Talbot site. From where you sit as Minister for the Economy, will you give us your take on the situation at Port Talbot and the deal that has been cut between the UK Government and Tata? What do you make of it, and where do you lie in the discussion between the unions and Tata about alternative visions for the future? Can you start with that and set the scene?
Vaughan Gething: Electric arc is part of the future of steelmaking. In fact, it is part of today; I am in my office in the Senedd, which is in my constituency, and I can see an electric arc furnace steelmaker here. There is a strategic UK challenge about what we do with scrap, so electric arc is part of the future for steelmaking and for the Port Talbot site.
The challenge is whether, over the next period, blast furnaces should be part of the future as well. That is where we get into the real discussion—whether both of the blast furnaces should close before the end of this calendar year or whether we should maintain a blast furnace for a different, lengthier transition. That is very much where the Welsh Government and I are. It would mean more investment from the UK Government—there is no getting away from that—but you would get a longer transition that would not cost the eye-watering number of jobs that it would otherwise take out, directly and indirectly, with all the economic harm that produces.
Crucially, from a UK-wide point of view, not just that of Wales, making virgin steel is important for a range of products today, from cans to cars and construction, and we would have to import that steel from other parts of the world. I think that is the wrong strategic choice.
I should also say that while electric arc is part of the future, in other parts of the world new blast furnaces are opening up. On the idea that this is part of a global move, over time I think that is correct. We will not see blast furnaces being opened up in the same way in 20 or 30 years’ time, but today there are new blast furnaces being opened up. This does not actually deal with the global emissions from steel production; it transfers the emissions and the jobs of Welsh workers.
Q85 Chair: What is your understanding of what the £500 million pledged by the UK Government is in effect buying of this deal? Were you in the room when this was being agreed?
Vaughan Gething: No. There was a choice made that the Welsh Government would not be part of the negotiation. It was never that we said that we did not want to be part of the conversation about the future. We said we would not be part of a conversation that aimed at closing the plant. We want to be part of the conversation about the future. We are providing direct support to Tata on skills and a range of other areas, but there was a choice made at a political level that we should not be part of the discussion.
What the £500 million buys is a single very large electric arc. That means that steel production will have to close on the site, so Port Talbot will essentially become a site where you roll steel but do not produce it. So you start to become reliant, as soon as the blast furnaces go off, on other parts of the world for all of that steel to be created and then transported into Wales. That is good news for steel workers in India and probably in the Netherlands, but terrible news for lots and lots of Welsh workers who would lose their jobs in the next 18 months.
Chair: I am going to move the discussion on and bring in colleagues. I should have said at the outset, Minister, that for the sessions we are holding today and because of the strategic nature of the issue, I have taken the decision to invite other Welsh MPs to guest at this Committee session: Sarah Atherton from the Defence Select Committee; Stephen Kinnock, who of course sits on the transition board; and Mark Tami, who has a constituency interest with the Shotton works.
Ben Lake: Diolch yn fawr iawn, Minister. You have already started to set out some of the responsibilities and the role that the Welsh Government can play in relation to steelmaking in Port Talbot and Wales more generally. For the sake of the record and for the discussion, how do you see your own role and that of the Welsh Government? What sort of support, if any, is the Welsh Government able to provide as part of the discussion in Port Talbot?
Vaughan Gething: We have been a regular part of the discussion around skills and the future ambitions for the economy—economic development is a devolved responsibility. So if you think about the broader discussion that the two Stephens in the Committee have been part of about the future of freeports, I think everyone in the Committee, regardless of party, sees a real strategic opportunity for Wales in offshore energy. Having steel is part of what will create those offshore platforms. We can create that steel in Wales or we can import it from other parts of the world. The greater value will be generated where most of the steel is produced and in the manufacture of it.
So I think we are very much part of the individual discussion in the issue around Port Talbot and its impact on a much wider group of businesses and sites. We also should be part of not just dealing with the consequences of major job losses, but the consequences if we maintain steelworking as a strategic asset and then use it to create more jobs and prosperity across Wales.
Q86 Ben Lake: Thank you, Minister; that is very useful. One of the things that was touched on in this morning’s panel with the representatives from Tata was the potential for the Celtic Sea and the developments in offshore wind. The other thing that was also touched on was, as you rightly say, the strategic nature of virgin steelmaking in south Wales and the immediate potential impact for sites other than just Port Talbot—in Trostre, for example. As far as Tata is concerned, have they been in any sort of communication with yourselves on how the decision that they propose to take will impact on the other sites in Wales?
Vaughan Gething: Thus far Tata has said that 2,500 jobs will be directly affected in Port Talbot—lost—and up to 300 jobs in Llanwern within the next two to three years. That is obviously a major issue because Llanwern has already lost its heavy end. The jobs there are still valuable for the local economy, and steelworkers there are just as anxious as steelworkers in Port Talbot.
Steelworkers in Trostre are anxious, although at the moment Tata are saying there is no risk to Trostre, but it would rely on imports. The IJmuiden plant in the Netherlands is in a different position; the Dutch Government are having a different conversation about the future, with more on the table with Tata. They are both looking at new ways of making virgin steel. They have a tin plate operation there as well, so it is not unreasonable to think that in the future, if you are sending over steel from the Netherlands, how long will it keep on coming to Trostre, which has a really good record of productivity and quality? We are not asking people to do things on the cheap or for a lesser product.
If you have a tin plate plant next door to the steelworks that is making all the steel you need, that is part of the risk. When I talk about cans, I am talking about Trostre and the fact that every Heinz can on a shelf in the UK is made there, and at the moment 90% of that metal can be made through electric arc. That also means that 10% of the metal cannot be made there, so how long does that carry on as a business model with more than 700 direct, well-paid jobs in that part of Wales?
Q87 Sarah Atherton: Minister, you have a seat on the transition board. What is your understanding of the aims and objectives of that board?
Vaughan Gething: The transition board is there to deal with the potential for job loss and a change in the way in which Tata produces steel. That is the point and the purpose, so the £100 million has been offered. The challenge, though, is that the scale of the potential job losses is not something that was ever clear at the outset. I know that David Davies has said on the record—the public record, at least—that it was always going to be like this; I do not think that it always was or is, indeed, because none of the proposals have been implemented. However, it is then about how £100 million can best be used if there are significant job losses in Port Talbot and potentially further afield.
Q88 Sarah Atherton: How can you envisage the best use of that £100 million?
Vaughan Gething: The starting point is that valuable work is being done, led by the Neath Port Talbot local authority. The chief exec there is taking a lead on a local economic action plan, which is a good thing to do anyway. Work is being done by the Swansea bay city deal, chaired by Rob Stewart, the leader of Swansea Council. All those products are in delivery.
There is also work to see if you have other opportunities, how far do they connect to the big, strategic future opportunity around floating offshore wind? The big challenge is if you have 2,500 direct job losses, and potentially north of 10,000 when you think about the indirect jobs, will £100 million be enough if you see those jobs going within the next 18 months? My concern is that it will not be anything like enough if you do see that level of eyewatering job loss. Steelworkers command a good wage at the moment; there may be other jobs, but they are unlikely to command the same level of wages when you think about the responsibilities that those people have.
Q89 Sarah Atherton: How much have the Welsh Government contributed? How much have they put into the pot for this transition board?
Vaughan Gething: I was very clear with the Secretary of State for Wales that I would not be paying for access to talks about our responsibilities where we have a direct interest. I have been very clear, though, that we have employability support programmes, and if there are changes to jobs we will of course make the resources of those available. In the way in which we have always looked to resource skills around the company for the future, we will continue to look at what we can do with our budget.
It is not that the Welsh Government are refusing to have any financial contribution to the future of the workforce in Port Talbot if—and it is an if—there is change: it is actually about not wanting to get boxed in to saying, “We must pay for access,” or somehow that if we are not prepared to talk about a finite sum of money it means that we are not interested, which is very far from the truth. However, as a starting point, I am interested in trying to avoid that eyewatering job loss in the first place.
Q90 Sarah Atherton: Tata is going to contribute, on a comprehensive package, £130 million. The UK Government will contribute £100 million. The Welsh Government are going to do it quite differently and are not putting any figures on it, but they have a number of initiatives going on. How do you think that all this will be pulled together to actually deliver for those 2,800 workers? That is the best-case scenario: the worst-case scenario in Wales is 6,600 workers. How do you think that, with the Welsh Government’s initiatives, £100 million from the UK Government and £130 million from Tata, you will meet those needs when those workers walk out on the last day and have not got a job?
Vaughan Gething: The £100 million for the transition board is made up of £80 million from the UK Government and £20 million from Tata. The £130 million that Tata is talking about is actually about the potential dislocation of workers. You do not need to be a sophisticated observer to recognise that that is probably money that could go into redundancy packages.
We will carry on making the case for a future for this strategic UK economic asset, as well as talking about the impact that it will have on the local economy and further afield. If there are job losses of any kind, we will use the resources that we have to help support people, as we have done in constituencies around the country. In Monmouthshire, for example, when Avara Foods thought that it might go under, we had conversations with constituency representatives, the DWP, the programmes that are responsible here and the local authority. You can see us acting in that coherent and responsible manner every time there is dislocation in the economy, as well as wanting to plan for the future and what should be a genuinely just transition.
Sarah Atherton: My concern is for those people who are wondering whether they have a job this time next year. There is a lot of talk and a lot of political posturing, but we need to give these workers reassurance. Thanks, Minister.
Vaughan Gething: That is what I am looking to do.
Q91 Stephen Kinnock: I should declare that I am a member of the transition board and a member of the Community union. Vaughan, in the session earlier today, we talked about the difference between what Tata is doing in the Netherlands and what it is doing in the UK. At the heart of its transition plans for IJmuiden is a mixed DRI and EAF model, but it has dismissed the possibility, at least in the short to medium term, of there being a DRI element to the transition in south Wales. The reason Tata gave for that is that there is no gas connection potential for Port Talbot, so you would be running the DRI off natural gas as a bridging fuel, ultimately, to hydrogen.
A colleague on the Committee asked whether any conversations had taken place with the Welsh Government or the UK Government—and I guess Neath Port Talbot Council and other local authorities would be included in this as well—about how you could get a gas connection. The executive from Tata Steel said that no such conversations had taken place. Would you care to comment on that? Do you agree that there would be the potential for a gas connection that could run a direct reduced iron furnace?
Vaughan Gething: Two things: first, it is important to recognise that a different conversation takes place in the Netherlands, where Government are prepared to see a different level of investment, and that means there is a future for blast furnace steel as a strategic asset, as well as what that means for jobs.
When it comes to gas, I would welcome a more joined-up conversation. As you will know, Stephen, when the power station closed, we had to act to protect the jobs that were there. We ended up in the farcical position of needing to take the UK Government to court to prevent them from closing the station, which would have potentially meant a significant flood risk for schools, homes and others.
There is a gas connection for the old station. It is worth us having a proper conversation about what that might look like. There is some infrastructure there that might provide an answer if there was a purposive discussion about it. I would be interested to see whether that was possible. Of course, I have made a choice to take some of the land around Baglan into ownership to remediate it for economic use as well. A sensible conversation about what the future could look like, including DRI, is something I am interested in, as well as the more important immediate conversation around maintaining blast furnace capacity.
Q92 Stephen Kinnock: I think you would agree that it is pretty extraordinary that this plan has come to this point, and that the UK Government have given £500 million to Tata without ever having a conversation about the infrastructure that would be required to underpin a direct reduced iron furnace. Do you have any view on how it is that we have got to this point without that conversation ever having taken place?
Vaughan Gething: DRI should be part of the future. I hope it is going to be a part of the future of making steel in every part of the world. The difficulty is that, if you do not have all the relevant players in the room, you are likely to miss something. That does not mean that it has to be comfortable, but in this field there should be some pragmatic reality about our wider economic interests and how we best serve the needs of constituents who are facing a very difficult future if the headline proposals go ahead.
If we had been part of those conversations, we could have had this conversation at an earlier point, and there may have been a different message and a different set of proposals. I was pleased to hear the headline that Tata has said that, if there was more investment, there could be a different conversation about what the future could look like. I think that, at least, in itself, is encouraging.
Q93 Stephen Kinnock: Turning to the central role that the 3 million tonne electric arc furnace will play, and the whole plan hinging on that electric arc furnace being constructed and up and running by 2027, what are your thoughts on how realistic that is as a proposal?
Vaughan Gething: Well, it has not gone into planning yet. There will be a good deal of work to get through that and then, as everyone on this and other committees knows, we have a challenge right across the UK in National Grid connectors. So in “Yes Minister” language, it is a brave assumption that everything will be ready for 2027.
Stephen Kinnock: Heroic, maybe.
Q94 Mark Tami: I should declare I am a member of Unite as well. Stephen has just asked my favourite question.
Stephen Kinnock: Sorry, Mark.
Mark Tami: It’s fine. I have another to ask.
Obviously, the nature of the conversation is that despite the money being provided by Government, there is still a lot of uncertainty hanging over the future.
With my Shotton hat on, speaking to the company there, there is concern about maintaining the skills base. I have been in this job for many years. I have seen periods where people, if they feel there isn’t a long-term future, they look elsewhere. We have to maintain that skill level and that skill base in this industry—getting new people and apprentices in.
What can Welsh Government do to ensure that we maintain the very important stream of people coming into the industry and staying in the industry?
Vaughan Gething: We can learn lessons from the past. In your constituency, as you know, on a single day more than 6,500 people were made redundant in the 1980s. Not planning for that future leaves significant scars that are human and social, as well as economic.
The time of the transition really matters as well as what the transition is because I do think we are going to be able to create serious high-value employment right across South Wales. I think there is a big future for manufacturing, the semiconductor sector and more, and floating offshore wind, but you will not see all those jobs being created in the next 18 months. That is part of the challenge.
We will carry on using the levers we have. With our employability approach, for anyone who is made redundant, we are going to add to what the transitional arrangements might be able to do, but our bigger challenge is our ability to plan for and deliver more work in the future. That really is difficult.
Our budget is what it is. It is £1.3 billion less in real terms than two years ago. We can have all the levers we need—time is a real issue for the transition to be manageable and generally just, and at the moment I don’t think it is. I would understand why some of your constituents will be anxious in Shotton because it is supplied by Port Talbot at the moment. The longer and the more disappointing—
Q95 Mark Tami: The point I suppose I am making is that it is good in a way that there are alternatives, but the danger of that, is that if people do not feel that there is a long-term future in the industry, then they will look elsewhere and will erode the skills base. Apprentices and young people have got to feel that there is a future for them when they go into the industry. It doesn’t matter whether it is steel or any other industry—they have got to feel that. It is about what we can do to try to support that.
Vaughan Gething: You are absolutely right. There are people who are already anxious about their future. Some of them are making choices.
Sometimes, there is this impression that steelworkers are all old white blokes over 50. Actually, the average age of people on the Port Talbot site is 37. Lots of those people have responsibilities and commitments. For them, it is a really big challenge, not just about a job that they are committed to and a future that they thought they would have, but if they have got to go somewhere else, how they acquire work of the same level so they can meet their commitments and responsibilities. Some of that goes back to the other interventions that are taking place.
The Swansea Bay deal is in delivery, but it is not going to deliver on all the jobs that exist in Port Talbot today at the same wage levels within 18 months. That is part of the reason why going back to the transition and the timing of it matters, but it is also why if we had more resource, we could put more into skills, to help move people into different areas of the economy. Lots of people would want some of the workers at Tata to come to work for them. My concern is that if we win a better transition, a longer one with more investment, some people may already have decided to leave and there is a challenge about recruiting and retaining the best people, the people we need to carry on making steel to the quality and in the time we would want to.
Q96 Beth Winter: Can I probe a bit more what the Welsh Government’s interests and responsibilities are and what their strategic vision is for the future of steelmaking, and how that fits in with your broader economic strategy for Wales?
Vaughan Gething: Steelmaking is integral to today’s economy. Again, cans, cars and construction all require virgin steel for some of their production. But for the economy of the future, it is essential as well. The green industrial power revolution will need steel to make it work. I am sure all the major parties have commitments in their manifestos to home building. You are going to need steel in that, too. If we are going to carry on being part of the future of the auto industry, we will need steel. We will need to do something about scrap.
So steel is integral to the future of the economy. If you are relying on other parts of the world for that steelmaking, you can’t always expect competitor economies to put their arm around your shoulder and say, “We’ll look after you.” I think it is a major mistake from the UK’s point of view. In virtually every major sector of the economy where we need to make things, steel is part of the mix.
Q97 Beth Winter: This morning we met the trade unions, which have put forward different proposals, both of which would secure, in their view and from the evidence we have seen, a sustainable green future for steel in the UK. Do the Welsh Government have a view on the proposals from the trade unions?
Vaughan Gething: Any credible plan should be considered. Any credible plan requires more UK Government investment to unlock more investment from Tata, and should come with expectations and requirements about job numbers and the future. It cannot be, “Here’s half a billion. Do what you will.” I think it has to be, “Here’s the expectation as to what it means for steelmaking and for jobs within communities.” That then allows us to unlock lots of the opportunities around this site and beyond.
Q98 Beth Winter: Do you have any comments on the specific plans proposed by the unions?
Vaughan Gething: I have deliberately not got drawn into making public comments about the different plans. I am a Minister in the Government; I need to be able to work with all partners and stakeholders. What is key to any of those plans is that you have to have a future where there is a blast furnace still running and where there is more UK Government investment around that. That then means you can unlock different opportunities to maintain employment and to grow employment that relies on an active steel sector. As I say, in every sector for today where we make things, you will need steel, and you will in the big opportunities for the future as well.
Q99 Beth Winter: Do you think that the UK Government should have a stake in the steel industry and public ownership should be on the table?
Vaughan Gething: I wouldn’t want to rule any options out, but for today and the immediate future, I think it is actually about getting Tata, who own the current asset, to invest in the future and to put more of their own money on the table, and about making sure that any public money comes with a proper public return—about the future of the economy.
I think a conversation about national stakes really depends on the appetite of the Government. I should say I had a meeting today with the DBW, which is a bit of a segue, but I have given them a mission to look to invest in equity stakes as well as loans for Welsh businesses—in particular, small and medium-sized ones. So I would not rule out public stakes in where we are. Of course, the French Government, as an example, have stakes in energy providers and others as well. But for me, the immediate point is a future that is a credible one, with a genuinely just transition, and that protects the sovereign asset that steelmaking is.
Q100 Chair: Minister, I am going to pick up on Beth’s line of questioning, because you talked very articulately earlier in your answers about the fact that the Welsh Government were not in the room when the deal was being done with Tata and that you, as key stakeholders who have invested in the plant previously and who have intimate knowledge of the Port Talbot site, should be involved in that. Given what T. V. Narendran said to us this morning—that it is a minute to midnight and we are pretty much at the point of no return now—surely this is the moment when the Welsh Government, if you are going to leverage some influence, should have a view on what an alternative plan, a plan B, looks like. Is it the Unite plan of doubling output and £3 billion of investment, or is it what the other unions were saying about more of a pragmatic plan that works more with the flow of what Tata is trying to achieve? Surely, if the Welsh Government took a specific view, that would help move the conversation on, wouldn’t it?
Vaughan Gething: No. What will help move the conversation on is whether there is the appetite in the UK Government to maintain blast furnace capacity to the end of this year and beyond, and to be prepared to say that they are open to more investment. At the moment, none of those options exists, because even though Tata has said that there are credible options but that they are not affordable, affordability is the issue. That is about the desire of the UK Government to see steelmaking continue and to be clear about the jobs expectation that comes from that.
Q101 Chair: We will question the Secretary of State for Wales on behalf of the UK Government in a few moments’ time, but your position is just to punt it to them, saying it is something that they have to deal with. I don’t know. I think that in this very serious conversation, there is a piece missing there, which should be a piece from yourselves in the Welsh Government.
Vaughan Gething: Our view is that any credible plan needs to be looked at, but we have to go through the numbers. We have to decide, if the UK Government are prepared to do that, how much are they prepared to put in and what the expectation is as well? The only way to do that is for the UK Government to unlock their current level of prepared investment and to say, “We’re open to talking about the future”, in the way that the Dutch Government have been. Then we have a real conversation to be had, and that means that we have to maintain blast furnace No. 4, which apparently has a lifetime up to 2032.
Q102 Chair: So £500 million is not the right figure from UK Government. What kind of quantum would you say is the right kind of amount that the UK Government should put on the table at the moment?
Vaughan Gething: The top end that has been asked for is £680 million in capital. When you think about what that delivers in value terms—not just the jobs, but the longer-term security for workers in Llanwern, Trostre and Shotton—I think that is something that the UK Government should be prepared to do, as well as the strategic asset issues of having the ability to make virgin steel. I do not think it should be controversial to any of the people of all the parties in the room today that we should not be the only G20 country that is reliant on competitor economies to import that grade of steel, which is essential for many parts of today’s economy.
Chair: Thank you. Ben Lake has a supplementary question, and then we will have to draw to a close.
Q103 Ben Lake: Briefly, Minister, in this morning’s panel, the representatives of Tata assured us that they had been given a guarantee of a grid connection by 2027. They were quite confident of that. I understand that securing grid connections can be a lengthy process. I am interested to know your thoughts as to their confidence and whether it is well placed.
Vaughan Gething: It is great news that the National Grid says that it can improve the grid connections. We need to see how Tata is able to deliver that against all the wider challenges in delivering a product of that scale within a couple of years, and what that means for maintaining steel production, because that is part of our challenge. If we close off the blast furnace, we are reliant on imports for a number of years. Once customers shift what they are prepared to do, you really cannot guarantee that they will come back.
Chair: No final questions from colleagues, so I say a huge thank you again, Minister, for giving up your time at short notice to be part of today’s sessions. We do value your input. I think we are probably going to have another session with you in in the coming weeks to talk about other aspects of industry in Wales, which we look forward to as well. In the meantime, the very best to you.
Witness: David T.C. Davies.
Q104 Chair: Good afternoon and welcome to the final part of today’s multi-part session of the Welsh Affairs Committee, looking at the future of the steel industry in Wales. We are delighted to be joined by the Secretary of State for Wales, the right hon. David T.C. Davies.
Secretary of State, thank you for agreeing to meet with us at short notice to discuss in particular the very serious situation at Port Talbot. I don’t know how much of this morning’s session you were able to watch or have been briefed on, but we heard from the trade unions two different versions of an alternative plan to what Tata Steel and the UK Government are putting forward. The unions were saying that their alternative plans are just not being given the serious consideration that they feel they deserve.
We then heard from Tata Steel’s global chief executive, T.V. Narendran, who explained what it is that they are trying to achieve. In the plan that they are taking forward, support of the UK Government is right, but they also left the door slightly open to further optionality if more investment were to be put on the table, presumably by the UK Government. We then heard a few moments ago from the Welsh Government Economy Minister, Vaughan Gething, about how he feels the Welsh Government really were not drawn into the discussion at an early enough stage and were not in the room when the deal was being done. Their feeling is that there is a better plan to be hatched for the Port Talbot site.
That is a recap. Secretary of State, what consideration have the UK Government given to the alternative plans being put forward by the trade unions?
David T. C. Davies: If you are referring to the Syndex plan, which is basically to keep blast furnace No. 4 open until 2032 while the electric arc furnace is being built, that is something that Tata themselves have said that they wouldn’t consider. My understanding is that they won’t consider it because at the moment both blast furnaces are losing a very large amount of money—around £1.5 million a day. Even if they kept one blast furnace—No. 4—open, they would still have to spend a great deal of money relining it and doing other work. The coking ovens are at end of life anyway and would probably have to close, so they would be importing that.
I have heard differing views about the sintering plant, but my understanding is that it might have to close. They might be importing sinter as well, just to keep that one furnace running, so there would be huge costs. I am not sure when these plans were discussed and whether the Welsh Government have said that they would take liability for the daily losses, which are currently running at £1.5 million a day and would still be hugely significant if one furnace was kept open, because of the need to import. That is the first thing.
The second thing is that, from a health and safety and engineering point of view, the proposed site of the new arc furnace is right next door to the basic oxygen steel plant. What I understand is that it would be very difficult, from a health and safety point of view, to try to construct an electric arc furnace and two ladle furnaces right next door to a BOS plant, so Tata have indicated to me that this plan is just a complete non-starter.
Q105 Chair: So many of the interactions between the Government and Tata Steel over the last 10 years and more have been around how we preserve operations at Port Talbot, keep the jobs that are there and keep the blast furnaces operating. Given that that has very much been the tone of the conversation, and here we are, as a Government, giving them £500 million in a deal that does not save blast furnaces, does not preserve current operations at Port Talbot in the same way and does not save a large number of jobs, what is that half a billion pounds buying in this deal?
David T. C. Davies: I think it is grossly unfair of some people to characterise this as, “Look, the UK Government have given them half a billion pounds to throw 3,000 people out of work.” Let’s just be clear about a couple of things as to why that is wrong and, frankly, misleading. First of all, they will not be getting a penny unless that furnace is being built, and there will be key milestones along the way before money starts getting handed over to Tata, so they have not just taken half a billion pounds from the UK taxpayer.
Secondly, the whole purpose of this deal is to save as many jobs as possible. We don’t want to see anyone losing their job. I should perhaps have said at the beginning that I fully understand the fears and concerns that the people working at Port Talbot have. I don’t want to see a single person losing their job; I am deeply saddened by the fact that there will be job losses. I said back in September, when I was being interviewed, that I could not shy away from the 3,000 figure, although legally I obviously could not say anything about it until the consultation had taken place. Nobody wants to see jobs being lost, and it is not the UK Government’s decision to close those blast furnaces; it is Tata’s decision.
To come back to your question, Tata came to the Government and basically said at some time during the last year that a decision had to be made, because they were not prepared to continue taking losses of £1.5 million a day. Let’s be honest: what company would? No company is going to put up with that. Unless a deal was agreed to, there would be a complete closure and Tata would have pulled out of the UK; that would have cost 8,000 jobs. I am sure we all agree that losing 3,000 jobs is bad, but losing 8,000 jobs would have been an even bigger disaster, and with those 8,000 jobs would have gone many thousands more in the supply chain.
The Government are not giving Tata money to throw people out of work; the Government are giving Tata money in instalments as an arc furnace is built to save 5,000 jobs—£500 million to save 5,000 jobs. Of course, in addition to that £500 million, which is absolutely unprecedented, the Government have put together a transition package worth £100 million, consisting of £80 million from the UK Government and £20 million from Tata, to support all those people who face losing their jobs. May I say how deeply I empathise with those people? As chairman of the board, I am dealing with that budget of £100 million. I want to make sure that every single person who faces the loss of their job is given all the help and support that they need to find other work. The UK Government is not going to turn its back on any of those people, but right now we have not had anything towards that from the Welsh Government.
Q106 Mark Tami: Thank you for that. Just to clarify, you said that “they will not be getting a penny” until it is built, and then you started talking about milestones along the way, which implies that there will be staged payments. Which is it?
David T. C. Davies: These are questions that would be better put to DBT, who are over the exact detail of it, but my understanding is that as it is being built, there may be some transitional payments towards it. As of this moment, however, Tata have not had any money and therefore, to characterise this—as some have done—as the UK Government giving £500 million to Tata and that they have thrown people out is incorrect.
Mark Tami: With respect, I didn’t say that.
David T. C. Davies: Well, some people have.
Q107 Mark Tami: I just asked whether it was staged payments or whether, as you said, it is a case of there not being a penny paid until it is built. Those are two very different things.
David T. C. Davies: I think that there will be some staged payments as it is being built. I think I have put that on record in Hansard. The question around the exact details would probably be best put to a DBT Minister. I believe that the details will in any case be finalised after the final investment decision by Tata.
Chair: It is worth putting on record that we invited a Minister from the Department for Business and Trade to be part of this afternoon’s session. We will follow in writing up on some of the specific questions. Thank you for that.
I will move on to Stephen Kinnock, who is guesting on the Select Committee this afternoon along with a number of other Welsh colleagues, and who also sits on your transition board, Secretary of State.
Q108 Stephen Kinnock: Secretary of State, may I say that the men who were down to watch the Opposition day debate very much appreciated the fact that you went out to the Central Lobby to engage and speak with them afterwards. I want to put on record that we appreciated your doing that. I do not know whether you will have a chance to encourage your colleague, the Secretary of State for Business and Trade, to follow suit, but if she were able to perhaps come to Port Talbot to engage with and speak to the men, that would also be hugely appreciated.
I will move on to my question. I would like to drill down a little bit further into what was discussed around the deal for the £500 million. You know that electric arc furnaces absolutely have to be part of the mix in the solution going forward; you and I agree on that point, but you also know that for an electric arc furnace to be able to deliver, in particular the complex high-value-added products that are currently in the portfolio, ore-based metallics are required to sweeten the mix. You cannot make those products with scrap alone, and there is very little market out there in the world to bring in those ore-based metallics in a transportable form—hot briquetted iron.
When it was agreed that £500 million would be given to Tata Steel, what questions did the UK Government ask about the mix that has to go into an electric arc furnace in order to protect and sustain the current product base and embrace the opportunities of the future?
David T. C. Davies: First, Mr Kinnock, may I repeat how very saddening it is that people—mainly your constituents—are facing this situation? As chair of the transition board, I certainly think that I have a duty to meet all those affected by it. I said to the unions last week that I would be more than happy to meet families and workers in Port Talbot on Thursday—tomorrow—when we will be back down there. I do not think that has been arranged yet, but my officials have been in touch with the unions to say that I am available tomorrow. I am still available to come and talk to people tomorrow morning. I understand that it must be difficult and, if it is not possible—the unions have implied that it may not be possible to do it tomorrow—I put on record that I will come back and see them at any time that I can.
Stephen Kinnock: Thank you. That is appreciated.
David T. C. Davies: To get back to your main question on the discussions about the need to import other types of high quality ferrous material to put into the mix, the deal was done between DBT and Tata and I cannot tell you verse by verse what exactly was discussed, but this is my understanding of the situation. We currently have around 11 million tonnes of scrap steel in the UK, of which about 8 million tonnes is exported. The new arc furnace that Tata plans to build would account for around 3 million tonnes of that scrap. It is of course correct that you would have to put in some high-value material to make certain types of steel, but I think that some of that would already be available in the UK.
As part of the preparation for all of this, I talked to Sheffield Forgemasters, who produce some very high-quality steel, which is used in nuclear submarines and other specialist areas. That is all produced using high-quality scrap that is readily available in the UK, and it is produced using an arc furnace. My understanding is that Tata have said they believe that around 90% of the products they currently supply through Port Talbot using steel from a blast furnace could be supplied using steel from an arc furnace.
Q109 Stephen Kinnock: Whatever you make in an arc furnace requires the mix to be sweetened, unless you are making rebar, which can be made purely from scrap. We have to find a way to get the right mix in the arc furnace. It seems somewhat extraordinary that a deal could be done on the basis of £500 million of taxpayers’ money going in without serious questions being asked about whether the electric arc furnace can deliver the product portfolio, particularly if the products that it cannot deliver are where a lot of profit comes from. They are high value-added and highly profitable products.
David T. C. Davies: With respect, Mr Kinnock, you have said, and I think everyone recognises, that electric arc furnaces are the future of steel making. Most of the new steel-producing plants being made across Europe and North America at the moment are electric arc furnaces, so I think there is very little doubt about that. Obviously, there has to be something to, as you say, sweeten the mix a bit. I cannot go into the detail of the logistics supply chain that Tata are looking to set up, but if we accept the reality that an arc furnace is the way forward, surely it is absolutely right that the Government does what it can to support one being built in the UK, on the site of a plant that is currently losing money and that would otherwise see 8,000 people lose their job. I presume that you are not against the arc furnace being built?
Q110 Stephen Kinnock: No, arc furnaces have to be in the mix. My view is that it would be much better to go for a smaller, 1.5 million tonne arc furnace, so that we can keep the blast furnace going in order to have the time to build a direct reduced iron capability. That would give you the mix of electric arc furnace and DRI—which leads me to my next question: why is Tata Steel’s plan for their Netherlands plant based on the mixed model of a DRI smelter and an electric arc furnace together? Their decarbonisation plan is based on the mixed model, whereas here in the UK, they are essentially putting all their eggs in one basket. Why might that be?
David T. C. Davies: I am not a spokesman for Tata, so I cannot tell you exactly why they have taken the investment decisions they have in the Netherlands.
Let us take that suggestion of having one blast furnace going, one perhaps slightly smaller electric arc furnace being built, and one DRI. The first problem or challenge is that the one blast furnace would continue to lose a lot of money. As I think we agree, Tata would have to import the coke and the sintering that would be used in that remaining blast furnace, and would have to spend quite a large amount of money to reline it and keep it going until 2032. Somebody would have to underwrite all of that.
Secondly, there would still be the cost of building the electric arc furnace. Even a smaller one would not necessarily be half the price of a larger one. Thirdly, there would be the capital cost of building a DRI plant, presumably one that would run on natural gas rather than hydrogen because there is no hydrogen available. That DRI plant would somehow have to be built; somebody would be paying for that. Somebody would have to take responsibility for the fluctuating price of natural gas; and there would also be an issue around carbon emissions, because using natural gas rather than hydrogen would have some impact on CO2 emissions.
Once who would pay for all that had been sorted out —I presume you would suggest that the Government put in a lot more than the £500 million that has been offered—the next problem would be how many jobs it would save. The people working on one of the blast furnaces would be out of work—even the combination of one small electric arc furnace and one DRI plant would not necessarily soak up thousands of jobs. We have examples of DRI plants in other parts of the world that do not employ that many people. A DRI plant at Voestalpine employs just 190 people. An electric arc furnace was built somewhere in America—but I will have to look for some details on that. None the less, a couple of hundred people is typical for an electric arc furnace, so you would still have thousands of job losses but much more money being put in.
Q111 Stephen Kinnock: My line of questioning is much more about protecting and sustaining the current product base and portfolio, and having the versatility to be able to embrace the opportunities of the future. It is fine to cut your costs, but, if you lose all of your customers, you can cut your costs all day but you are still going to go to the wall. Running a business is about your revenue as well as your outgoings, and if you end up losing your product portfolio—particularly the high value-added, profitable side of your product portfolio—you are going to be in deep trouble. I know that you are not here to speak for Tata Steel, but the Government do need to address this question around what questions were asked, when £500 million was handed over, about protecting the order book and being ready to embrace the opportunities of the future.
David T. C. Davies: Mr Kinnock, this support package is being characterised as £500 million just handed over so that Tata could throw 3,000 people out of work. Yet, if Tata had done what you are suggesting, which is to build a DRI plant, which would have been highly expensive, to build an electric arc furnace—we already know that that is going to be expensive—and to maintain one of two blast furnaces, despite the fact that the two combined are losing £1.5 million a day, that would be expensive. That would inevitably—
Q112 Stephen Kinnock: The blast furnace gives the electric arc furnace the product it needs.
David T. C. Davies: But what we would then have is a situation where, instead of the Government handing over £500 million and seeing 3,000 people lose their jobs, the Government would probably be handing over at least double that, and still there would be thousands of people losing their jobs. So, I do not understand how it is possible to criticise the Government for putting together a £500 million support package to keep 5,000 people in work, but at the same time to suggest that a lot more money than that could have been spent, even though it would not have actually had that big an impact on the number of jobs being lost.
I understand that you are saying that that would have kept the product base going, but, in terms of that, Tata have been very clear that they intend, while the arc furnace is being built, to import steel from elsewhere to ensure that plants at Llanwern, Trostre and Shotton can continue to function properly and process steel.
Q113 Stephen Kinnock: Just one point of correction: the multi-union plan was clear that there would be a maximum of 300 to 400 roles being suppressed because of the decarbonisation, but that those roles would be churned into new opportunities such as building the electric arc furnace, so it is not correct to say that the multi-union plan would lead to thousands of job losses. It would be in the small hundreds rather than the 3,000 that we have now.
David T. C. Davies: I would just say that Tata also understand that there will be jobs available while an arc furnace is built, and there are many people there who they will want to keep on. They have also indicated that they would like to see some of the people who are currently working for Tata being able to work on building the arc furnace.
Q114 Ben Lake: This morning, we heard from representatives of Tata that they had been able to secure a grid connection in time for the electric arc furnace to come online in 2027. That was quite surprising, because this Committee is very much aware of the logjam and issues with grid connections, and a timescale of some three years is much shorter than usual. Are they right to be confident that they have this almost guaranteed connection by 2027? If so, was that part of the plan and the support that the UK Government were able to offer them?
David T. C. Davies: Well, I know that the conversations have been taking place with National Grid for some time, and I am glad that there is good news and that National Grid have said that they can accommodate the arc furnace—
Q115 Ben Lake: It is Tata that said that. They were very confident and very clear.
David T. C. Davies: From some of the many informal conversations that I have had with many stakeholders in this, I recall that I actually asked National Grid about it. I think that I spoke to National Grid, and I think that they suggested that it would not require a huge reorganisation of the grid to make that connection. So, if I recall correctly, it may not be quite as technically difficult as all of us might justifiably have thought. I do know that the conversations have been going on for some time, because I was told that by Tata. But, of course, I might be about to get some inspiration—in actual fact, I am told that National Grid made the formal offer of grid connection to come online in 2027.
Ben Lake: Right. That is interesting.
Chair: That might be an issue that we will follow up with the National Grid on, because that speed of getting an assurance of a connection is outside of the experience of a lot of companies in Wales looking to get connections, but we will move on.
Q116 Sarah Atherton: Secretary of State, the Welsh Minister spoke about how the Welsh Government will not directly fund the functioning of the transition board, but will complement it with initiatives. Is that the role that you would like the Welsh Government to play, given that the Minister will be sitting on the board that you chair?
David T. C. Davies: I am comfortable for the Welsh Minister to contribute in any way that he wishes to contribute. Obviously, we have put together a package worth £100 million to support the 3,000 or so people—hopefully a bit less than that now—who may well face losing their jobs. If the Welsh Government would like to offer further money on top of that, then of course that would be welcome. But even if they do not, and I do not think they want to offer any money, I would still like to work with the Welsh Government. We think it is important to work in partnership with the Welsh Government and, of course, we have the local authority leader and chief executive sitting there. We have representatives from the three unions observing what is going on, and we have representatives from business and academia, who are also offering a very useful service to the board and its two sub-boards.
Q117 Sarah Atherton: Can I just diverge a bit from the board to a defence perspective? If, for some reason, imports into the UK were hindered, and we could not get additives or BOS steel, we would have to rely on a sovereign virgin steelmaking capability to support the defence sector. That would leave only Scunthorpe available. Have you had any conversations with the MoD generally about British virgin steelmaking capability and the defence sector?
David T. C. Davies: I have had conversations with officials on this very point. The first thing to say is that, as far as I can see, none of the steel being produced at Port Talbot goes directly into the defence industry. Secondly, I have spoken to Sheffield Forgemasters, who do make steel for the defence industry, and they make it using an electric arc furnace with steel that, as far as I am aware, is taken from within the UK. Thirdly, a lot of the steel in the defence industry is very specialist anyway and would have to come in from abroad. Fourthly, all the steel being made in Port Talbot is made using coke—rather, coal that is turned into coke, but coal and iron ore, which are imported from abroad.
With the Port Talbot plan, we are already dependent on other countries. This idea that we have sovereignty is incorrect; we are dependent on other countries for the iron ore and the coal that is being used to create steel in Port Talbot. If we replace that with an electric arc furnace, we will be making use of some of the 8 million tonnes or so of steel that are exported every year. That scrap steel is within the UK at the moment, and that is a sovereign resource that is not currently being used. Actually, we will become less dependent on foreign countries for our steel supplies than we are at the moment. Although, in the case of defence, the steel is usually very specialist and will probably continue to come in, as it is at the moment, from other countries.
Q118 Beth Winter: I have listened carefully to what you have been saying, particularly in response to my colleague Stephen Kinnock. The UK Government have stepped up £500 million for Tata. What consideration have you given to the comprehensive proposals put on the table by three trade unions on behalf of the workforce, who are experts? From the sessions we had this morning, they are the only viable options on the table to secure a sustainable, green future for the steel industry in the UK.
David T. C. Davies: Obviously, Ms Winter, it is for the unions to persuade Tata of the case they are making, because Tata are the ones losing money here—losing £1.5 million a day. Tata’s initial view was that they wanted to pull out of steelmaking in the United Kingdom. Our view as a Government is that we want to save as many jobs as we possibly can, and we want to see steelmaking continue. But Tata are not convinced by the plans the unions have put forward.
Q119 Beth Winter: We discussed with them this morning the £1-million-a-day figure that has been bandied around. Obviously, they are a global company and, as a global company, they are making billions of pounds of profit globally. They are actually investing 60% less in UK steel than they are to our European counterparts, so I would question the figures bandied about when you look at the global turnover of the company.
This morning, Tata indicated that if more investment was provided, they are open to consideration of alternatives, such as those that Stephen has outlined and what the unions outlined. Tata didn’t say that the door was completely shut. Was that part of your conversations with Tata Steel, because if we are going to give £500 million of taxpayers’ money and another £500 million to £800 million would cover the cost of the Syndex deal, was that considered? I ask because this is our money—this is our taxpayers’ money—that is going into this.
David T. C. Davies: Did you say an extra £500 million to £800 million would cover the Syndex deal?
Q120 Beth Winter: That was something that was mentioned this morning, around—
David T. C. Davies: May I ask who mentioned that? Did Tata mention that?
Q121 Beth Winter: It was the trade unions.
David T. C. Davies: Because my understanding is that Tata have said that they would continue to—well, first things first. Tata Steel UK is a separate company in law to Tata globally. I mean, Tata have got lots of companies and they do a lot of different things, as we know, and many of the things that they do are very profitable, but Tata Steel UK own Port Talbot and Port Talbot is losing money. That is generally accepted. I mean, if it was making a profit, they would not have been looking to sell it in 2016 and to pull out of the UK. That is the first thing.
The second thing I discussed earlier with Mr Kinnock. It is that the Syndex deal would be to keep one blast furnace operating until 2032. In order to do that, significant capital expenditure would have to be carried out to blast furnace 4 to keep it going. So, the first question would be: who is going to pay for that? Presumably, if the taxpayer is paying for that, Tata might well be interested.
Additionally, coke and sinter would have to be—
Q122 Beth Winter: Is that something you considered?
David T. C. Davies: May I just say something? You have been quite critical of the fact that the UK Government have spent £500 million in supporting 5,000 jobs, but if we went ahead and did what you are suggesting, we would be spending a lot more money and still seeing thousands of people thrown out of work.
Q123 Beth Winter: Not according to the plans presented by the unions, which would result in no jobs being lost, based on —
David T. C. Davies: Tata just do not accept that. I have discussed it with them and they say, “Absolutely not.” They say, first, that it would be very difficult from an engineering point of view to build an electric arc furnace right next door to a basic oxygen steelmaking plant. You can see on the map; the arc furnace site is next to the BOS plant. That is the first problem.
Secondly, somebody will have to pay for the fact that the coke and sinter would have to be imported from somewhere else, and I understand that there aren’t that many suppliers who would do it. Mr Kinnock probably knows more than I do about this, but all coke and all sinter are not the same and there are certain specific types that have to come in. And even the different blast furnaces—4 and 5—are using slightly different variants of coke and sinter.
However, the main problem will be building an electric arc furnace right next door to a BOS plant. Tata think that would be very, very difficult to do from an engineering point of view, and very expensive. Additionally, that one blast furnace, if it were operating, would still continue to make losses and somebody would have to pay for those losses. I don’t think Tata are willing to do it.
Q124 Beth Winter: That has not been reflected in some of the comments that we had this morning. You may not have had— [Interruption.] If we are investing in industry, in terms of investing for the future, I am not saying that is a bad thing, but are you going to seek a level of part-ownership for the £500 million that you are investing? Have you done that?
David T. C. Davies: I think you would have to put the exact details to a Minister from DBT. To be honest with you, my main concern is the 3,000 workers and the way in which we operate the support fund—the transition fund—to support them. Frankly, I don’t know whether or not we are taking equity, or—
Q125 Beth Winter: Because that is an option, isn’t it? If we increase the amount of investment to the £1 billion or the £3 billion that Unite has proposed and we had a part-ownership stake in it, that would benefit our economy across the United Kingdom as well, and it would ensure the sustainability of the workforce and the steel industry in the UK—
David T. C. Davies: It wouldn’t necessarily, would it? It would only benefit our economy if it was making a profit.
Q126 Beth Winter: It would if you look at the proposals made by the trade unions this morning—
David T. C. Davies: So the trade unions say that relining a blast furnace and operating it until 2032, importing coke and sinter, and then building an electric arc furnace next to a basic oxygen steel plant is still going to be cheap enough to allow a profit to be made in a plant that is currently losing £1.5 million a day? I mean, I can’t say they’re wrong. But if I were an investor, I would be looking very carefully at that—
Q127 Beth Winter: I encourage you to speak to the unions and sit down with them, as you will be doing. Excellent.
David T. C. Davies: I have sat down with them and have spoken to the unions. I am always happy. The unions, I have found, have been very constructive. I applaud them for doing everything they can to try and save jobs, but the problem here is that Tata is losing £1.5 million a day and we, the UK Government, cannot force Tata to stay open if it does not want to. One of the things that has frustrated me has been the suggestion that this is a UK Government decision. The UK Government have not decided to shut those blast furnaces down. It is not our decision at all; it is Tata’s decision.
All we can do as the UK Government, first, is figure out how we can save as many jobs as possible. That is what we have done. Secondly, what can we do to support people facing the loss of their jobs? We are putting together £100 million and ensure that any of those people can have access to all the training they need. We will talk to businesses in the commutable area to find out what sort of needs they might have for welders or cyber security people or whatever, to ensure those people can get jobs. That is what we are doing as a Government. We did not want to see those blast furnaces close. That was a decision for Tata.
Chair: Let us move the discussion on. I will bring in Virginia Crosbie.
Q128 Virginia Crosbie: I asked the unions this morning what more could the UK Government do to make the steel sector more competitive, attractive and viable. Some of the things they talked about in their answers were procurement rules and legislation, they talked about UK Government taking a stake, but the most significant was support for energy costs in the heavy energy-use sector. What is your answer to that question?
David T. C. Davies: It sounds like they were making some very good points there. The UK Government recognise that energy costs have been a significant problem for certain kinds of industry, including the steel industry. That is why we brought in the supercharger scheme, which will kick in in 2025, and try to ensure that people are paying similar prices for electricity to other heavy industries in Europe.
The other point you made was around procurement rules. I think those have already been changed as well and I believe there has already been an increase in public sector procurement of around £97 million, but I am going to caveat that figure because I do not have it in front of me. However, I recognise the general point that they made. Yes, it is £97 million, so yes, there has been an increase in steel that has been purchased within the UK.
Q129 Virginia Crosbie: My second question is on skills and UK Government support for the skills needed for both the new construction of the arc furnace and the decommissioning.
David T. C. Davies: I have had several roundtables, most recently at Aston Martin a few weeks ago, where I talked to a range of people in key businesses across south Wales. What they told me, in and around that table, where there were probably only eight or nine people, among those represented there were thousands of jobs and they were looking for thousands of people with certain skills. Of course, within Tata itself and around the site, there will be a requirement for skilled people to carry out this very technical engineering project. One of the roles of the transition board is to go out, not just into Port Talbot but in the wider commutable area, and talk more to those companies, find out exactly how many people they may need over the coming couple of years and what sort of skills they are looking for. Then, it needs to be made absolutely certain that anyone facing the loss of their jobs, who works for Tata at the moment, is able to access the training they need at no cost, because that is what that £100 million is for.
I want to promise those workers: I really understand how difficult this is. We did not want to see this happen; it is not a Government decision. However, I am proud that the Government have decided to put that package in place and it will be there for those workers. That is why I hope the unions will facilitate a meeting between myself and some of the people facing job losses soon, so I can at least reassure them that there will be help and support available for them, and rightly so.
Q130 Stephen Kinnock: Just to be clear, Secretary of State, I do not think anyone is saying that the Government were responsible for Tata’s decisions. Tata is the owner of this business. What we are trying to drill down into is what strings were attached to the £500 million of taxpayers’ money, which clearly is a Government responsibility, and we are just trying to hold the Government to account for what it has given or committed to giving to Tata Steel.
I want to ask about one other aspect of this. When the Government looked at the plan and saw that a fundamental aspect of it is that they are going to be importing about 3 million tonnes a year of semi-finished products, mainly from India but a bit from the Netherlands, did they not think, “What we are effectively doing there is exporting jobs from Wales to India and importing carbon from India to Wales”?
David T. C. Davies: I think what the Government would have thought was that they needed certainty that this was a serious proposal by Tata, and that the other sites that are being supplied with steel that is currently produced in Port Talbot will continue to be supplied. It is important that they make plans to bring that steel in on a temporary basis. This is a key point: it is going to be temporary, because once the arc furnace is up and running, it should be able to supply 90% of the product that is currently supplied by the blast furnace. That is the figure to remember—90%. Obviously, between the two blast furnaces closing and the arc furnace opening and operating, we either see other plants that are currently fed by Port Talbot shut down, which we do not want to see happen, or the steel has to come in from somewhere else.
Q131 Mark Tami: But 2027 is a very tight timescale, isn’t it? The fear is that that transition period—whatever you want to call it—expands because of whatever issues arise. The longer that period, the more doubt creeps into whether it will be a longer-term position.
David T. C. Davies: I would not like to sit here in front of the Committee guaranteeing that a major engineering project will start and finish on time. I can only assure you that the Government want that to happen and want it completed. The fact that conversations have gone on with National Grid and with transport people about bringing that steel in—I know that for a fact—suggests that this is 100% serious and that Tata are completely committed to it.
Q132 Mark Tami: But in terms of DRI, it still seems very vague.
David T. C. Davies: DRI is a longer-term proposal. That is something that Tata may or may not look at in the long term.
Q133 Mark Tami: But the point I am making is that there seems to be this misconception that you get scrap iron and melt it, and that you just keep doing that. Obviously, to produce quality, you need to put other materials in. You have to get those, and importing them is not straightforward.
David T. C. Davies: I do not think we are necessarily saying that DRI has to be imported for the electric arc furnace for all kinds of steel. I am willing to bow to Mr Kinnock’s knowledge on this. The steel that is produced by Sheffield Forgemasters is of a very high quality, and that is produced using offcuts from the automotive industry. In the longer term, there may well be a good economic argument for a DRI plant, possibly using hydrogen in the very long term, but that is surely something that Tata will have to work out for themselves. The Government have not been asked to put financial support into it and do not intend to do so.
Q134 Mark Tami: It just looks or sounds like you are giving £500 million without explaining exactly how you are going to produce quality steel. I am talking not about rebar, but about higher-end steel.
David T. C. Davies: It is not just an arc furnace, is it? There are two ladle furnaces as part of the package, and they will be used to produce different qualities of steel.
Q135 Mark Tami: But the point I am making is that it is not straightforward. There are all these complications.
David T. C. Davies: No, it is not straightforward, and DRI might well be part of the mix, but I don’t know what percentage of the steel being manufactured would be DRI. I wouldn’t imagine that it would be a large percent, but it depends on the quality of the steel going in. I am not aware that DRI would constitute a large percentage of the amount of steel going into the arc furnace. The whole point is that we have 8 million tonnes of scrap steel being exported at the moment, so the plan is to make the best possible use of that.
Q136 Stephen Kinnock: To clarify, an EAF requires the input of direct reduced-grade pellets, which are produced with high ferrous content iron ore. Only 3% of the global reserves of iron ore are suitable for DR pellet, so in essence there is no global market for DR pellets. The DRI capability is that you can produce your pellets right there on the site. The other way of giving you what you need to sweeten the mix is with a blast furnace, because the blast furnace produces pig iron right there on site, and you put it into the EAF. The idea would be to have a seamless transition from a blast furnace to DR capability. It rings alarm bells with me that only 3% of the global reserves of iron ore are suitable for DR pellet. That is the kind of question that the UK Government needed to be asking before they made this deal.
David T. C. Davies: That is, of course, a good question, but my understanding is that the experimental DRI plant in Sweden at Luleå, which is using hydrogen instead of natural gas, has to use very high-quality iron ore in order to produce the DRI. I am absolutely willing to be corrected here, but my understanding is that DRI using natural gas rather than hydrogen does not require quite the same quality of iron ore.
Q137 Stephen Kinnock: Well, the feedstock for DRI can be natural gas and that can be a bridging fuel to hydrogen. I am not aware that the feedstock for DRI affects the type of iron ore. I do not know; that is beyond my capabilities.
David T. C. Davies: We can both go and check this out, but I have asked those questions and my understanding is, and I hope I understood it correctly, that DRI using natural gas is a relatively tried and tested concept.
Stephen Kinnock: Yes—all over the world.
David T. C. Davies: And it does not require that high-quality iron ore that you referred to. DRI using hydrogen is very experimental. It is not yet commercially available and it does require the comparatively rare iron ore that you referred to. Much of it is available in Sweden, which is why Luleå has a competitive advantage in building that site at Luleå. I am willing to stand corrected on that.
Q138 Stephen Kinnock: I have one question on the sourcing from India. I wondered whether you are aware of the fact that the model of this—closing down both blast furnaces and importing steel from India—will enable Tata Steel to bank £177 million in carbon credits while importing 3 million tonnes of dirty steel from India. In addition to the £500 million that the Government have given, Tata Steel will get £177 million in carbon credits, which seems to be a big motivating factor for it in this whole deal.
David T. C. Davies: I am not aware of that but, if the hon. Gentleman says it is so, I am sure it is. I do not know whether that is correct or not, but I do know that Tata are clear that they are losing £1.5 million a day at the moment and the accounts for Tata Steel UK will demonstrate that. Therefore, it really comes back to where I started. The Government were faced with a simple choice: either see Tata leave, 8,000 jobs go and the supply chain, which could, I am told, be around 12,500 jobs; or we persuade Tata to stay in the UK, invest with them in an arc furnace, all agree that arc furnaces are the future, and save 3,000 jobs. We are spending £500 million to save 5,000 jobs and the supply chain. That was the choice we took. It does not make it any better for those losing their jobs but, for them, we have a £100 million package to help support them into other work. This is not a day of celebration, but the UK Government have not turned their back on the community of Port Talbot or the people who work there.
Q139 Chair: We are drawing to the end of this session. The way you present it, Secretary of State, it sounds almost as though Tata came to the Government with a gun to their head saying, “It is this deal or no deal.” But when you look at what it is proposing for the IJmuiden plant in the Netherlands, it is not the same as what it is saying for Port Talbot. Mr Narendran did say this morning that discussions are still ongoing there and there could be difficult decisions coming down the track but, from what I have read, Tata is looking at some of the other options that have so far been ruled out for the Port Talbot site.
Perhaps we could encourage you, Secretary of State, in discussion with other Cabinet members, to ask Tata about what it is doing in the Netherlands and whether it is treating Port Talbot fairly and with parity in terms of how it is going about decarbonisation.
David T. C. Davies: I will be meeting with Tata again tomorrow and in a couple of weeks in India. Obviously, I want to see the best possible deal for Port Talbot and for those who work there.
Q140 Chair: I hear exactly what you are saying, and of course you are right that nobody wanted to see this happen. It was certainly not the Government’s intention to see the blast furnaces closed and all those jobs lost. Looking at it another way and through a different lens, the Welsh Government have declared a climate emergency and want to see big cuts in CO2 emissions. The UK Government have their own set of UK targets and legislation around cutting CO2 emissions, which we voted for and Opposition parties told us we should be going even harder on. Isn’t the blunt truth, which no one really wants to talk about, that you cannot significantly cut CO2 any further in the UK and still have blast furnaces?
David T. C. Davies: It is correct that the site at Port Talbot is apparently responsible for around 1.5% of the UK’s CO2 emissions and is therefore the largest emitter of CO2 in the UK. That said, I understand that, when it comes down to it, many people would rather ignore that and save jobs.
I find it rather inconsistent that some people who are saying, “Let’s keep it, not worry about the enormous amount of CO2 and save jobs”—that might be my instinct, to be frank with you, if it were possible—are also quite happy to see jobs lost in the oil and gas industry, which they want to shut down immediately, even though Port Talbot is losing £1.5 million a day and the oil and gas industry is pouring billions of pounds into UK Government coffers that are then being spent on public services. That is an inconsistency that others will have to explain.
I am quite clear that this was not about the Government shutting down Port Talbot because of net zero concerns. Tata has said that it will shut down the blast furnaces because it is losing money, and the Government went to Tata with a proposal that will save 5,000 jobs and, as it happens, drastically reduce CO2 emissions.
Chair: Thank you very much. Do colleagues have any final comments or questions?
Q141 Beth Winter: In terms of a suggestion for something you may want to read, environmentalists such as Friends of the Earth and Greenpeace are supportive of the trade union proposals in order to secure a green future for the steel industry. They have written about this, and I would encourage you to look at that. It is not an either/or: we can secure a future for the steel industry and we can meet our climate targets.
David T. C. Davies: If Greenpeace and Friends of the Earth are supportive of keeping a blast furnace open that is emitting vast amounts of CO2 and of building a DRI plant using natural gas, which will emit large amounts of CO2—it is probably not going to work for financial reasons, because they are talking to the wrong people—I am pleased that environmental groups recognise that sometimes you cannot avoid emitting CO2. I welcome the fact that they seem to acknowledge that in this instance.
Chair: Thank you very much. I am sure that we will continue the discussion with you on future occasions, Secretary of State. Thank you, again, for giving up your time and for the work you are doing with the transition board. We wish you every success with the aims of what you are trying to do, to ease the transition for the community of Port Talbot and the difficult process for many families who will be coming to terms with job losses. Thank you to my colleagues, and particularly to colleagues from outside of the Select Committee who have been guesting in our sessions today. We are grateful for your input.