Little option but to close UK unit: Tata

S Kalyana Ramanathan & Ishita Ayan Dutt / London/kolkata May 10, 2009

Unacceptable, says British government; charges fly back and forth.

The British government today said it was “not prepared” to accept an announcement by Tata Steel and its European subsidiary, Corus, that there seemed no option but to indefinitely suspend operations at one of the latter’s factories in north-east England, which means loss of around 2,000 jobs.

This comes just four months after Tata-Corus’ announcement that it would have to cut 3,500 jobs at three steel units of Corus in Europe (two in the UK).

The threatened mothballing now is of Corus’ steel cast products unit at Teesside. Corus said yesterday that it was beginning talks with labour unions to discuss how to mitigate the impact of the threatened closure.

‘We are not prepared to reconcile ourselves to the inevitable closure of this plant,” said Peter Mandelson, the minister concerned in the British government. GMB, the union which represents many employed in both the threatened plant and among the firms of contractors who supply it, said it was urgently petitioning the government to intervene and save the jobs.

The closure, said Tata and Corus, was because of the cancellation of a 10-year agreement signed in 2004 between Corus and four steel producers, in which the latter had agreed to jointly buy 78 per cent of Teesside’s output . The four firms are Marcegaglia of Italy, Dongkuk of South Korea, the Swiss-headquartered Duferco, and Alvory of Uruguay.

The four firms said they had notified Corus of their termination of the 2004 agreement on April 7, citing market conditions in the industry. Last week, the World Steel Association said global demand would fall by 15 per cent in 2009, the steepest yearly decline since the second world war.

The four which withdrew, all steel slab makers, said the 2004 agreement had provided for such withdrawal in this sort of situation. They noted that Corus had tried to get a court stay on their move, but this was refused.

This was in reply to Corus and Tata saying the termination of the ‘Offtake Framework Agreement’ (OFA)was both unwarranted and probably a breach of contract.

An anxious Mandelson said it was “essential that Corus does everything it can legally, and with the government’s assistance, to reinstate the OFA. It is unacceptable that such a development should threaten jobs on such a scale, with such a potentially devastating impact on the area.”

His boss, Prime Minister Gordon Brown, gave Tata more cheer, saying the government would do “everything in our power to ensure the (terminated OFA) contract is upheld”.

Ironically, it was only this January that Corus had signed a formal “memorandum of understanding” to sell 80 per cent of its equity at Teesside to Marcegaglia and Dongkuk (56 per cent and 24 per cent, respectively), two of the four OFA terminators.. The said MOU was valid only till end-June and Corus said it assumed, though there was no formal word, that the proposed deal was also dead.

Tata has more problems ahead in its British operations. Jaguar Land Rover, its automobile subsidiary, is also in deep financial trouble and Rata Tata, the group chairman, has already publicly warned of significant job losses if he doesn’t get government help there. A deal with the British government to provide a guarantee for a proposed loan of 340 million pounds from the European Investment Bank to JLR is close to collapse, according to media reports.