Jane Gray blogs from Mumbai where her tour with Tata Group provokes thoughts on the future of energy intensive industry in the UK.
“The cost of energy [in the UK] is an immediate concern to us,” says Dr Mukund Rajan, brand custodian and chief ethics officer at Tata Group.
We’re sitting in the group’s board room in Bombay House, Mumbai, where Dr Rajan has just delivered a convincing presentation to demonstrate Tata’s long term commitment to growth and leadership.
He’s reassured me that Tata’s investments are made with the long run in mind – bringing forward countless examples from the group’s 100 yr+ heritage – but he’s also stated clearly that Tata will walk away from acquisitions and partnerships its feels have fallen out of ‘fit’ with the group’s direction and values.
So where does that leave energy intensive companies within Tata’s portfolio who are struggling to compete or remain remotely viable due to spiralling energy costs in the UK – even when compared to Europe, let alone the rest of the world?
“We are looking for the government to bring UK energy prices more in line with what business needs,” continues Rajan. “Tata Steel Europe has been particularly vocal on this, but energy is also severely effecting manufacturing competitiveness for Tata Chemicals in the UK.”
His words ring dissonantly true, coming on the same day that Tata Chemicals cut 220 jobs at its Winnington plant near Liverpool – energy costs were blamed for the contraction of operations.
Yet despite this show of vulnerability, Rajan insists the Tata’s optimistic about the future of its energy intensive businesses in the UK and is not ready to relegate Corus or Tata Chemicals to the select list of failed ventures which lurks in the shadow of the group’s overwhelming, diversified and acquisitive growth story. (Of which more later)
“We are absolutely hopeful that we will not have to write off this investment…Infrastructure investment in Europe and elsewhere in the developed world has to start an upturn at some point…There is opportunity in the industry. We have the right people and we are making the right investments – like the Port Talbot blast furnace which we installed last year at a cost of £170m. We would not be doing that if we did not believe that there is a future for that industry.”
There’s a strong impression that Rajan has become used to answering difficult questions about the direction of Tata Steel Europe which faces daunting competition from cheap steel production in China – but this is only a relatively recent development he says.
Tata bought Corus (now Tata Steel Europe) in close succession with Jaguar Land Rover and, at the time of the acquisitions, it was the latter that was viewed by commentators and press as the “dodgy investment,” recalls Rajan.
His clear implication is that if fortunes can change so quickly for the group’s automotive investment, it’s worth hanging in there to see the rejuvenation of the major element in its materials sector.
Furthermore, Tata’s not waiting idly to see if market forces and government perception end up weighing in its favour.
At home with Tata
Jane Gray is currently touring some of Tata Group’s key business and manufacturing locations in India to learn more about the heritage and strategy of the diverse conglomerate which now generates $25bn of its revenues in the UK.
Look out for more blogs and information from the trip soon.
While the company is determined to avoid the appearance of political alignment, partly thanks to some bad experiences on the receiving end of “policy-making perversions” in India, it is also committed to engaging with global governments to optimise business opportunities in a balanced manner.
“We prefer to lobby and engage with government via the trade associations,” explains Mukund. “That gets other companies on the same platform along with us,” thus strengthening the overall cause but also setting Tata a distance from any accusation of political manipulation for corporate benefit. This is a practice which, Rajan says, “we detest”.
But is government heeding the full weight of the message? Have enough UK companies contributed to it – having already shown they are making an effort to simply reduce usage? Do UK industry and trade associations, in their current fragmented array, have enough clout as message bearers?
In the past few months we have seen a lot of brash political talk on energy bills – usually aimed at soothing angry domestic consumers (voters) in the run up to a general election.
But while the new National Infrastructure Plan will create some of the demand Mr Rajan craves, the Autumn Statement failed to reveal a coalition plan that will really help reduce the burden of utility costs on businesses.
Meanwhile, suggestions from the Opposition that consumer and commercial energy prices could be frozen if they win the forthcoming election have been widely batted aside with irritation by business leaders and economists. Angel Gurria, of the Organisation for Economic Co-operation and Development, said Ed Milliband’s pledge would destroy investment in the an energy infrastructure witch is already edging toward being unfit for purpose.
It’s time to step up innovative thinking on meeting UK industry’s energy requirements – and this innovation needs to be created as all industrial policy initiatives do – in triumvirate by industry, government and academia.
At the moment there are too many gaps, torn loyalties and faltering convictions between these parties to create any actionable answer to the energy challenge.