Tata Steel is the largest CO2emitter in the Netherlands and, according to the RIVM, such a major polluter that local residents lose three months of expected lifespan. That is why, at the request of the government last week a report released on how to proceed.
A proposed option is for the government to simply enforce environmental requirements, without providing financial support. If the company ultimately does not survive, it will cost the state 12 billion euros for soil remediation and 1 billion euros in a social plan. Another option, forced closure, will cost at least 16 billion euros in buyout, soil remediation and a social plan. Finally, there is the option of a government injection of 3 billion euros. Pollution continues, but Tata's greening is accelerated by the earlier closure of a cooking gas factory and a blast furnace, and the construction of an electric arc furnace. Tata's 'limited economic viability' after these interventions, according to the report, makes the high government contribution necessary.
The last option is the preferred option of the two 'explorers' and authors of the report, Hans Wijers and Frans Blom. Although they recognize that social support for steel production in IJmuiden is eroding and the competitive position is becoming increasingly weaker, they attach more importance to job retention (9,200 people work at the IJmuiden factory), Tata's contribution to the Dutch economy and Europe's strategic autonomy (which i.e. less dependence on countries such as Russia and China). Hence the plea for government support, arguing that other governments in Europe – and China – also do the same. And in addition to a financial injection, Wijers and Blom also want the government to provide sufficient cheap green energy. Countries such as Sweden (with hydropower) and Spain (solar energy) clearly have an advantage here.
Outgoing Minister Micky Adriaansens (Economic Affairs and Climate, VVD) wants to quickly sit down with Tata to negotiate the conditions for the government injection. She wisely indicates that she is not in favor of a government interest in Tata Steel Netherlands, but instead demands firm guarantees in exchange for the 3 billion euros of state aid that Wijers and Blom consider necessary.
Extremely weak
But the business case for a government injection in Tata is extremely weak. First of all, it is of course not really a choice between 3 billion euros in subsidy or a much higher amount to remediate the soil. With a large government injection, the soil remains just as polluted. Even if Tata continues in IJmuiden, those costs will only be postponed. For the time being, they are only increasing, as is the health damage to local residents. It seems a certainty that they will have to be made at some point. With procedures and an appeal to their health, local residents will understandably continue to demand this.
The argument for European strategic autonomy in the field of steel is also weak. There is a lot to be said for that autonomy, given the current geopolitical uncertainties, but why should the Netherlands fulfill it if geological and climatic conditions make it cheaper to do so elsewhere? The green energy ultimately required can be supplied much cheaper by countries such as Spain and Sweden – so they are a much more economically sensible location for steel production.
There is also a contradiction in the argument about strategic autonomy: on the one hand it is used for production in the Netherlands, while at the same time Tata apparently needs to be protected against competition from many steel producers elsewhere in Europe. And making cheap green energy available to Tata also means that that green energy does not go to households or to companies that can continue without government money.
The employment argument is, if anything, even less convincing. There is a desperate shortage in the labor market, and in particular in the market for technical personnel. The technical people who will lose their jobs when Tata closes will easily find a job elsewhere. Just look, for example, at the impending closure of VDL's car factory in Born. The staff who lose their jobs there appear to be able to find work elsewhere without any problems. Subsidizing economically unviable jobs is emotionally understandable, but amounts to wealth destruction.
Finally, the guarantees that Adriaansens wants from Tata. What will they be worth? Ultimately, a guarantee for job retention is unsustainable if Tata Netherlands does encounter difficulties. And if it doesn't run into problems, then there is no need for a warranty. Guarantees for the soil remediation that will eventually have to take place are worth nothing at all because Tata India will avoid this through a bankruptcy of Tata Netherlands.
The history of previous state aid episodes does not bode well, whether it concerned Fokker or a selection of shipbuilders that no longer exist. Just like then, we can now expect a stream of follow-up requests for new support, but in the end economic reality wins and things still go wrong for Tata – with only increasing costs for taxpayers as the end result.
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