Economy, Trade, and Rural Affairs Committee

Symudwn ni ymlaen, felly, i eitem 2 ar ein hagenda, sef papurau i'w nodi. Mae yna ddau bapur i'w nodi. Oes yna unrhyw faterion yn codi o'r papurau yma o gwbl? Na.

Symudwn ni ymlaen, felly, i eitem 3 ar ein hagenda, sef dyfodol dur yng Nghymru. Ac mae’r sesiwn gydag Ysgrifennydd Gwladol Cymru heddiw yn dilyn ein trafodaethau ag e ar 28 Medi y llynedd, pan gyhoeddwyd y cytundeb buddsoddi rhwng Llywodraeth y Deyrnas Unedig a Tata Steel. Ers hynny, rŷn ni wedi cynnal sawl sesiwn i drafod dyfodol dur Cymru. Rŷn ni wedi cyfarfod ddwywaith â’r undebau dur a Gweinidog yr Economi, ac ar 7 Chwefror, daeth Tata Steel i siarad â’r pwyllgor hefyd. Ers hynny, rŷn ni wedi siarad â phaneli o arbenigwyr am ddatgarboneiddio a sut i sicrhau cyfnod pontio teg i’r sector yng Nghymru.

Ac a gaf i felly groesawu’r Ysgrifennydd Gwladol i’n sesiwn ni, ac a gaf i ddiolch iddo fe am roi ei amser i ni unwaith eto i drafod y mater pwysig yma? Cyn ein bod ni yn symud yn syth i gwestiynau, efallai gall e gyflwyno'i hunan yn swyddogol i'r record.

Diolch yn fawr iawn, Mr Cadeirydd. Fi yw David Davies, Aelod o'r Senedd dros Fynwy ac Ysgrifennydd Cymru, a hefyd dwi'n gadeirydd y bwrdd trosglwyddo ym Mhort Talbot.

Thank you very much indeed for those introductions. Perhaps I can just kick off this session with just a few questions. You told the Welsh Affairs Committee:

'We did not want to see those blast furnaces close. That was a decision for Tata.'

Given this position, what discussions did the UK Government have with Tata about potential options to keep the blast furnaces open, and what convinced you this wouldn't be possible?

Diolch yn fawr am y cwestiwn, Mr Cadeirydd.

The statement I made stands: the UK Government didn't want to see the closure of the blast furnaces, and I wanted to make that point because I think that, for some, there was a narrative that the UK Government had gone to Tata and asked them to close the blast furnaces for reasons of carbon dioxide emissions; that is not correct. Tata came to the Government and said, 'We're losing money'—I think, at that time, £1 million a day, but now much more than that—'We are going to close those blast furnaces.' And therefore, the UK Government's response to it was, 'Well, can we find some way to keep Tata in the UK, to save as many jobs as possible and to keep steel being made?' So, the discussions that then took place focused in on the possibility of an arc furnace, and a lot of the discussion was around how much the UK would have to contribute to persuade Tata to make that investment and go ahead with it. I do want to make it clear that it was Tata that were proactively looking to close the blast furnaces; it certainly wasn't the UK Government. We did not want to see those blast furnaces close, and do not.

Now, the chair of the Welsh Affairs Committee requested that you ask Tata whether it is giving Port Talbot fair treatment compared to its plant in the Netherlands with regard to decarbonisation. What discussions have you had with Tata on this, and to what extent did their answers reassure you?

Well, first of all, as Tata will point out, the way that the company is structured means that the European arm is separate to the UK arm. What Tata will no doubt say is that the plant in the Netherlands is somewhat different in certain aspects to the plant in Port Talbot. It has capacity to produce more steel—I think around 7 million tonnes of steel; it also works on a slightly different basis. The blast furnace operates on pellets rather than sintering, which I understand makes it more potentially viable for direct reduction iron in the future. But my understanding is that there may be negotiations going on with the Dutch Government around decarbonisation, but that no agreement has been come to. What Tata will tell you, and what I think stands up, is that they've invested, since purchasing the plant, over £4 billion into Port Talbot and they've lost around £4 billion since they made that purchase.

Now, Professor Dave Worsley of Swansea University has said that the scale of the UK Government's investment in the decarbonisation of steel doesn't match that of other European and North American countries, and that around double the current level of investment is required to deliver a more ambitious plan. How do you respond to that?

Well, first of all, it's difficult to know without more detail what comparison he's making, because the UK Government's approach to this has been to decarbonise across a range of sectors. Obviously, as a nation—we are, I think, the first advanced nation to have halved our carbon dioxide emissions, which we've managed to do since 1990, and are therefore on track to make net zero by 2050. But we haven't just decarbonised in steel; we've encouraged decarbonisation across a range of different areas and put money into that. So, without knowing further which particular countries he's talking about and what particular decarbonisation programmes he means, it's hard for me to make that comparison.

The second part of your question is, 'Could the UK Government have invested more money and got further decarbonisation?' Well, I mean, the point is, those blast furnaces are not closing because of carbon dioxide emissions, they're closing because they're losing money, but the closure of those blast furnaces will mean that the UK's carbon emissions overall go down by about 1 per cent. It was a very, very heavy emitter of carbon dioxide; I think around 2 tonnes of carbon dioxide were emitted for each tonne of steel produced. So, I'm not clear again, what Professor Worsley's plan was to further decarbonise, because an electric arc furnace will significantly reduce the amount of carbon dioxide that is produced for each tonne of steel that's produced.

And in terms of the deal you've struck with Tata, are there any terms and conditions the UK Government have imposed on its grant with Tata?

Yes, there are. As I think I probably made clear last time, but I'm very happy to do again, it is not the case that the UK Government are handing over a cheque for £500 million to Tata. That is not the case. It has been portrayed by some, and I will kindly assume that that's in error. So, the narrative that the UK Government has handed over £0.5 billion to Tata in order to enable them to sack 3,000 people is incorrect.

Tata came to us and said, 'We're going to close that blast furnace. That will lead to 5,000 job losses plus 12,500 in the supply chain.' That's one issue. The UK Government said, 'We will give £0.5 billion in order to help provide some of the funding for an arc furnace', which will save jobs. But we're not just going to write out a cheque. There were checks and balances put in. So, the money will, basically, be paid in arrears as the arc furnace is constructed, and there will be a financial penalty if it is not constructed.

Now, the exact detail of what payments will be made on what dates and how much, I can't give you. I'm not sure that they've been published, or will be published. But what I can say to you—and I've sat aside myself on this, because I, probably like you, Mr Chairman, have been in business, and I'm always prone to perhaps unfairly think the worst of any kind of deal—is it's not the case that that money's going to get paid out in advance. It will get paid out only as that arc furnace progresses.

And those terms and conditions have already been set—or are they still being negotiated with Tata?

I think the broad outline has been set, but some of the actual figures may still be being negotiated. But the broad principle is the money will get paid in arrears, not in advance, and there will be a penalty if it's not built.

Okay, thanks. Before I bring in Sam Kurtz, I know Luke Fletcher would like to come in on these points. Luke.

Diolch, Cadeirydd. If I could just come back to the question in relation to the comments by Professor David Worsley, to give a specific example, then, and focusing primarily on the steel sector, and greening the steel sector, I think he made reference to this investment, but, just in case he didn't, I'll repeat it. In Europe—so, in Germany specifically—there was an investment by the German economy Minister of €2 billion into greening Thyssenkrupp's steel production. So, just that one company. So, I think that was what the reference was in terms of that mismatch between UK Government investment and European countries.

But what was the nature of the investment? Were they supporting DRI plant, was it hydrogen DRI, was an electric arc furnace? It's hard for me to—.

It was into hydrogen.

Into hydrogen. So, at the moment—. Into a hydrogen DRI based process.

Yes.

Well, at the moment, as far as I'm aware, the only place that's actually doing this with some measure of success at the moment is Luleå in Sweden. That particular plant is not yet producing any commercial steel. Now, the Germans may well also be pursuing this, but, at the moment, it is not something that's commercially viable, and almost certainly Luleå will be out there first. So, of course, everyone's going to be looking at what happens there, but it's not a commercial investment at the moment. It's more of a research and development type of investment, and I'm not sure it would save jobs, either, because I don't think that the Luleå plant is employing anything like as many people as the Port Talbot plant. So, that isn't going to be—. It might be a good thing in the longer term, but it's not going to save thousands of jobs.

It would all depend, of course, on how they managed that transition, and I think that's the key point here. It might not save jobs in the immediate term, but then of course those people who are losing jobs would then need to be retrained to work in that new steel sector. So, there is a way of ensuring that jobs are safeguarded until the hydrogen plant comes on line, surely.

It depends, doesn't it, on how the process—. The process, as I understand it, is basically a DRI process, using hydrogen instead of natural gas. So, I think that pellets are put into a blast furnace and they're heated up, but there's no coke or anything else added, and at the end of that you get, I think, sponge iron, which then has to be turned into steel. I don't think that process would require anything like as many jobs as a blast furnace. I think it's the blast furnace that is quite manpower-intensive. If we looked at—. There was a DRI plant that opened in Texas, I think. It's Voestalpine in Texas, and it might be worth the committee having a look at it. That, I think, is producing around 2 million tonnes of steel, but it employs less than 200 people. So, a DRI plant is not the answer to saving jobs. It might be a good thing to do from the point of view of greening the economy, but, from the point of view of saving 3,000 jobs, it really isn't going to make any significant difference, as far as I can see.

Before I do bring Sam Kurtz in, I know that Alun would like to come in on this particular point. Alun.

Yes. I'm grateful to you, Secretary of State, for finding the time this afternoon as well. I know you're always very good at answering our questions, so we're grateful to you for that.

In terms of the interventions, you've been very active, I think it's fair to say, in terms of the last period of time, ensuring that there's a voice, if you like, around the table and all the rest of it, and I think people are grateful to you for that. What I want to be reassured by is that there's serious strategic thought going on within the United Kingdom Government on this, because, under the current plans, the United Kingdom becomes a country without a blast furnace. That's essentially it. And that's the loss of a serious strategic industry within the United Kingdom, and that's going to put us at a disadvantage in all sorts of different ways. So, in terms of where the UK Government is looking—. I accept what you say about the job losses and I accept what you say about the investment that's taking place at the moment. I accept that. But isn't there a bigger question here as well, and that is that you're dealing with an emergency, if you like, rather than thinking of the long term, and that thinking of the long term would lead to a different financial decision and a different strategic approach to the future of steel?

I first of all take your point about dealing with an emergency. I suppose that is one way to look at it, but, obviously, if a company comes along looking to make a decision, it's going to be—you know, we've got to do what we can. In terms of the wider strategic thinking, it's this. And I think where this question leads to is primary steel-making ability, defence et cetera. So, this is what I would suggest we need to think about. First of all, we don't really have sovereign capability, even with a blast furnace, because all of the iron ore and all of the coal and coke is coming in from abroad. So, that's the first problem. What all of the experts I've spoken to, and I mean people like Gareth Stace from UK Steel—and you'll be speaking to people like this yourselves—what they will say is that, at the moment, you can't get all of the grades that you want from an arc furnace, but you can get a lot, and the technology is moving on very quickly. From that sovereign capability point of view, we've got, I think, 11 million tonnes of scrap steel in the UK, much of which, about 8 million tonnes, is being exported out to be recycled. So, we would be making use of some of that 8 million tonnes, so, in some ways, it does increase our sovereign capability.

There were comments made in the last debate in the House of Commons about the ability to build battleships. I didn't like to pick the honourable lady up on that, but since she's had a go at me for a slip of the tongue where I suggested that Wrexham was in south Wales, which was a pretty stupid thing to do, because I've lived in south Wales for 50 years and I know how long it takes to get to Wrexham, in the heat of Prime Minister's questions, I do want to point out what she should have known, which is that Port Talbot does not produce steel for battleships, Port Talbot produces coil, and coil is thinner, as you would know, sir, because it is rolled up. So, we're not losing that ability at all.

Now, there is a question about whether, in the longer term, an arc furnace could be used to produce steel plate, which is what's used in battleships and things. I don't really feel I'm qualified to answer that. But, at this moment in time, Port Talbot produces a grade of steel that is not really used in defence. One company that I have spoken to—I had, basically, an online visit, so, again, it might suit the committee—was Sheffield Forgemasters, who are producing steel for the Royal Navy, and they're using an arc furnace to do it, albeit with very high-quality cuts of scrap steel.

Sure. But the strategic thinking is the question. I accept what you've said about—. The strategic thinking. And if you're able to reassure us that there's strategic thinking, that would lead to a different equation, wouldn't it, in terms of the cost, because you're looking not simply at the next couple of years in Port Talbot, you're looking at the next few decades in terms of the United Kingdom and steel-making capacity in the United Kingdom. I'm just concerned that the thinking is too short term, if you like.

Okay. I think you and I would be thinking long term, and I'd like to think other people are. The long-term questions have to be around making sure that you go from 90 per cent of products covered by arc furnace up to 100 per cent, a longer term thought about how you reach those grades, which would probably be through having some kind of DRI plants somewhere in the UK, but starting off with natural gas, maybe going to hydrogen in the longer term. But, again, when I've talked to people who know a lot more than I do about this, they have said to me that, actually, there are very few grades of iron ore anywhere in the world that lend themselves to DRI through hydrogen, because you've got to get the carbon in there somehow. Actually, Sweden is one of the only places I think where you can get the right grades of iron ore. So, then, you do lose your sovereign capability once again. So, I agree these are long-term strategic questions. Probably, I'm not the best person to be talking about it, but I know all of these questions are being asked by others and being thought about.

Okay, thank you.

I'll now bring in Samuel Kurtz. Sam.

Diolch, Cadeirydd. Secretary of State, good morning—good afternoon, rather. Previous evidence from Community said that implementing Tata’s proposal would mean

'the end of any notion of a just transition'.

I was just wondering how you would respond to that.

I've had quite a few dealings with the unions, and I must say I've found them very constructive, and the relationship has been very good. I suspect the unions are, rightly, doing everything they can to protect as many jobs as they can in the industry amongst their members, and that is what I would want them to be doing if I were a member of that union. But I think, when they talk about a just transition, what they're basically saying is they don't want to see any job losses at all. I don't want see any job losses either, but I'm just going to have to suggest—. And I'm not a spokesman for Tata, but their point of view is they're losing now £1.7 million a day in production, and they have to find a solution to that. The solution, I fear, is going to mean job losses. I've worked on that basis, and that was why we got the transition fund. So, if you're saying a just transition is one in which there are going to be no jobs lost, well, we can argue about the word 'just' or not, but I'm afraid I can only deal with the reality of the situation that we find, and that is that probably—well, very likely—there are going to be significant job losses.

Sticking with Community, they shared their concerns with us with regard to Tata senior leadership having, quote,

'been saying very clearly that they've made their mind up',

Community said, and they also said it

'suggests that the consultation process is a sham'.

Some real concerns from Community there on what Tata have said. So, how would you respond to these concerns from Community?

Well, I think it's a question best put to Tata as to what weight they're going to give to other proposals in the consultation process. But I think it's fair to assume that they're not going to come forward with a solution if it means that they continue to lose over £1 million a day. I cannot imagine many companies would tolerate those sort of losses.

Okay. Coming back, then, to comments of yours at the Welsh Affairs Select Committee, you said

'I would not like to sit here in front of the Committee guaranteeing that a major engineering project will start and finish on time'.

So, I'm just wondering what discussions the UK Government have had with Tata to seek assurances that the electric arc furnace will be built by the intended timescale of 2027, and, taking your phrase from the Welsh Affairs Select Committee to today, how confident are you, following that discussion, on the timescales?

So, two parts to that question—discussions and how confident, right. Well, discussions, plenty of, including in the last 48 hours. All that I've heard is very reassuring, that some of the ground works can take place before the planning application is put in, that the planning application is expected to go in in September, the work on the arc furnace will start early next year. As I've mentioned before to you, Mr Chairman, there are checks and balances, financial ones, in place. So, everything I've asked, certainly—. Discussions, yes; reassurances, yes.

Obviously the second part of your question is: how confident am I? I mean, I’ve no reason not to be confident, but it is a very big engineering process. And another thing that Tata have said is that they’re very good. I mean, in fact, I spoke to Chandrasekaran about it in India. I put the same question to him, and he said, ‘Look, we are very good at doing these big projects, and we’ve got various other big projects going on at the moment. We’re experts in project management.' I’ve no reason to doubt it. I mean, he’s a very, very capable person. But would I stick my house on it? No, I wouldn’t, but why would I? I’m not going to sign up and say in the committee that it’s absolutely going to go to time. But I’ve been given no reason to think that it won’t, that much I can say, and lots of reassurances that it will.

Thank you. And then final question from me: in terms of Tata highlighting the potential for those workers who may be impacted by job losses to be employed in the construction phase of the new electric arc furnace, and in other investments in other parts of Port Talbot steelworks, I’m just wondering what discussions you’ve had with Tata on this, in terms of your role on the transition board, but also in terms of minimising job losses in the short and medium term.

Absolutely. Discussed it with Tata, discussed it also with Mr Chandrasekaran, head of Tata Group, who is very much over the detail of this, and the response I got was very positive about that, that they felt it was very much in their interest to hang on to people and to find ways of making that happen, because, after all, they’re going to be operating an arc furnace at the end of this, which is still going to be a significant employer, and they want to maintain as many people as they can. So, as to how that happens, I don’t think we can say. I mean, after all, there has to be a consultation process before we can even assume that there are going to be job losses. But I have discussed it, and the responses I got were very, very positive and warm about that.

Okay.

Thank you, Sam. I’ll now bring in Vikki Howells. Vikki.

Diolch, Cadeirydd, and thank you, Secretary of State, for being with us this afternoon. I’ve got some questions on the trade union alternative proposals. First, you did say a little earlier that you had some dealings with the unions, which you’ve described as constructive. So, could you give us a bit more information about the type of engagement that you and other UK Government Ministers have had with those unions to discuss their alternatives to Tata’s proposals?

I can’t talk about other UK Government Ministers, but I met the unions very early on in the process. They came into Westminster. I made it very clear, and I’m making it clear again, I’m very happy to meet with the unions whenever they want to meet up. I invited the unions to join the transition board, the three main unions involved; they didn’t want to join officially, but they wanted to come along as observers, so they have come to every transition board meeting as observers. I can assure you that when they want to change that status, they’ll be very, very welcome, but obviously, even as observers, I hope they would feel that their views are given the priority and the weight that they should.

I met again with the unions informally in Parliament after one of the debates a few weeks ago, and I said again I’d be very happy to meet with them and workers directly at any time, and I think we had a meeting last week in Port Talbot and it was a very good meeting. So, really, I’m absolutely open to as many meetings as they want.

That’s really good to hear. Thank you. And you’ll be aware that one of the major asks that the unions are putting forward is to be able to keep the one blast furnace open while the electric arc furnace is being constructed.

Yes.

Now, Tata have told us really clearly that they’ve had an independent engineering report that has said that that is absolutely not feasible, but the Community union on the other hand have told us that this is a—quote—'massive misrepresentation’. They say that the report relates to building a larger electric arc furnace than is actually proposed by the Syndex plan, and the previous engineering reports have said that building a smaller EAF while the blast furnace remains open would be feasible. So, how do you respond to those comments, and have you discussed that crucial issue with Tata?

Yes, I have. So, two things. First of all on the cost: what Tata are saying is that—. I think everyone accepts that blast furnace 5 is at end of life, so I think even the unions would more or less agree to that. Blast furnace 4, I think everyone generally accepts, could be kept open until about 2032, but it would require a significant amount of capital work on it. I think there may be some disagreement as to how much between the unions and Tata, but I think it’s generally accepted there would have to be some significant work carried out to it.

Then there’s the issue of the coke and sintering plants. I think, again, most of the people I’ve spoken to seem to accept that the coke plant is at end of life; the sintering plant there seems to be more discussion over. And there is disagreement between the unions and Tata about all this. But what Tata will say is that they're losing £1.7 million a day at the moment, and they will say that it's not the case that, if they shut down one blast furnace, that would halve their losses, because then they would have to import all of the coke and the sinter from somewhere else, and there aren't that many places doing it. And they feel that that would add significantly to their losses anyway.

And then we come to the second part of your question, which is about the location. Again, I've discussed this with Tata: why can't it be located somewhere else? In very simple terms, what they're saying—. I think, presumably, the unions accept that there's an issue with building an arc furnace directly next door to a basic oxygen steel-making plant, which would contain large amounts of molten iron to be turned into steel. Tata are saying that they don't want to locate it anywhere else because, logistically, they need it as close as possible to the casters, because, after all, once you've created molten steel in an arc furnace, you need to cast it as quickly as possible and you don't want to be transporting it around the place. If you do that, you're going to have to start bringing torpedoes, railway tracks and other things into it. It's kind of all slightly beyond my capability to assess who is right in all of this. All I can say to you is that I can kind of see the point that it would be more complicated to be creating molten steel in an arc furnace in one location and then moving it somewhere else in order to cast it. How much more difficult and expensive that would be is not something that I feel able to judge.

Thank you, and my final question in relation to that is that Community have also suggested that the multi-union plan that they're proposing would result in minimal or no job losses through the transition period. They were certain that Tata doesn't want to follow their approach because there are opportunities for them to benefit from carbon credits by closing the blast furnaces and importing steel before the carbon border adjustment mechanism comes in. So, how would you respond to those comments?

Well, first of all, on the issue of carbon credits, I think, in terms of losses of £1.7 million a day, anything they get in carbon credits would be relatively small scale. The CBAM is going to come in in 2027, so, I think—. Sorry, if I've missed the second part of your question—it's about whether or not they're simply wanting to import steel from, presumably, Jamshedpur—

Yes.

—in the interim period. Tata will be honest enough to say that the steel that they produce from the blast furnace in Jamshedpur is going to be relatively cheap compared to steel that would be produced, and will be produced, in an electric arc furnace.

But the situation is, they want to close those blast furnaces down because they're making a loss, but they are feeding other companies in the supply chain around Wales and beyond: Shotton and Trostre and Llanwern and elsewhere. So, those companies have to get their steel from somewhere until the arc furnace is built. And so, I suppose it is natural that they would want to be bringing it in from India or the Netherlands or elsewhere. If they don't, then those supply chain companies will end up closing down as well. So, I don't really see any alternative to it. Once the CBAM comes in, then it's going to be in Tata's best interests to get that arc furnace up and running as quickly as possible, because at that point, it's not going to be as cheap to bring in steel from India. I mean, that's the whole purpose of having the CBAM.

Diolch.

I'll now bring back Luke Fletcher. Luke.

Diolch, Cadeirydd. If I could bring you back to the start, where we dipped our toes into discussions around the electric arc furnace and potential other investment, and I'm partly to blame for bringing that up right at the start as well. But we've already gone through the discussions around whether or not Tata will be able to fulfil its order book with the steel produced, and the grade produced, through electric arc furnaces—whether that technology is going to be where it needs to be once the electric arc furnace has been constructed. So, I don't propose we go over that element again.

But just looking at when that electric arc furnace is established, if it goes ahead, one thing that we obviously need to address is that exporting of scrap steel. So, UK Steel have called on the UK Government to come up with policies about how we retain some of that scrap steel. So, I'm really interested just to delve into that a bit. What sort of discussions are happening around that? Because, obviously, we need to ensure that if we're talking about the sovereign capability of steel making in the UK, we need to secure that scrap steel, don't we?

There may well have been discussions around that; I'm not aware of them. I'm not saying they haven't happened, and I haven't asked about that. It's my understanding that, of the 8 million tonnes, a lot goes to Turkey and I think some might go to Pakistan. I'm not sure of the exact countries it's going to. But, my understanding is that, when this business case was looked at, it was looked at very carefully by outside contractors, I think specifically EY—I'm getting a nod of the head to that one. So, EY worked with the Department for Business and Trade to look at the business model that Tata were putting forward—after all, we've got a lot of skin in the game in this—and felt that, in most scenarios, it stood up very well. So, I don't think it's going to require the Government to put a ban on exporting scrap steel in order for this to work. I'm not aware that the Government are looking at that. I think the expectation is that the business model works perfectly well as things stand. In other words, that it will just be bought on the open market. You are able to write to DBT if you want more detail.

Great. Could I suggest that we do that, Chair?

One other thing we had in relation to scrap steel was from Professor Dave Worsley. In some of the evidence that he gave, he was suggesting that Port Talbot actually is quite ideally placed to be able to segregate the scrap based on quality. Thinking about the need for high-quality scrap steel, Port Talbot was that ideal place, especially because of the free-port status it has been given. What sort of discussions have happened around, once again, as that electric arc furnace is being constructed, if it goes ahead, Port Talbot becoming the place, then, to segregate scrap steel for the wider industry?

Well, I haven't had that discussion. My focus, mainly, is on the transition board and also, to an extent, making sure that DBT are on the case to ensure that the EAF is built. It seems to me to be a perfectly reasonable suggestion from Professor Worsley. One might think that there is already, obviously, another arc furnace down the road, and there might be other ones built, as we know. I'm also told that how you sort it and categorise it is very, very important to the business model. It's not just a case, as probably we all know around this table, that you just dump it all there in a pile and then put it in; it has to be separated out. So, what the professor is saying does make sense, but I'm not in a position to comment further, except to say that I would love to see Port Talbot being used in every possible way and with as many jobs as possible created there in the long term.

Okay. So, thinking of additional investments, then, I'm going to bring you back to DRI. I accept what you said around sovereign capability and there are only certain places in the world where you can actually get the iron ore you would need to operate a DRI plant—

From hydrogen.

From hydrogen, yes. We had, again, evidence from Ben Burggraaf of Net Zero Industry Wales, which again highlighted Port Talbot as probably the best place to put a DRI plant if we were to put one in the UK, and then being that stepping stone to transitioning over to hydrogen-created steel. So, what sort of discussions—and, again, it's that discussions question—were had around potentially making that investment in DRI, given that Port Talbot is ideally placed for such a plant?

Well, I don't know the answer to that because I wasn't in the room, and I know that all sorts of things were kicked around, and eventually everyone agreed that the thing that was going to work would be an electric arc furnace. There's no reason why a DRI can't be added to it. We've discussed this previously. It would, perhaps, create 200 jobs, an electric arc furnace, using natural gas. By the way, I have informally discussed a DRI plant using hydrogen with people in Tata, and what I'm told is, first of all, as we've all agreed, there are only certain grades of iron ore that would work for that, and also that the amount of hydrogen used would be enormous. I was given figures, which I can't give you off the top of my head, but in order to make a commercially viable hydrogen DRI plant, you'd be looking at amounts of hydrogen that go way, way beyond anything that is used at the moment. So, it's not practical for many years to come, not until we have a ready supply of hydrogen—green hydrogen, of course, otherwise there's no point in doing it.

In terms of a DRI plant from natural gas, that might become a commercial prospect for Tata, depending on the grades of steel they can produce and how they do it. They may need to have a feedstock of DRI in order to get some of those grades, because we know it's not just a case of dumping everything in; you've got to put in higher grade as well. But that's really a matter for Tata. It's not going to save—. Let's be honest about this, to just say again, it would not save thousands of jobs. If a DRI plant gets built, that's great. It would be a good thing for Port Talbot, a good thing for the industry, and it might create 200 jobs if it's similar to Voestalpine; it's not going to create 2,000 or 3,000 jobs.

One of the other suggestions on the table—I believe the unions made that suggestion; Tata have been open to it in the past—is a plate steel mill. Again, you know, we have that free-port status in Port Talbot, and one of the big benefits that's been talked about around that free-port status is the ability to invest in offshore wind. So, there is an argument that, actually, putting a plate steel mill there, constructing those wind turbines in Port Talbot to then push off into the Celtic sea, is perfect. Again, has there been any discussions or thoughts of investment in that plate steel mill, and, specifically, then, as a follow-on, because I'm aware that Tata, in our last session, talked about how domestic usage of steel within the UK needed to be a lot higher for it to be viable, has there been any sort of plan within the UK Government to identify infrastructure projects where we could specifically use UK steel, similar to what the UK Government did back in 2016, I believe, as well as the Welsh Government?

In terms of using steel for floating offshore wind, I take what you're saying about a steel plate mill, but I think Tata may be looking at other options, using coil, but reinforced with struts. I won't try and go into all the detail of it, but there is a lot of serious talk going on, and I'm sure the committee might—. I might be able to give the committee a few suggestions of where there they might want to investigate further. But there is serious work going on to look at how you use steel coil and reinforce it in a way that would allow it to create a floating offshore wind structure. So, that's positive.

I couldn't really comment on the economics of a steel plate mill or not. I mean, would I like to see it? Of course I would; I want to see everything possible. But, I mean, the people to persuade, really, are Tata, because they're the ones that would have to try and make a profit out of it.

As far as Port Talbot as a free port is concerned, I've spoken to Celtic Freeport in the last week or so, and I know the outline business case is in. There is a timetable now that we're pursuing. I think we're looking to have the free port—. Within a couple of months, I hope we'll have significant progress. And I also know that, in order for the floating offshore wind industry to take off, a positive announcement about the floating offshore wind manufacturing investment scheme for Port Talbot and Milford Haven would be very helpful, and I hope to have some news on that imminently.

And just on that point around planning for the use of domestic steel within UK infrastructure projects, has that happened?

Sorry, the Crown Estate are looking at how they can encourage a much greater use of the UK supply chain within the auction process without breaching World Trade Organization rules.

Okay, good. Thank you.

I'll now bring back Alun Davies. Alun.

Thank you. Secretary of State, it was good to welcome you to Ebbw Vale a few months ago when we looked at the HiVE project.

I'm hoping to come back in a few months for the finish of it.

You'll be very welcome to come back at any time, Secretary of State, you know that.

In many ways, 20-odd years after the closure of Ebbw Vale steelworks, we're still making investments to recover from the impact of the closure on the town and the wider community. And when I look at the transition board that you've established—and I think, you know, you've got all the right players around the table and all the rest of it—is the United Kingdom Government putting enough resource into that? I think it's £80 million the UK Government is actually putting in. I noticed in the budget last week it was £242 million, was it, going into Canary Wharf, you know, and I'm thinking are the people of Port Talbot really getting fair play when they're facing an enormous challenge? I've seen that, and you've seen it as well in Ebbw Vale and other places. We're talking about a loss of work and we're also talking about the economic loss, but also the loss of a sense of place, which is fundamentally important to any community, and I worry that the mistake, if you like, that was made 20-odd years ago in Ebbw Vale is being repeated today and we're not learning the lessons—that you do need significant investment, more than I can see being made at the moment.

It's not for me to start criticising previous Governments and what happened long before I got into politics, when large industries shut down—

You were in politics then—you were a Member here.

Twenty years ago, I was actually [Laughter.] But I'm thinking a little bit further back than that, given the 40 years since the miners' strike. What I honestly say to you is that everyone recognises that if you see major job losses in an industry as important to the community as steel is in Port Talbot, that would and will have a devastating impact, and therefore lessons from the past have to be learned, and people cannot be abandoned in that way. So, that's the first thing. In principle, therefore, I basically agree with the premise of your question. Lessons have to be learned.

The second part of it is: is the money enough? Well, let's see. I mean, first of all, the priority for the transition board must be to make sure that everyone is retrained in ways that allow them to get jobs that pay a similar salary and have similarly good prospects. It was a mistake for me, as chair, to allow the impression to be conveyed at one of the meetings that there were plenty of jobs available in shops and things in the area. There probably are, but that's not what people are looking for, and I should not have allowed the impression to be given that that's what I thought was okay, because it's not okay. The other meetings I've had—. I've had round-tables at Aston Martin recently where we were talking about very good jobs being made available. Aston Martin are going to be looking for people, KLA in Newport are looking for people, Airbus cyber security are looking for people. These are all good jobs, and there were many more like them, at Safran and other companies, and these companies are now working with the transition board. They'll require people who are trained.

The first priority, and I hope we'll get political agreement on this, is that people may need to be given quite complicated training packages, and the first priority of the board is to make sure that money is spent giving those packages out. But there will probably be other money left over, because Tata have talked about another £130 million as well, and we're not quite sure how that could be used. And Tata have got £20 million in the pot. So, once people have been given the opportunity to retrain—and some will continue working in Tata anyway, and some will take retirement—then we need to look at what infrastructure projects we can support in the area, to make full use of the free port and get other companies in. So, it's not just about the £100 million. We've got the free port money anyway. The seed funding for that is £28 million. Them there's some money going into a towns fund. There will be an announcement soon about FLOWMIS. And there's a lot of work going on to make sure that we can attract high-tech companies in with a focus on renewable energy into that area, and not just ensure that the 3,000 people who may lose their jobs get other well-paid jobs, but actually I'd like to go a bit beyond that. I think Port Talbot is a town that needs a bit of a boost and deserves it, and I hope that this is actually going to be transformational for the town of Port Talbot as well.

'Transformational' is a word used by many Ministers in all administrations, but my concern is—. You're here this afternoon, so we're talking about the UK Government. If it was a Welsh Minister, we'd talk about other issues. But, if you look at decisions that the UK Government is taking at the moment, you know, not to electrify the rail to Swansea, for example, that has an impact in infrastructure development in and around Port Talbot, of course, and the attractiveness of Port Talbot as a place to do work. My concern, learning the lessons, is that £80 million is a lot of money, but the scale is huge, and when you simply look at retraining—and I understand you're working with education providers and others to deliver that, and that's exactly what we need to do—we're looking at an investment in a different sort of economy as well, and that is long term. It involves an enormous investment, and the lesson from Ebbw Vale is if that investment isn't made early, immediately, then the consequences—and the consequences for both the Welsh and UK Governments—are absolutely enormous, and the financial consequences and the human consequences are something that people who follow us will be paying for in 20 years' time if we don't get this right today.

Okay. If we can get everything right with the free port, then Associated British Ports are looking to invest £0.5 billion themselves in changing the facilities there. So, that would be huge. But I'm not really disagreeing with you, if I may say so, Mr Davies. We first of all need to learn the lessons from the past, and make sure that, once people have been retrained, the money's there. At the moment, the money is there. If it requires more money, well, I don't know where we'd be. There's quite a significant amount of money on the table all in all, but let's have that discussion in a year or so. But if we get everything right, and we've got companies like ABP investing hundreds of millions of pounds in the area, and in the port facility as well, and other companies wanting to come in and make use of the tax benefits, then I hope it will be transformational, and I hope that won't just be words.

That's good to hear. And, from your perspective, how are relationships between you and the Welsh Government, and between other organisations, working on this? We hear the noise in the media, but how is it actually working when you're around the table?

Well, fine. I sit next to—. I've got Vaughan Gething on one side, I've got Councillor Steve Hunt, the leader of Port Talbot, a bit further around the table. We've got the three unions represented. We've got Mr Kinnock. Mr Fletcher now is on one of the sub-committees—

We'll hold him to account, then. [Laughter.]

Yes. [Laughter.] We've got political buy-in from everyone. There's nobody around the table there that doesn't want to do their best for the town and for the people.

So, how are you learning the lessons from the past, because one of the criticisms that I make of your levelling-up projects, for example, is that you're repeating the mistakes that the Welsh Government made, and you were very vocal in your criticisms at the time around Objective 1 projects, and you and I both remember your speeches then. But it appears to me that levelling up and the shared prosperity fund is very similar to Objective 1 and hasn't moved on. So, I'm worried, if you like, that the UK Government hasn't been sufficiently agile in learning the lessons of the recent past in terms of applying what we need to do today. So, how do you reassure me that you are learning the lessons?

Well, it is a slightly separate question, if I may say so, and I'm not really here to talk about LUF or SPF—

I understand that; I used it as an example.

Okay. A very general comment I would make is that when the public sector wants to spend money in support of very worthwhile things, there will be people in the private sector who will sometimes try and take advantage of it. So, we all have to be very careful to look at that. That's as far as I'll go on that.

I'm confident that the specific projects that we're involved with at the moment—the free port, the towns fund, hopefully FLOWMIS, and the transition fund—are going to work. And, look, with the transition board, we're deliberately working with people from business, people from the universities, as well as local authorities—the chief executive of Neath Port Talbot is on there. There should be enough expertise there to make sure that that money is spent wisely.

I could probably spend a few minutes on the electrification of the line between Cardiff and Swansea. The argument was—. I remember looking at the audit report into that myself, and the reality was that the costs were enormous but the benefits to the passengers weren't. It wasn't going to get any faster because, basically, the line was too wiggly—

I understand that.

That was the summary of a rather long report. I think, if I may just throw this back at you in a slightly political way, that one message we need to send to investors is that we are happy to build roads if we need to because the economy is booming. I think I'll say no more than that.

Well, you and I have campaigned together on the A465 dualling, and the success of that is going to be in the Heads of the Valleys. But it's that lesson that I'm really thinking of—the A465—because building a road alone isn't sufficient—

No.

—what you need is the economic plan that goes alongside it. And it's a question I would have asked the Minister here had it been reached in questions yesterday. However, my concern about Port Talbot is that that long-term economic plan is in place, learns the lessons of the past, and applies those lessons. And that's it.

With the support of the chief executive of Neath Port Talbot, we've commissioned a report looking at what infrastructure projects we might need to follow up with in order to attract that investment, so there is a full economic report going on. I think it's being done by KPMG—is that right? Yes.

Do you have a timescale for that?

For the report? I think they've come up with an initial draft version. I think the full one is probably, I would say, a couple of months away—[Interruption.] April. The voice of wisdom behind me.

I'm grateful to you, Secretary of State.

Thank you, Alun. Luke Fletcher.

Diolch, Gadeirydd. I just wanted to pick up on something that you said in one of your responses to Alun Davies, specifically around that round-table with Aston Martin and Airbus. Obviously, those are companies that rely on steel as part of their product. I'm just curious to know whether or not any discussions were had about what they thought of the proposal in front of people at the moment.

Not specifically in terms of the steel supply chain, no. I hold a lot of round-tables like this, and the purpose is just to—. In fact, the Chairman and I were at something similar this morning to talk to different industries and get a sense of what policies are working and what they want to see. So, in passing, I would say that, between them, they were very clear that there was a demand for trained people. The only point I was making is that there are really good jobs out there for people who have got the right training, and the board can be there to facilitate that. But it wasn't specifically about whether or not they'd have the supply of steel; they didn't raise that as an issue, to my knowledge. But it wasn't really the purpose of the discussion.

Thank you.

Thank you, Luke. Our session has come to an end, so thank you very much indeed for being with us today. Thank you for giving up your time to be here. Obviously, your evidence will be very important to us as a committee in scrutinising this matter going forward. A copy of today's transcript will be sent to you in due course, so if there are any issues with that, then please let us know, but once again, thank you very much indeed.

Diolch yn fawr.

Fe symudwn ni ymlaen nawr i eitem 4, cynnig o dan Reol Sefydlog 17.42 i benderfynu gwahardd y cyhoedd o weddill y cyfarfod. A yw'r Aelodau i gyd yn fodlon? Ydyn, mae'r Aelodau i gyd yn fodlon, felly derbynnir y cynnig, ac fe symudwn ni i'n sesiwn breifat ni.