Liberty hits back at Czech concerns over Ostrava deal

UK-based steelmaker Liberty House has hit back at suggestions made by Czech trade unions and politicians that it has no solid investment plan for the Ostrava works it is looking to acquire from Luxembourg-based ArcelorMittal.

Czech unions lambasted Liberty in documents obtained by Argus, suggesting its strategy was "completely unacceptable…unsustainable and inconsistent" with European Commission requirements.

The unions questioned whether the company has sufficient financial resources after the buying spree it has been on in recent years — Liberty has transformed itself from a trading house to a producer with 5.7mn t of liquid steel capacity, 6.1mn t of finished steel capacity and over 8,800 staff.

"The company lacks an investment plan that will guarantee its [Ostrava's] long-term operation," Czech Prime Minister Andrej Babis wrote in a letter to the European Commissioner for Competition, Margrethe Vestager.

He said the steelworks needs a new plant and rolling mill to enable it to move up the value chain. ArcelorMittal was transferring a wire rod mill from Spain to Ostrava, but this stopped with the announcement of the site's sale, according to trade union sources.

"I also find it disturbing to see Liberty House doubling its size in terms of production and number of employees [purchasing four units in Central and Eastern Europe]," Babis said.

Liberty said it has a "firm growth strategy for Ostrava". It will raise production by 500,000t to 2.5mn t and then boost it to above 3mn t in its next phase. It will invest over €150mn in the next five years to extend the life of the site's coke ovens, refurbish its blast furnaces and improve sinter plant efficiency. It also intends to improve the quality of the plant's hot rolled coil and produce higher-grade rod.

Liberty's Greensteel strategy, which it hoped to apply at Port Talbot when bidding for Tata Steel Europe's Welsh assets, typically favours the electric arc furnace route, although LibertyOneSteel in Australia has a blast furnace. That plant has shipped slab to the hot rolling mill in Newport, South Wales.

"Our investment plan at Ostrava is to ensure that we maintain our operations at current levels whilst further developing evolving market opportunities," Liberty Steel chief executive Jon Bolton said in a letter to Czech trade union representatives. In line with its other investments, the deal would be financed through a combination of equity and debt.

"We do not expect to make any immediate changes to the existing business. Long-term, we want to make the site highly cost-competitive in its market and believe this is the best way to secure its future", Bolton said.

Liberty will keep on all of Ostrava's 6,000 staff.

As part of the transaction, Liberty has acquired sufficient carbon dioxide emissions allowances to enable it to produce 2.5mn t. ArcelorMittal was granted allowances by the Czech government, according to trade union sources.

Liberty will have to acquire new allowances when Phase IV of the EU emission trading system starts on 1 January 2021. The cost of carbon credits has been rising in recent years because of tightening supply. Mills have been making money from selling surplus allowances as they have not been running at full capacity, but now more companies are holding onto them as carbon costs rise.

"Additional CO2 allowances were available, but we would have to buy them and there is no operational reason to do so at this time," Liberty said.

Liberty also refused to acquire the Ostrava power plant that the European Commission required ArcelorMittal to offer as part of the asset sale designed to allow its acquisition of Italy's Ilva.

"We have secured a binding agreement for the competitive supply of power for Ostrava, but nevertheless we want to plan for the long term and we intend to approach ArcelorMittal regarding the acquisition of their shareholding in this asset," Liberty said.

"In-line with European Commission requirements, we were obliged to offer the Tameh Czech power plant in the transaction at the buyer's request. Liberty declined to include the power plant in the transaction, stating it was content to continue with the long-term power supply agreement that is in place ensuring security of energy supply to the plant," ArcelorMittal said.

Czech unions expressed concerns that Liberty would have no control over pricing from the power plant without owning it.

ArcelorMittal said the agreement would "in no way hinder competition between ArcelorMittal and Liberty House, but ultimately, this will be for the European Commission to decide as they will review this and all aspects of our agreement with Liberty House as part of their approval process."

Liberty said it intends to be a "strong competitor to ArcelorMittal and other steel producers in Europe".