Tata Steel UK has reached an agreement with trade unions on a number of proposals that would structurally reduce risks and help secure a more sustainable future for its UK business. The deal, which still needs to be approved by employees, would keep the giant steel plant at Port Talbot in South Wales and other parts of its steel business going in Britain until 2021, preserving as many as 11,000 jobs.
The deal, which is departure from the Tata Group's earlier stance of trying to extricate itself from making steel in Britain, comes as a relief for Prime Minister Theresa May of Britain at a time when Britain is extricating itself from the European Union.
Tata Steel had been trying unsuccessfully to exit its steel business in the UK, troubled by high costs and cheaper imports that put thousands of jobs at risk and made its $12.2 billion (6.2 billion pound) acquisition of the European operations of Cores Steel in 2007 look a big folly.
It has pinned its hopes of revival on the proposed new pension scheme that would require employees to pay more for their future retirement. Its generous pension scheme at present that requires the company to contribute in full for employee pension and healthcare will now be replaced by a contributory pension scheme.
Tata Steel is reported to have made a commitment to invest £1billion over 10 years, saving thousands of jobs in the UK.
The Indian steel giant has reportedly offered a number of guarantees to its staff at Port Talbot steelworks in South Wales, the UK's largest steel plant, including a minimum five-year guarantee to keep both furnaces operational at the site.
The deal includes a guaranteed, minimum five-year commitment to two blast furnaces, a 10-year £1-billion investment plan to support steel making at Port Talbot, and a consultation on replacing the current British Steel Pension Scheme with a ''defined contribution scheme'' with maximum contributions of 10-per cent from the company and six per cent from employees.
Speaking after meeting with union representatives, Roy Rickhuss of Community Union said, ''Reaching this stage of the process is a credit to the hard work of our members who never gave up the fight to 'Save Our Steel'.''
The company will next week start consultation with its employees on a proposal to close the British Steel Pension Scheme to future accrual. Employees would be offered a competitive defined contribution scheme, Tata Steel stated in a release.
''The proposal on pensions and other changes in the employment terms are part of the ongoing transformation plan that the business is undertaking. As part of Wednesday's agreement all parties will work towards making Tata Steel UK a sustainable business,'' the release said.
As part of the structural derisking, the company and trade unions have also agreed on the principle to the de-linking of the British Steel Pension Scheme fund from the business.
Tata Steel UK will continue the existing blast furnace configuration in Port Talbot until 2021. Further, based on achieving the necessary financial performance and cash flows as per the transformation plan of the UK business, the company will continue to invest across the UK sites to enhance the competitive position of Tata Steel UK in the European steel industry.
The company has also offered an employment pact until 2021, which supports employees through future changes by investing in their skills to support further plant upgrades, automation and other digital initiatives.
''The agreement between Tata Steel UK and the unions today marks an important step forward in the journey to develop a sustainable future for our UK steel business. These are unprecedented times for the steel industry globally with multiple risks, including global economic uncertainty, slow manufacturing growth and currency volatility which continues to present significant challenges to the business,'' Koushik Chatterjee, group executive director of Tata Steel and executive director for its European business, said.
Chatterjee thanked the trade unions for their efforts and sought their continued support in the future. ''We look to other stakeholders such as the UK government to play their part in addressing the UK's manufacturing competitiveness position especially with relation to energy prices,'' he added
He said the delivery of Tata Steel UK's transformation plan and generation of free cash flows will be the key enablers for the future sustainability of the business.
He said the proposed changes to future pension provision and other employment terms were necessary to de-risk the company and help achieve long-term sustainability and that the company is working on a necessary structural solution for the British Steel Pension Scheme fund.
''Tata Steel UK has developed a long-term investment plan to make the business more competitive in the future. The delivery of the transformation plan in the next couple of years, combined with a structural solution for the British Steel Pension Scheme fund, is essential to provide the affordability and financial self-sufficiency for future investments and also service its financial obligation to its stakeholders.''
Tata Steel is the UK's largest steel manufacturer. It supplies almost 50 per cent of UK carmakers' steel requirements, including body panels and chassis, and a range of advanced steels for the UK construction industry which help to reduce buildings' energy use.