Industry steels itself for long road to recovery

Mark Kleinman is Sky News’ City Editor and the man who gets the Square Mile talking in his City AM column

Industry steels itself for long road to recovery

Steel yourselves: I make no apology for returning for the umpteenth time in this column to the future of the UK’s beleaguered steel industry. More than five years since it being rescued from its last brush with insolvency by China’s Jingye Group, British Steel’s fate is again in limbo.

Almost a year ago, the government moved with uncharacteristic decisiveness to prevent the closure of Britain’s last-remaining blast furnaces at the company’s Scunthorpe steelworks. But instead of nationalising the company once more, the Department for Business and Trade seized control of its operations, while leaving its ownership technically in Jingye’s hands.

It was a risky – and expensive – ploy. Since last April’s move, taxpayers have racked up a bill running to hundreds of millions of pounds, with no long-term solution to preserve British steel sovereignty in sight. Andrew Griffith, the shadow business secretary, believes the government should now be moving to extract huge sums from Jingye in the form of decommissioning liabilities. Instead, Whitehall is moving in the opposite direction and getting UK taxpayers’ chequebook out: as I reported on Sky News earlier this month, the government has offered Jingye tens of millions of pounds in return for the equity in British Steel. The precise figure is unclear, but I now understand it may have been below even the £50m floor indicated several weeks ago. This cannot have been a proposal made in anticipation of a serious negotiation. It may offer ministers defending their approach at the despatch box the veneer of a defence that they have sought to resolve British Steel’s future, but for now the company’s future remains in limbo, and the bill for UK taxpayers continues to rise.

With the government’s long-awaited steel strategy published today, these are far from academic questions. A document which merely reallocates an existing £2.5bn pot and pledges higher tariffs on imports as the panacea for an industry battered by President Trump’s trade war and cheap Chinese metal will be little more than a short-term sticking plaster.

Rescuing Thames Water is a dirty business

It’s a dirty business, getting a water company restructuring over the line. You’d be forgiven for experiencing a profound sense of déjà vu at the concept of a rescue of Thames Water: the protagonists have come thicker and faster in the last two years than one of the company’s myriad sewage leaks. 

Now, lenders to Britain’s biggest water utility think they might just have clinched it. They’ve proposed a revised rescue deal to Ofwat, the soon-to-be-replaced industry regulator, which includes a £3.35bn equity and £6.5bn of new debt.

Whether it will be enough to satisfy Thames Water’s other stakeholders remains in doubt. People close to the negotiations say the latest proposal was pitched as a ‘best and final’ offer from the creditor group, which includes Apollo Global, Elliott Management and Invesco – but could this be just another negotiating tactic?

Financially, after nine months of negotiations, there seems little distance between lenders and regulators. The former’s commitment to paying no dividends until 2035 or before Thames Water is returned to the public markets is a significant one, as is their willingness to increase the size of their haircut on about £14bn of debt.

Yet there remains enormous scepticism among some in Whitehall and the City that a deal will get done – and a public consultation on a final proposal might present another, not inconsiderable obstacle. One Whitehall source says the investors have yet to convince Ofwat of the merits of their governance arrangements despite the blue-chip nature of their board line-up (though most have not been publicly identified to date). 

With Thames requiring more than £800m of additional funding early next month, the negotiations have begun to look like a £20bn game of chicken, and the outcome is still anybody’s guess.

Ministerial posturing over heating oil leaves a sour taste

The wild gyrations in oil prices since the beginning of the war in Iran provide another painful reminder of Britain’s fragile energy security. Notwithstanding that, the response of government ministers has been excruciatingly self-serving. A hastily convened roundtable summit with Ed Miliband, the energy secretary, last week produced the usual wilful myopia about the UK’s “diverse and resilient energy system”.

It’s not always easy to agree with Sir Jim Ratcliffe, the Ineos founder, but he was right when he warned that government policymaking is the primary driver on the country’s growing reliance on imported energy.

“Nothing is more important for national security than energy independence,” he wrote in The Daily Telegraph.  “We need a rapid reassessment of our priorities. Without reliable energy in a conflict situation, running hospitals, transportation, manufacturing and basic essentials like heating and lighting are jeopardised.”

Scaremongering? Possibly. But the situation is a serious one – millions of consumers face being left with impossible choices later this year if the energy price cap soars. Yet Miliband and Rachel Reeves, the chancellor, are more preoccupied with easy headlines than substantive long-term policymaking. This week’s announcement that Miliband will regulate the heating oil sector, including new consumer protections which look vague in the extreme, are sadly all too typical of the kneejerk reactions we are wearily accustomed to seeing from governments of all parties.