This loan agreement was fully commercial and state aid compliant, valued at around £120m, under Section 7 of the Industrial Development Act 1982. Under the agreement the Government purchased emissions allowances on behalf of British Steel ensuring it met its 2018 ETS obligations. Failure to comply with its ETS obligations would have led to a fine of around £500m, on top of the costs of ETS compliance of around £120m.
In return, under a deed of forfeiture, the company’s 2019 allowances will be assigned to the Government once issued, and the proceeds from selling these is expected to cover the costs of purchasing allowances for British Steel. The Government’s view is that the 2019 allowances will still be issued to British Steel in insolvency.
The Government’s assessment is that the Deed of Forfeiture offered value for money to the taxpayer, with benefits exceeding the costs, predicated on the level of confidence around security, even in the event of insolvency.
This position was supported by the independent Industrial Development Advisory Board which assessed the proposal in their statutory role and agreed with the Government’s value for money assessment.