Sanjeev Gupta’s eastern Europe steel plants are under growing pressure to secure more than €100m in funding to meet a carbon bill and avoid a steep fine under the region’s emissions trading scheme.
The carbon credit shortfall is the latest sign of financial strains facing the industrialist’s GFG Alliance empire, after the collapse of its main lender, Greensill Capital.
Gupta has been racing to secure alternative long-term financing for his empire, a loose collection of businesses that face potential collapse after creditors filed applications in London’s insolvency court to wind them up.
The Financial Times revealed in March that the eastern Europe plants, part of his Liberty Steel Group, were ascribed a negative equity value of $2.6bn after debts of $1.6bn by advisers to GFG under a restructuring plan called “Project Battery”.
The industrialist’s Romanian plant, Liberty Galati, sold an estimated €100m in carbon credits last year after being awarded them under the EU’s Emissions Trading Scheme, ETS.
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A key climate change policy, the bloc’s ETS gives large polluters a certain amount of carbon allowances for free every year.
The credits are linked to individual plants and issued every February. Companies must hand over enough allowances to cover each tonne of emissions by the end of April the following year.
Galati sold its allowances for 2020 early last year but is now scrambling to secure the necessary funding to buy back enough to cover its emissions over the past 12 months, according to two people familiar with the situation.
An added challenge is that the price of permits on the EU carbon market has soared in recent weeks, increasing the cost for polluters.
Galati is in talks with its sister plant in the Czech Republic, Liberty Ostrava, to see if it might be able to provide some spare allowances, one person familiar with the situation said.
Selling carbon credits is a common practice among European industrial groups. Companies can end up with a greater allocation than required when emissions are cut and sell the permits for cash on the carbon market.
Others sell their entire allocation with a view to buying them back after 12 months.
British Steel was forced to ask the British government for help in 2019 after it had sold carbon credits linked to its Scunthorpe operations when it was owned by Greybull Capital. The steel group was caught out by the sharp rise in the price of the credits.
GFG said that like other large industrial companies Liberty Steel businesses “trade carbon credits as part of the usual course of business”.
It declined to comment on its sites’ “current balances for commercial reasons” but said it expected them all to surrender “the correct number of credits” at the end of April.
Separately, it has also emerged that Romanian prosecutors are probing allegations of corruption at the Galati plant.
Liberty Steel said it would “co-operate fully with any investigation carried out by Romanian authorities”. The company, it added, had commissioned an external inquiry into the issue. A senior manager has voluntarily stepped aside while the inquiry is ongoing.
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