Tata Steel has secured a £500 million ($653m) Grant Funding Agreement with the UK government to enable the conversion of its Port Talbot steelworks to electric arc furnace steelmaking.

This comes exactly 12 months after the previous government gave its commitment to provide the funding, which will come on top of Tata’s own £750m contribution to the EAF transformation.

In the time since, there has been much furore over the schedule of Port Talbot’s blast furnace shutdowns and scale of job losses, with Tata Steel at loggerheads with trade unions, while the traditionally pro-worker Labour Party has gained power. Blast furnace no.5 was shut down in early July, while BF4 will face the same fate by the end of this month.

“Watertight” conditions within the grant funding agreement will ensure the government can claw back investment should Tata Steel not fulfill its commitments, UK government says in a note seen by Kallanish. This includes increased penalty payments should the company not retain 5,000 jobs across its UK business post transformation.

In early July, the future of Port Talbot was thrown into doubt as the deal threatened to collapse in polling week. The government says the new deal is improved on the previous government’s agreement. It includes a minimum voluntary redundancy payout of £15,000 for full-time employees plus a £5,000 retention payment and offering paid-for training.

Tata Steel has also committed to work with the government to evaluate new investments in steel.

The steelmaker says basic engineering for Port Talbot’s transformation is now complete, and equipment orders will be placed shortly for the EAF and ladle metallurgy furnaces. A new coil box and crop shear for the hot strip mill will also be ordered, as will a cranes package, and construction management and civil engineering.

Tata Steel is working closely with the authorities to apply for planning approvals by November, with a view to commencing large-scale site work around July 2025. The new, 3 million tonnes/year EAF is scheduled for commissioning in 2027.

Trade association UK Steel says the UK steel industry can enjoy a “brighter future” following the conclusion of the funding deal. However, it warns that for the UK steel industry’s electrification to work, government must ensure affordable electricity prices.

“We now have a Government that understands the issues facing our industry and crucially is committed to taking decisive action and today it has done just that,” says UK Steel director general Gareth Stace. “To ensure that their significant investment yields returns for our nation, Government must now also deliver the right business environment. Steel businesses need competitive electricity prices, access to good quality steel scrap, and fair competition from international trade.”