The Chinese owner of British Steel has initiated formal proceedings under an international treaty to seek compensation from the UK government over its decision to nationalise the Scunthorpe steelworks. Jingye Steel announced it would pursue recovery via China's bilateral investment treaty with the UK following more than a year of negotiations over the payout amount. This dispute could strain relations between China and the UK.
The decision to seek resolution under the UK-China investment treaty is expected to give Jingye leverage in negotiations. In June last year, the company revealed plans to recover up to £711 million in debts owed by British Steel, although industry sources indicate the claim exceeds £1 billion.
Nationalisation on National Security Grounds
Prime Minister Keir Starmer announced the UK government's takeover of British Steel in April last year, citing national security concerns. He emphasised the importance of retaining the ability to produce steel from iron ore at the Scunthorpe plant in Lincolnshire. Insiders suggest fears of 2,700 immediate job losses in a historic British industry also played a significant role. Jingye had planned to close the plant within days, making reopening impossible and incurring heavy losses.
Since the takeover, Jingye has remained the economic owner of the plants. However, Starmer, under pressure to resign after disastrous local elections last month, announced plans to fully nationalise British Steel in a rare expropriation of a privately owned asset.
Jingye's Statement and Next Steps
In a statement on its WeChat account, Jingye said it had "recently initiated consultation procedures under the bilateral investment treaty with the UK government," as reported by Reuters. The company expressed hope that the UK government would fully safeguard the legitimate rights and interests of Jingye and other Chinese businesses and global investors.
Jingye purchased British Steel in 2020 in a government-brokered deal, but the company struggled amid a global glut of steel, largely due to overcapacity in China. Under the China-UK treaty, the dispute could be sent to an international arbitrator after six months. While Jingye was prepared to walk away from the Scunthorpe plant, the UK takeover may increase its chances of recovering some money.
Impact on UK Steel Industry
The UK has since announced plans to significantly reduce the amount of tariff-free steel imports, which could make British Steel a more attractive business, according to industry insiders. The government is likely to seek new private owners after a brief period of national ownership. Any new owner will probably demand substantial subsidies to invest in new electric arc furnaces needed to decarbonise the company's products.
The government has been approached for comment.
