Tata Steel has secured a £500 million ($621m) grant from the UK government to help fund the £1.25 billion conversion of its Port Talbot steelworks to electric arc furnaces.

The project will ensure continuity of steelmaking at Port Talbot and make Tata Steel UK into a sustainable, capital-efficient and profitable business, the steelmaker says in a note seen by Kallanish.

This would be the first major step towards decarbonisation of the UK’s steel industry, reducing direct emissions by 50 million tonnes over a decade. With a high degree of circularity, it would leverage strategic, domestically available scrap steel and promote local value addition within the UK, it adds.

The steelmaker makes no reference to the reported potential 3,000 job losses as a result of the Port Talbot transformation.

In a separate note, however, the UK’s Department of Business and Trade says the proposed project “has the potential to safeguard over 5,000 jobs across the UK”, indicating the remaining workplaces at the 8,000-employee steelmaker are at risk.

“The UK Government would also ensure a broad range of support for any staff who are affected by the transition, working with the Welsh Government and Tata Steel to establish a dedicated transition board to support both affected employees and the local economy, with up to £100m funding,” the department adds.

Tata Steel says it will soon commence consultation on the proposal and the transition period, including “potential deep restructuring” for the carbon-intensive, unsustainable iron and steelmaking facilities at Port Talbot, which it calls “heavy end” assets.

The project would also involve Tata Steel’s balance sheet being restructured with potential elimination of the current cash losses in the UK operations and non-cash impairment of legacy investments, it adds.

“We will undertake a meaningful consultation with the unions on the proposed transition pathway in the context of future risk and opportunities for Tata Steel UK,” comments Tata Steel chief executive T V Narendran.

Tata Group chairman N Chandrasekaran adds: “The agreement with the UK Government is a defining moment for the future of the steel industry and indeed the industrial value chain in the UK.”

Tata says it will ensure uninterrupted supply of products to fulfil customer and market commitments, including through the import of additional steel substrate to feed its UK downstream units.

The firm has also announced its intention to invest approximately £20m over four years to set up two additional Centres of Innovation and Technology in the UK. These will be at the Henry Royce Institute at Manchester (for advanced materials research) and at Imperial College London (for research in sustainable design and manufacturing).