British Steel needs £30 million in emergency financing to avoid going into administration in the coming days; while some say the turmoil is Brexit-related, others point out huge environmental payments to the EU made a gaping hole in the company’s finances.
Kristian Rouz — Britain’s second-biggest steel-maker is facing financial hardship due to “Brexit-related issues”, putting at least 4,500 jobs at immediate risk, while the fate of another 20,000 jobs depends on the company’s supply chain.
The troubles at British Steel stem from the company’s struggle to secure £75 million in financing amid disruptions to international trade that have affected its operational profitability.
The company called on Prime Minister Theresa May’s cabinet Tuesday to provide an emergency-relief loan of at least £30 million. Unless the government provides the relief package, the company could go into external administration within two days.
“As the business department, we are in regular conversation with a wide range of companies”, the UK’s Department for Business, Energy and Industrial Strategy (BEIS) said in a statement.
Workers at British Steel’s main facility in Scunthorpe, North Lincolnshire are facing the risk of lay-offs, while the factory in Teesside, North East England, could also be affected.
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The UK’s opposition Labour Party has urged the government to provide an additional loan to British Steel. Some officials believe the company might also be facing nationalisation in the future if its financial performance does not improve.
“The UK steel industry is critical to our manufacturing base and is strategically important to UK industry”, Labour spokeswoman Gill Furniss said.
While the majority of experts, along with the company itself, blame Brexit for British Steel’s problems, other factors — such as the EU’s environmental policies — have also played a role.
“Brexit is a genuine concern and companies are being forced to plan for a future when they have no idea what it will look like”, Christopher Davis of S&P Global Platts said. “There’s sluggish demand, power is expensive, and many regulatory hurdles that competitors in other regions just aren’t facing”.
However, last month British Steel had to take out a £100 million loan from the government to meet EU environmental payments — in order to avoid a greater fine. Had the UK exited the bloc in late March, that situation could have been avoided, some say, and the company might not have faced the latest round of financial turmoil.
Meanwhile, Greybull Capital — the private equity firm that bought British Steel for £1 back in 2016 — said it “invested additional capital as recently as last month”. However, it was notified Tuesday by British Steel’s creditors that, unless the company secures at least £30 million in additional financing, it may go bust as soon Wednesday.
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This comes despite Greybull having returned British Steel into the black in recent months despite the Brexit woes. Some say the EU’s crippling regulations are a far greater concern than Brexit-related disruptions.
Labour also said it is the government’s duty to protect British workers amid the Brexit turmoil, no matter now costly it might turn out for the budget.
“Administration would be devastating for the thousands of workers and their families who rely on this key industry in a part of the country which has not had enough support and investment from government over decades”, Labour’s Furniss said.
For its part, trade union GMB has demanded that the UK government and Greybull ramp up efforts to find a solution to keep British Steel afloat. GMB officials pointed out the sides have already reached understanding on the path forward, by signing the Steel Charter in Westminster.
The Charter urged British manufacturers and the government to buy UK-made steel to support domestic industry.
Union leaders say the main goal of the joint effort should be saving jobs, and looking for ways to improve the company’s performance to ensure its sustainability in the long run.
“They must now put their money where their mouth is. GMB calls on the government and Greybull to redouble efforts to save this proud steelworks and the highly skilled jobs”, GMB National Officer Ross Murdoch said.
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The UK’s Business Secretary Greg Clark said the bailout would be a very tough decision for the cabinet to make.