Welsh Affairs CommitteeWritten evidence submitted by Tata Steel Europe

1. Introduction

1.1 This document represents written evidence submitted by Tata Steel to the House of Commons Welsh Affairs Select Committee’s Inquiry into Inward Investment in Wales.

1.2 It follows an introductory information-gathering event at Port Talbot steelworks for Members of the Committee on 5 April 2011. At this event Committee Members met the Wales-based Chief Technical Officer, Uday Chaturvedi and other principals of Tata Steel Europe. Following an introductory briefing about the organisation, the Committee saw presentations on the subjects of potential investment in enhancing the supply of vital raw materials (the Margam Coal Project), and also downstream innovation in the Sustainable Buildings Envelope Centre, (SBEC), photovoltaic coatings, (PV) and also research and development into other functional coatings. This is a project known as SPECIFIC, (Specialised Product Engineering Centre in Functional Industrial Coatings).

It is envisaged that the 5 April event will be followed by a similar information-gathering event at Tata Colors’ plant in Shotton sometime in the autumn of 2011.

1.3 The evidence in this submission has been focused on the activities of the Wales-based Tata Steel Strip Products UK and the Tata Colors operating hubs. Further evidence may be explored from other Wales-based Tata businesses which are not to be excluded from the attention of the Inquiry and which may be presented as additional information on request.

2. General Principles

2.1 Tata is demonstrating its commitment to investment in Wales. The £7.4 billion acquisition of Corus was followed by further support in the time of the 2008–09 economic crisis. Tata maintained the £60 million BOS Energy Recovery project at Port Talbot in the eye of the economic storm. Since the acquisition Tata has announced capital investments approaching £250 million in Wales.

2.2 The majority of the Wales based Tata sites derive their substrate from the Strip Products operating hub, serving markets which have shown the greatest propensity for recovery since the economic crisis. This has made Wales a focus for positive development. Other operations, such as Cogent, based at Orb, Newport, are focused on specialised markets.

2.3 A positive factor in the principle Wales-based sites has been the improvements in performance achieved by the Strip Products businesses since 2005. This has been through a continuous improvement process known as “The Journey” which has directly involved employees at all levels in an ongoing process of cultural change.

2.4 The steel industry is well established in Wales and Tata credits the capability and commitment of the workforce and also supporting organisations in this country. The Welsh Government now credits the industry with the label “Anchor Company” for the economy. Devolution in Wales clearly presents the Welsh administration with opportunities to focus on the needs of the economy’s key components. Tata is pleased to have close, positive working relationships with government; the company believes that the steel industry can play a vital role in the Welsh Government’s definition of a “sustainable” (ie: prosperous, environmentally—and community—conscious) society.

2.5 It is important to recognise that Tata Steel is an international enterprise. While the company may benefit from its close relationship with the devolved government, both government and company need to be wary that political and regulatory inconsistencies can be costly and frustrate further development.

2.6 Political constraints at all levels of government exempt the steel industry from capital intervention. However, the political environment can make Wales a “perfect habitat” for industrial growth, perhaps a vivarium for steelmaking.

2.7 Vital opportunities exist for significant investment in energy, further reduction of carbon dioxide emissions, by-product optimisation, new product development, training and skills development and research.

2.8 Visitors to Port Talbot are greeted with the words: “The Pride and Passion of Welsh Steelmaking” in 2 metre-high letters and also the sight of the 5 metre-tall steel Welsh dragon. Investment into the steel industry in Wales is readily made in the context of the strong cultural, community link between Wales and the industry.

3. The Tata Vision

3.1 Tata Steel expresses a vision to be the global steel industry benchmark for value creation and corporate citizenship. The organisation prides itself in a distinct philosophy, which derives from the founder, Jamshetji Tata in the mid-Nineteenth Century. He wrote on one occasion:

“The community is not just another stakeholder in the business, but is, in fact the very purpose of its existence”

The company expresses it’s determination to act at all times to:

1.Ensure the safety and well-being of all employees.

2.Respect and safeguard the environment.

3.Provide customers with the best possible products and services.

4.Contribute to our local communities and to society in general.

5.Generate a good return on investment to our shareholders.

6.Maintain the highest ethical standards with our suppliers and contractors and in all business dealings.

To realise these aspirations, the company is aware that continuously it must improve.

3.2 Arguably, such values and beliefs were common to the pre-acquisition operations in Europe. However it is important to stress a genuine difference in culture, perspective and outlook in Tata steel today: a more intense focus on values and community engagement, on the business’ role in a global (not UK-or EU) economy and, above all a vision which extends to long-term planning (for following generations)—and direct involvement both up-and down-stream (backward integration and downstream diversification).

The past two years have seen an unprecedented economic downturn and other UK-based Tata Steel enterprises have been worse affected by the crisis. These events did force Tata to defer some of its investment plans and even close some facilities—causing job-losses. These measures were painful but essential to ensure the long-term viability of the European business.

4. About Tata Steel

4.1 Tata is the largest manufacturing company in the UK. Associated with the former Corus, but marques such as Jaguar Land Rover and Tetley, the company has arguably been a leading investor in the UK manufacturing economy since the economic crisis in 2008–09.

4.2 The company does not exist as a single entity in Wales, although the dominant physical significance of the integrated steel works at Port Talbot makes it something of a headquarters in Wales. The location of some of Tata Steel’s key Corporate functions at this site makes it one of the largest Corporate management locations outside TSE’s formal headquarters in Millbank, Westminster.

4.3 The Tata Group

Tata Steel forms part of the Indian international Tata Group. One of the world’s fastest growing corporations, the Group’s activities span seven major industry sectors:

Information technology and communications.

Engineering products and services.

Materials.

Services.

Energy.

Consumer Products.

Chemicals.

The group is India’s largest private sector employer—the company now employs over 350,000 people in 80 countries, worldwide. The Group’s 2008–09 revenue was $71 billion. Some two-thirds of this revenue is derived from international markets.

Founded by Jamshetji Tata in the 1860s, the company retains his strong commitment to enhancing the community through a strong commitment to high standards of values and beliefs. A core Tata principle is that the relationship between company and community is inextricable. Investment into the organisation also represents investment into the community.

4.4 Tata Steel

Often described as the “flagship” Tata Steel is one of the world’s top ten steel producers. With manufacturing operations in 26 countries. The combined group has an aggregate crude steel capacity of more than 28 million tonnes and approximately 80,000 employees across four continents. Turnover from the steelmaking business in 2009–10 was $22.8 billion.

An important feature of Tata’s steel business is its depth and scope. The organisation is backwardly integrated into self-sourcing vital raw materials—such as iron ore and coking coal—and the organisation has downstream capability in the automotive industry (Tata Motors and Jaguar Land Rover) too. This enhances the benefit of investment at any part of the chain – by creating far-reaching waves of benefit into the wider community. This feature does contrast with the UK steel industry of the recent past.

4.5 Tata Steel Europe (TSE)

The UK-based Tata businesses form a key part of TSE, a single legal entity within the Tata Steel Group. The second largest steel producer in Europe, TSE has an annual crude steel capacity of 18 million tonnes. The organisation has major manufacturing sites in the UK (notably for this Inquiry, in both North and South Wales), the Netherlands, Germany, France and Belgium. The company has sales offices and service centres in over 40 countries.

The European operations of Tata Steel were acquired by Tata as the Anglo-Dutch company, Corus in 2007, although the formal rebranding of these business units formally was commenced later in September 2010 as “Weathering the Storm” of the 2008-10 economic crisis was the overarching priority.

Europe’s second largest steel producer, TSE’s main steelmaking operations are located in the UK and the Netherlands. The company supplies steel to many of the most demanding markets: construction (structural steels and also steel for components and the buildings envelope), the automotive industry, (in the UK alone, the company lists Jaguar Land Rover, BMW Mini, Nissan and Honda among its customers), mechanical engineering, packaging and many others.

Tata Steel’s UK operations directly employ 20,000 people and indirectly support more than 100,000 jobs nationally. In many cases it is the largest local private sector employer and the development of its activities have been, and continue to be, integral to surrounding local communities.

4.6 Tata in Wales

Port Talbot integrated steelworks and its essential sibling plant at Llanwern form the Strip Products UK operating hub. The packaging steels business (a key manufacturing site of which, is based at Trostre, Llanelli). The Colors business which manufactures coated steels for the construction and also electrical appliance industries, is based at Shotton and Tafarnaubach. Speciality businesses, exist in the form of the smaller Wales-based Catnik and Colorsteels businesses. Finally the Distribution and Buildings Systems Division also includes Wales based sites. A summary is detailed below.

4.7 Overview of Tata Businesses and Sites in Wales

Business

Locations

Nature of Business

Approx Direct Employees

Tata Steel Strip Products UK

Port TalbotLlanwern

Production of Hot Rolled Coil used in the construction, automotive, electrical/household appliances packaging and other industries

5,500

Tata Steel Colors

ShottonTafarnaubach

Production of coated & organic coated products for the construction, electrical appliance and other industries. NB: Shotton hosts the Sustainable Buildings Envelope Centre (SBEC) and the Photovoltaic (PV) research project

650

Tata Steel Packaging

Trostre, Llanelli

Steel for packaging applications – cans, boxes, trays, etc. Some other specialised markets

850

Cogent – shortly Tata Steel Electrical Steels

Orb, Newport, South Wales

Specialised grain-orientated steel for electrical applications including wind turbines

450

Colorsteels

Cross Keys

Coated strip steels for heavy applications

120

Tata Steel Building Systems (Catnic)

Caerphilly

Steel lintels for building construction

100

Tata Steel Building Systems

Shotton

Profiled steel composite panels for walls and floors for commercial construction

100

Tata Steel Living Solutions

Shotton

Modular steel units for construction – currently not operating

100

*SPECIFIC

Baglan Innovation Centre

R&D into functional coatings for steel. A partnership project under the legal aegis of Swansea University

(50)

~8,000

* Sustainable Product Engineering Centre for Innovation in Functional Industrial Coatings

4.8 Tata does not publish formal business results for its Welsh operations. However, regularly dubbed “Wales’ No 1 Company” in the Western Mail “Wales Top 300,” the company is loosely estimated to make a contribution to the Welsh economy of some £2.5 billion.

4.9 Tata in Wales employs some 8,000 men and women. The economy here has the benefit of a relatively high degree of interdependency of the Tata business units here, forming something of a product chain in Wales. This enables Tata—and the government too—to view the steel industry here with an end-to-end approach. This means developing holistic policies and strategies, which take the complete view of the industry and its contribution to the community in Wales. This matters in developing policies concerning the industry’s impacts—air quality, carbon dioxide emissions and by-product management—as well as strategies to encourage further growth.

4.10 In Wales, Tata is:

The largest manufacturing company.

The largest private energy user—but also the largest private generator of energy.

The leading commissioner of freight haulage by rail and road.

A major supporter of university research and development.

The largest recruiter of apprentices in a three-year scheme. Some 300 people (not all of them are “young”) are engaged in the scheme at any one time.

A major recruiter of functional trainees and graduates.

A major recruiter of people via agency/contract sources.

A major contributor to regeneration, through the Wales-based UK Steel Enterprise organisation.

4.11 In addition to the above, Tata Steel in Wales is a major investor into community activity in the communities adjacent to the company’s main sites. Activities supported by the company include:

Public and community events—such as local eisteddfod, charity activities etc.

Sponsorships for local groups and individuals.

Environmental projects—rural and urban.

Learning and educational projects—including curriculum-related activity within schools.

Community awards and donations.

4.12 Tata Steel is currently liaising with Cardiff University to conduct a formal study, which rationalises the real impact of the company on the community in Wales. In the past, academic observers have commented that for every wage paid by the company in (its past forms)—as many as twenty roles depend upon it in the community. This assessment may be somewhat generous. However, the vital input of local partners and service providers in the two large engineering projects at Port Talbot, the £185 million Blast Furnace No 4 rebuild and the £53 million BOS Off Gas project—will generate considerable indirect employment—permanent or temporary.

4.13 Downstream developments in the industry may positively affect general employment levels too. The technology demonstrated in the Sustainable Buildings Envelope Centre (SBEC) and the coatings technologies (including PV) have been estimated to contribute to the protection or creation of some 10,000 jobs in the UK.

5. The Significance of the Tata Acquisition to the Steel Industry in Wales

5.1 The Acquisition was a massive investment and vote of confidence for the industry. Tata invested some £7.4 billion into the acquisition of Corus in early 2007. This represented the climax of a strategy pursued by the former Corus Board to secure a sympathetic international partner to secure a long-term future for Corus in Europe. It was a take-over, but the new owner immediately following the acquisition could forgive many to perceive it as a partnership—perhaps owing to the light touch on the tiller.

The significance of the investment as protection for the steel industry in the UK was revealed when the economic crisis occurred in 2008. Tata halved its manufacturing capacity; in Wales this meant the idling of Blast Furnace No 4 at Port Talbot and also mothballing of the Hot Rolling Mill at Llanwern. The downtime was optimised by an investment of some £5 million into BF4 to prolong its campaign life until 2012. Equally the HRM at Llanwern was developed to create a flexible working facility. The company worked together with the (then) Welsh Assembly Government to minimise reductions in manpower and further upskill the workforce through a (maximum available within legal constraints) £1.6 million training and development programme through ProAct.

5.2 Tata’s Support for European Operations During the Economic Crisis

In the teeth of the economic downturn Tata provided further support in additional capital and cash-injection at levels of about £1 billion. We can only speculate how Corus may have fared in the absence of Tata’s continuing support throughout the crisis.

The resumption of operations of both facilities in the autumn of 2009 sent a message to the community that the industry was not only Weathering the Storm, but is Fit for the Future.

6. A Summary of Major Tata Investment* in Wales since 2007

* The table illustrates key investments only, for illustrative purposes only. Excluding additional resourcing to “Weather the Storm” and investment in training and personnel development

Date announced

Value£m

Site/Project

Benefit

2006

60

Port Talbot Basic Oxygen Steelmaking Energy Recovery Project

Recovery of hydrocarbon gas for recycling within works. Energy efficiency. Substantial reduction in carbon dioxide and PM** emissions

2007

10

Port Talbot Steelworks Coke Ovens Quench Tower

Process and capacity improvement, improvement in air quality

2008

1.2

R&D Centre of Excellence in Energy Optimisation and By-Product recovery, Cardiff University School of Engineering

Process development in both areas leading to improvement in energy & wastes management

2008

11

Photovoltaic coatings accelerator project, Shotton

Developing energy-generating steel for the construction industry

2008

7

Cogent, Orb. Site developments and new state-of-art office facilities

Reduction in site footprint and new facilities

2008

5.7

Cogent, Orb. Value Added product focus

Improvement in product quality into value added domain

2008–10

10

Tata Colors: Technology to improve coatings adherence for construction applications

Product improvement and new product development

2009

7

Technical Improvements into Blast Furnace No.4

Extend BF campaign life for further 2 years

2010

1.2

Tata Packaging, Trostre

Improvements to the Batch Annealing Process

2010

Approx 7

Margam Coal Project

Feasibility study into technical viability of a mine for coking coal from Port Talbot steelworks

2010

185

Rebuild of Port Talbot Blast Furnace No.4 to take place in 2012

Increased/improved productivity in core operational plant

2010

6.5

Sustainable Buildings Envelope Centre (SBEC)

Demonstration & development facility for sustainable steel solutions in construction

2010

20

SPECIFIC

R&D facility for functional coatings – in partnership with Swansea University and a consortium of others

2010

3

Llanwern Pickle Line improvements

Process enhancement

2010

6

Site improvements

Contribute to the Air Quality Action Plan – “greening project”

2010

3.2

Cogent, Orb. New Product Application for grain-orientated steels

Product improvement

2011

11

Port Talbot “Heavy End” electrical infrastructure

2011

53

Basic Oxygen Steelmaking Offgas Recovery project

Energy recovery from steam generated by the BOS cooling system. Reduc in bottleneck

(407.8)

** Particulate Matter

7. Investment priorities 2011–13

Tata Steel’s investment priorities for the immediate future fall into three categories:

7.1 Energy

Improving the company’s energy balance by upgrading power plant and improving the efficiency of energy-intensive operations.

Further improving the company’s capability to recover energy for re-use within sites.

Investing in energy generation at major locations to offset energy requirements at other plant.

Further improving the self sufficiency of the key sites in energy.

7.2 Raw Materials

Securing supply of feedstock is vital at competitive rates. The Margam Coal Project has the sole objective of securing supplies of coking coal for steelmaking (not energy generation—or as a commercial venture). Should the project go ahead, the estimated additional £500 million investment which may create 500 new jobs—is aimed to supply the South Wales steel industry with high-quality coking coal for around 25 years.

A hard copy of the presentation made to the Committee by Andy Dunbar, Manager of the Margam Mine Project has been previously provided. While the importance of the potential investment is not to be underestimated, it is not proposed to repeat the detail within the presentation in this document. Additional evidence could be provided on request. (Periodic update).

Tata Steel is backwardly integrated into the supply of iron ore and other essential commodities for the Welsh steel industry.

Relevant to the supply of raw materials is the provision of adequate transport infrastructure: ports, rail and road – at competitive cost. This is a matter which local, devolved and UK national government directly can influence.

7.3 Process Improvement

Major investment opportunities exist in energy generation, coke-making, ironmaking, steelmaking, rolling and cold-processing. It is the very large investments at the heavy end, which often take the headlines in the industry: the investment—and the impact—is large. All the above processes feature in the investment vision for the business.

A major challenge for the whole of society lies in the availability of sustainable energy. For the steel industry in Wales the secure supply of energy at a competitive cost is essential for the future of the industry. The current power plant at Port Talbot is often referred to as 1970s technology. Tata’s investment vision has a high degree of focus in increasing self-sufficiency in energy at the integrated steelworks. A positive way forward may be for a truly integrated energy strategy be developed in which private/industrial generation may contribute-to and benefit-from its part of the whole. Realising opportunities here may achieve the mutual goals of approaching the carbon dioxide emissions reduction targets and maintaining competitiveness, but in principle converting the community’s perception of the steelworks from an environmental issue to an environmental asset.

One notable potential improvement lies in the results of the £35 million pan-European steelmakers’ research project, ULCOS that is developing Ultra-Low Carbon Dioxide (emitting) Steelmaking. Prototype ULCOS technologies are being installed in other parts of Europe, (including in Tata sites). At this time, the Welsh integrated steel plant has many improvements in store (not least in the Blast Furnace No 4 rebuild)—but is yet to see the installation of ULCOS plant.

New plant to the Welsh site is under consideration, such as a Rotary Hearth Furnace at Port Talbot, which will enable the business to derive greater efficiencies in deriving valuable metallurgical content—including high-cost materials, such as Zinc.

Tata Steel’s downstream processes in Wales have also seen—and are likely to see—further process improvements.

7.4 New Product Development

It is important to stress that while in “end-use” may lie the ultimate driver for product improvement, NPD takes place at all parts of the product chain driven by user-demand, cost-and-value, environmental impact, yield and also issues such as regulation (such as recent developments to eliminate chromium passivation in galvanising technology).

In the past three years, R&D at the Heavy End at Port Talbot and Llanwern has delivered a new product, Fortex which offers benefits to steel processors and also a new product, developed in partnership with the relevant Government departments, to provide protection for military vehicles.

8. Factors Influencing Investment

8.1 Confidence in markets remains the overriding motivator for investment. The steel industry is regularly seen as a barometer for the state of the industrial and manufacturing economy. The diversity of markets served by the community of Wales-sited Tata Steel businesses supports this notion. The Strip sector has seen some fragile recovery: there can be no doubt about the improved confidence of the company in the automotive sector, driven largely by the high-value end and the improved outlook for export. The international value of the Pound has assisted here.

8.2 UK growth is very modest compared with the high rate of growth in the developing economies. However, the main factors which retains UK steel capacity in its current higher cost environment are proximity and accessibility to the customer, service quality and, above all the quality of expertise in the UK, and the resulting ability consistently to develop and manufacture special and high-value products.

8.3 To sanction further investment, Tata Steel needs to be confident of the operating environment in Wales. To a considerable degree this is driven by powers outside Wales—examples being the EU Emissions Trading Scheme to reduce carbon dioxide emissions, and also the upper-limit for installation of new energy generation plant at 50 MW capacity. (The needs of the Port Talbot integrated steelworks total 175 MW alone).

8.4 The Chief Executive Officer of Tata Steel Europe made clear his concerns about the affect of well-meaning measures to reduce environmental impacts upon the fragile economic recovery in the UK. Unilateral UK Government measures such as energy market reform and the Carbon Floor Price place additional strains upon the UK steel industry, which threaten to impact on UK competitiveness with an additional handicap. Briefs detailing Tata Steel’s position on key political developments can be prepared on request by the Committee.

8.5 An issue, which is managed in Wales and locally, is the improvement of air quality. The Port Talbot area is an area designated for special monitoring and thresholds exist for acceptable inclusion of airborne dust, and-or particulate matter (of particular type/size). Tata Steel is committed to minimising its emission of PM—and much has been achieved in recent years. Further work is being carried out to pinpoint the source of specific PM and the company has an Air Quality Action Plan for reducing known sources. The second quarter of 2011 has seen an unusually high number of incidents of exceedence of the PM threshold. On this matter, we appeal to government at all levels to work together with Tata Steel and other potential sources in the community - to achieve a sustainable solution which does not restrain economic development.

8.6 The dependency of the steel industry on people perhaps has been underplayed in this submission. The size of the workforce and the annual recruitment of “talent” in the form of apprentices, functional trainees, graduates and specialists has been stated. But it is vital that the business be recruiting in an environment in which capable people are aware and enthusiastic to work within—or associated with—the steel industry.

8.7 In the five years prior to the economic crisis employee numbers in the Strip Products UK business unit, (Port Talbot and Llanwern) increased by about 700. Since that time, this essential operation has maintained its employee numbers, and through a flexible employment model, it has been able to develop a versatile manpower resource to match market requirements. The company’s rate of natural attrition is 5.2%—which reveals a high rate of retention—which gives us, confidence in enhancing employees’ skills within the business.

8.8 A large proportion of our intake is young people who have reached the end of full-time education. Over 100 of our annual intake are graduates and apprentices. A further 40 are student placements in a yearlong internship, following which a proportion may be offered sponsorship to lead them to our graduate intake. Some 425 (8%) of our workforce are under the age of 25.

8.9 There is a general skills shortage in technical and engineering areas in a highly competitive market. In general this is true despite the fact that Tata Steel’s Strip Products UK sites in South Wales are located in—or near to—areas of relatively high unemployment or dependence on benefits. We are informed that economic inactivity rate is still high at 23% and both this and unemployment, it is confirmed, is associated with low skills-levels (Welsh Assembly Government, 2004). We believe that the issue of second—or even third—generation unemployment creates a negative cultural phenomenon with respect to work. Our evidence here is instinctive, but we support the irresistible view that encouraging inquisitiveness and ambition through the development of practical and valuable skills is an appropriate route to meet this challenge. We urge the governments at all levels to increase and improve the education strategies to further raise awareness of the vital role that the steel industry plays in the economy and also raise awareness of opportunities within the industry. This is an area in which we might work in partnership.

June 2011

Prepared 15th February 2012