Confirmation that UK Government could have saved Steelworks

07 December 2015

The European Commission has confirmed that the UK Government could have given state aid support to Redcar steelworks. In response to a written question from Euro MP for the North East Jude Kirton-Darling they state there are a wide range of reasons that state aid can be given to industries. The Redcar plant stopped production in September in a move which has devastated workers and the whole community. There were calls for the UK Government to act to support the steelworks but no help was provided.

Since the financial crisis in 2008 there has been less demand for steel across Europe. In addition, lower demand elsewhere has led to steel being ‘dumped’ at low prices into the European market. This has led to a loss of 40 million tonnes of production across the EU and a loss of 60,000 direct jobs and 100,000 indirect jobs. The environmental impact is also significant as we are now importing steel produced in less environmentally friendly plants and shipped around the world.

The European Commission has stated that support could have been given to the plant for research and development, to develop innovation, to support training and employment or protect and enhance the environment. Research by Jude Kirton-Darling, Labour Member of the European Parliament for the North East has shown that other European Governments are taking up the option of providing state aid to their steel industry. Steelworks have been supported in Italy, France and Germany to help deal with the drop in the steel price and to increase the sustainability of the sector.

Jude Kirton-Darling said “This response from the Commission shows what we’ve known all along, that the UK Government has used European state aid rules as an excuse for doing nothing to support the steel industry. The steel industry is important in its own right but is key to our wider manufacturing sector. It provides high skilled and well paid jobs and as we’ve seen in Redcar the loss of a plant has a massive impact on the regional economy.

Notes:

Review of support provided to the steel industry by other EU Governments

Support for the steel industry: examples from other EU countries

Europe's steel industry is in deep crisis. The UK government has insisted that it is unable to intervene to support UK steel as a result of EU rules. However, other European countries support their foundation industries within the rules because they believe they are so strategically important to their general manufacturing base. If a complaint is launched against national or regional action, EU state aid rules are restrictive but not prohibitive. It is possible to gain approval. This may be qualified for a specific reason beyond simply supporting the industry, relating to environmental or public health concerns, the investment in R&D or training, which would be lost with the closure of a works (see EU presentation to May 2015 OECD steel meeting: http://www.oecd.org/sti/ind/Item%203c_3-%20EU_OECD-Steel.pdf Labour MEPs are currently calling for a review of state aid rules to allow regional cohesion and employment to factor in the Commission's criteria.

This briefing sets out some of the ways that other EU governments have intervened to support their domestic steel industries, and other energy intensive industries. There are examples of regional governments taking initiatives in Germany and Spain.

(Temporary) Renationalisation

In early 2015, the Italian Government temporarily renationalised the Ilva Steel works in Taranto, Southern Italy. The Italian government cited the unabated toxic emissions and very poor environmental standards, which had led to unusually high rates of cancer in the area around the plant. It is estimated that it will cost €1.8bn to make Ilva compliant with the Industrial Emissions Directive's standards. This decision is currently subject to a complaint from EUROFER (European steel industry association) under state aid rules.

Investment in strategic R&D facilities

The French government are providing state-aid to the ArcelorMittal plant at Florange, in France to support their ongoing R&D work, this follows on from a long running industrial dispute over the closing of two blast furnaces. This public support comes to a total of €20-50 million over 4 years, with a further 33 million been raised in public-private investment.

Support for energy efficiency/environmental technologies

In 2010, the European Commission accepted German state aid of €19.1 million for an energy-saving steel production project run by Salzgitter Flachstahl GmbH, a subsidiary of the Salzgitter AG group. The aid will allow Salzgitter to produce steel through an innovative production process, Direct Strip Casting (DSC), which consumes less energy than alternative processes. The aid is in line with EU guidelines on State aid for environmental objectives (see IP/08/80) because on balance, the positive effects for the environment largely outweigh potential distortions of competition.

Loan guarantees

In 2010, before the May elections (which saw a change in Government), the UK Labour government was willing to provide Sheffield steel producer Foragemasters with an £80m loan to develop new technologies as part of a supply chain for nuclear reactors. While ultimately the new government withdrew this offer, the reasoning for a change of heart was ideological and not related to European State-Aid rules. 

Taking a public stake in a steel company

Following the sale of 20.5% of shares in 'NLMK Belgium Sogepa Holdings SA' for 91.1 million euros ($123 million), the Belgian public authorities have a shareholding in a new company producing steel which owns steel plants in Belgium, France and Italy. NBH employs about 1,000 people in Belgium, while the European division employs 2,530 people in total. The engagement of the Belgian public authorities has helped strengthen the commitment of the Russian group, and transformed the company carrying the steel business in public private joint venture with the financial support of the Walloon region.

Compensation for energy costs

A range of German Government industry policy interventions provide German industry as a whole, including its energy intensive industries, with a range of long established reliefs from energy and climate change-related duties, levies and taxes:

Over the period 2010-2012 Germany's support for its EIIs were worth 26bn euros, or some 8bn euros (£6.4bn) a year (table 2).
Support covers thousands of firms. Unlike the UK package, support is not confined to specific sectors.
At company level, in Germany compensation is available for 90% (or in the case of larger and energy intense consumers, 100%) of electricity taxes.

In Sweden, the PFE programme aims to encourage, through incentives (reductions in the amount of energy taxes), energy-intensive industries to improve their energy efficiency. This is a long-term agreement involving the Swedish government, the energy-intensive industries and trade unions. The duration of this program is 5 years. 117 industrial companies are involved in this project (i.e. 250 plants). The Swedish Energy Agency monitors and controls the programme. The Programme Board, established in 2005, brings together representatives from government, business, trade unions and employers as well as research centers. Both with an advisory and regulatory purpose, the Board meets four times a year. After only two years of existence, more than 900 measures were implemented or underway. These measures cost the companies € 110 million but benefited from a rapid return on investment (two years on average). They have saved about 1 TWh per year of electricity, i.e. from 500 kT to 1 million tons of CO2, and a total of € 55 million. In 2010, it doubled its objectives.

Using the powers of the official receiver to support employment & attracting buyers for troubled plants

In November 2014, the Italian government agreed to sell Italy's second-largest steelmaker Lucchini's Piombino complex to family-owned Algerian conglomerate Cevital. Lucchini was previously owned by Russia's Severstal but was declared insolvent in 2012 and placed into special administration. The company received two offers for its core assets in Piombino, one from Cevital and the other from India's JSW Steel. The government administrator said the Cevital offer was more attractive as it foresaw full employment at Piombino. The Piombino complex employs about 2,000 people and can produce up to 2.5 million tonnes of steel a year.

Jude Kirton-Darling’s question to the Commission

Question for written answer P-013113/2015 to the Commission

Jude Kirton-Darling (S&D)

Subject: State aid to the European steel industry

Steel production is a strategically important industry for the European Union. Products made from steel are a vital and irreplaceable part of every economic sector and the lives of practically all European citizens. European manufacturers provide over 200 000 direct jobs. They also support millions of indirect jobs through supply chains and local economies. Steel will also be a critical part of the EU’s drive to ensure that over 20 % of EU gross domestic product by 2020 comes from industrial activity.

However, since 2008, the European Union steel sector has lost 40mt of annual steel production capacity due to an increase in unfair competition from outside the EU and a major drop in steel prices. The EU has lost 60 000 jobs directly and over 100 000 jobs indirectly, and has suffered considerable environmental damage from carbon leakage.

With the pause in production at the SSI steelworks in Redcar in the north-east of England on 18 September, this downward trend looks set to continue.

Given these factors, will the Commission revise European state aid rules to allow for state intervention aimed at maintaining social and regional cohesion, meeting reindustrialisation targets, improving labour and environmental standards or addressing public health concerns?

The response from the Commission

P-013113/2015 Answer given by Ms Vestager on behalf of the Commission

The Commission is well aware of the difficulties suffered by the steel sector since 2008, which are also the result of the economic crisis. The Commission launched, in 2013, an Action Plan for the Steel sector . Several EU policies are considered in the Plan, including the trade policy, for which the Commission is actively using all trade policy instruments at its disposal (including its trade defence instruments) to ensure a level playing field for the EU steel industry. The Commission is also using other instruments such as the bilateral steel dialogues to engage the EU's main trading partners in policy exchanges and early discussion of possible trade frictions. The Commission also encourages emerging economies that are major steel producers to participate in the OECD Steel Committee discussions.

Under EU State aid rules, the steel sector can benefit from several categories of aid: R&D and innovation, training, employment and environmental aid can thus contribute to long term competitiveness of the sector. Moreover Member States can also mitigate the effect of higher electricity prices to the sector induced by the EU emission trading scheme.

However, the Member States and the Commission have already in 1990s taken a position that, in view of the overcapacity in the sector, no rescue and restructuring aid for failing steel manufacturers should be allowed. The applicable rules have excluded the steel sector , opting for market driven restructuring. The EU also provides financial contributions from the European Globalisation Adjustment Fund to finance active labour market measures intended to support workers made redundant as a result of globalisation.

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