Tata Steel Ltd (NSE: TATASTEEL) Q3 2022 Earnings Conference Call Feb. 07, 2022,
Corporate Participants:
Samita Shah — Vice President, Corporate Finance, Treasury and Risk Management
T. V. Narendran — Chief Executive Officer and Managing Director
Koushik Chatterjee — Chief Financial Officer and Executive Director
Analysts:
Satyadeep Jain — AMBIT — Analyst
Ritesh Shah — Investec — Analyst
Amit Murarka — Axis Capital — Analyst
Sumangal Nevatia — Kotak — Analyst
Vishal Chandak — Motilal Oswal — Analyst
Sahil Sanghvi — Monarch — Analyst
Kamlesh Bagmar — Prabhudas Lilladher — Analyst
Pinakin Parekh — JPMorgan — Analyst
Amit Dixit — Edelweiss — Analyst
Indrajit Agarwal — CLSA — Analyst
Prashant Kumar Kota — Dolat Capital — Analyst
Presentation:
Samita Shah — Vice President, Corporate Finance, Treasury and Risk Management
Good afternoon to all of you joining us from India. Good evening to those of you joining us from the Far East. And of course, good morning to those of you joining us from the West. On behalf of Tata Steel, I’m delighted to welcome you to this call to discuss our results for Q3 FY ’22. We have with us our CEO and Managing Director, Mr. T.V. Narendran; and our Executive Director and CFO, Mr. Koushik Chatterjee. They will discuss the results with you and answer any questions you may have. We will also discuss some details about the impending acquisition of NINL by our subsidiary Tata Steel Long Products. Before we start, just a few points. This is a new platform we are using. So we will request you to just know these instructions. [Operator Instructions] The entire discussion today will be covered by the safe harbor clause, which is on Page two of the presentation loaded on our website.
Thank you, and over to you, Narendran.
T. V. Narendran — Chief Executive Officer and Managing Director
Thanks, Samita. Good morning, good afternoon, good evening, depending on where you are. I’ll make a few comments and then hand over to Kaushik and then we’ll do the Q&A. The global economy continues to recover and is expected to grow by around 4% to 5% in 2022. And the overhang of COVID uncertainty related to geopolitics and expectations that global central banks may have to tighten monetary policy faster remains a key watch point. At Tata Steel, safety, health and well-being of all employees remains a key focus area. And so far, 99% of our employees have been vaccinated for the first dose and 96% have been fully vaccinated. Talking about the industry, steel prices have moderated across key regions, including the Western markets, but continue to remain elevated compared to a year ago. The spreads, though, have softened on the back of higher raw material prices and energy costs. In China, the supply-demand fundamentals remained steady. Decline in production amidst ongoing curves has offset some of the pressure on demand due to the property sector. We expect regional prices to remain at elevated levels. During third quarter FY ’22, Indian steel demand rose by 13% quarter-on-quarter and government spending drove the demand in infrastructure and construction goods.
We expect demand to continue to improve as the third wave of COVID begins to end. Domestic steel prices have started to increase with improving demand across segments. And looking ahead, the increased allocation to infrastructure spending in the budget will have a multiplier effect on the economy and is likely to create a demand across product categories, including steel. Moving on to our performance during the quarter. During the quarter, Tata Steel India’s crude steel production improved 2% quarter-on-quarter to 4.81 million tonnes. Domestic deliveries have risen slowly quarter-on-quarter and have continued to witness a steady pickup driving improvement in product mix. Automotive sales remained flat despite the auto production being down by 9% quarter-on-quarter. This quarter, we developed 33 new products in India across segments and continue to focus on value-accretive growth in chosen segments and on bottom-up initiatives to drive growth. For instance, this has led to more than a 50% increase in Tata retail sales during the first nine months of the current financial year. In terms of growth in capacity, our five million tonne Kalinganagar Phase two expansion, including the pellet plant and cold rolling mill is progressing well. And I’m happy to share, as you’re aware, the Tata Steel Long Products has been declared the winning bidder of Neelachal Ispat Nigam Limited. This acquisition will enable us to significantly ramp up our long products portfolio instead of waiting for five to 10 years to develop a new site and also to benefit from the growth in infrastructure in India and the retail housing growth in [Indecipherable] India.
We will leverage our retail brands, particularly Tiscon and pan-India distribution network to drive scale, profitability and cash flows. In terms of our sustainability journey, our focus is slide and encompasses the entire value chain. And we became the first company in the world to conduct trials, we inject cold bed methane gas into a blast furnace in a bid to reduce emissions. We have also begun to export LD slag from India, steel making slag to make cement, thereby utilizing and driving recycling. On Europe, the steel demand in Europe is back to pre-COVID levels through — though our key customer segment, that is auto segment continues to be affected by chip shortage issues. Our steel production in Europe was broadly flat. Despite this, the deliveries rose quarter-on-quarter by about 2%. Our packaging and auto contracts have also been renegotiated at higher prices during November and December, and this will start flowing through from this year. So this — because of this, we expect Tata Steel Europe to continue to give its performance. We remain watchful of energy prices, particularly for the next financial year.
I will now hand it over to Koushik to comment on our financial performance. Over to you, Koushik.
Koushik Chatterjee — Chief Financial Officer and Executive Director
Thanks, Naren, and good morning, good afternoon to everybody on this call. Trust all of you are safe and well. Let me start with the financial commentary. Tata Steel has delivered strong operating and financial performance during the first nine months of the current financial year. In the third quarter, consolidated revenues were at INR60,783 crores which was broadly stable, while EBITDA of INR15,853 crores translated to a margin of 26%. This is despite the significant surge in the international coal prices and the elevated energy prices in Europe. At Tata Steel standalone, the EBITDA was INR12,167 crores, which is a margin of 38%. During the quarter, the higher coal consumption cost of around $85 per tonne was partly offset by the decrease in the royalty related charges. As you know, in the previous quarter, we’ve taken the half year charges. The royalty and taxes expenses in the second quarter was about INR2,300 crores. But as I said, it included additional royalties for two quarters. The third quarter royalty charges are normalized. And at current prices, the royalty basically ranges between INR1,000 crores and INR1,200 crores. In Europe, our revenues improved by 7% quarter-on-quarter and 56% year-on-year to GBP2.25 billion during the quarter with a steady increase in market prices translated to the P&L.
Reported EBITDA for the quarter stood at GBP290 million, which is marginally lower than the quarter-on-quarter. This is primarily because of the higher coal prices which were also offset by somewhat by the lower iron ore prices. The EBITDA was also impacted significantly by the energy cost in Europe and the repair and maintenance costs. The consolidated finance costs are higher at about INR512 crores. This is largely due to noncash charge due to prepayment of GBP715 million of the senior facility agreement at Tata Steel Europe during the quarter. Upfront loan costs are typically amortized over the loan tenure and have to be expensed when the loan is repaid earlier than planned. Excluding this charge, the finance cost for the quarter are lower and in line with the lower debt numbers. Taxes paid are broadly in line. In the second quarter, there was a credit on account of carryforward losses of Tata Steel BSL upon merger. And as a result, the third quarter tax appears to be higher by about INR1,000 crores on a quarter-on-quarter basis. Our cash outflow and consolidated capex for the quarter was about INR2,790 crores. Taking nine months into account, it was about INR6,400 crores, which is well within our earlier guidance. Focused working capital management has helped us to limit the increase in the working capital to INR2,000 crores. And coupled with strong operating performance, this has led to a free cash flow generation of INR6,338 crores during the quarter.
For the nine months ended, the company has generated INR13,214 crores. As Naren mentioned, we are happy to share that Tata Steel Long Products has been declared the winning bidder for the acquisition of Neelachal Ispat Nigam Limited. We expect to close the acquisition before the end of this financial year. Tata Steel will front in the acquisition financing, even though the bidding entity is Tata Steel Long Products. And we will largely fund through internal accruals and some short-term bridge funding. We are glad to also see that both S&P and Moody’s had a positive comment on the acquisition and the long-term value NINL brings to Tata Steel. We remain focused on enterprise strategy to deleverage the balance sheet while pursuing growth priorities. At the start of the financial year, we had set a target of achieving investment-grade level financial matrices. And we are — we’ve got that by — within the first six months. We have repaid about INR17,376 crores of our debt, and our net debt as of December stands at about INR62,869 crores. As a result, our investment-grade matrices have further improved. Our net debt-to-EBITDA has come down shape below 1%, while our net debt to equity has improved to 0.68 in the third quarter. Our group liquidity position remained strong at about INR2,695 crores, including INR9,700 crores of cash and cash equivalent. With the NINL acquisition, I don’t expect the credit matrices of the company moving much at the end of the financial year. And we would continue to deleverage during the fourth quarter and beyond.
With this, I will end my comments and open the floor for questions. Thank you very much.
Questions and Answers:
Operator
We will now begin with the question-and-answer session. [Operator Instructions] Our first question from today is from Pinakin Parekh of JPMorgan. Please go ahead.
Pinakin Parekh — JPMorgan — Analyst
Yes, thank you very much everyone for the opportunity. I have two questions. My first question is on the Neelachal Ispat acquisition. Now we have understand the logic of the large land bank and the iron ore mine, and the company has talked about taking the capacity from one million to 4.5 million and eventually to 10 million tonnes. My question on this is, A, the acquisition would make a lot of sense if the capacity is built out much more quicker than what a normal blast furnace capacity addition would do, which means that, A, the addition plan has to be front-loaded and ideally, it’s an induction or mini blast furnaces. Given Tata Steel Long Product has a very small balance sheet, how does Tata Steel plan to execute this expansion plan? And would it make sense to eventually fold Tata Steel Long products into India?
T. V. Narendran — Chief Executive Officer and Managing Director
Koushik, do you want to comment on that?
Koushik Chatterjee — Chief Financial Officer and Executive Director
Yes. So, I think the point is valid as far as front-ending our capex is concerned. And that’s exactly what we are looking to do which is why we’ve announced that it will be a parallel track between restart of the existing plant as well as setting the — setting in motion the capex execution. Not sure why induction furnace or electric arc furnace will be faster than the blast furnace. I think we can do it on the same basis. I think we just need to ensure competitive level of cost. And with our own iron ore mines, it would make sense for us to do it in the blast furnace mode. And from a productivity point of view, many blast furnaces won’t serve that purpose, Pinakin. So I think it will be from that perspective.
As far as the funding is concerned, as with the acquisition, I think it is important for us to mention that it will be Tata Steel, which will be taking on the load of the financing, and we will structure it in a manner such that Neelachal gets the capital to invest, not necessarily burdening it on Tata Steel Long Products. As far as your last question on merger is concerned, both are listed companies. So I wouldn’t want to comment on it. But I can only say that managerially from an operations point of view as well as running that entity, all three units, which is Tata Steel, Tata Steel Long Products and Neelachal, will work seamlessly as we have been working with Tata Steel Long Products. So I think that will continue without any barriers as far as entities are concerned.
T. V. Narendran — Chief Executive Officer and Managing Director
Pinakin, if I can add to what Koushik said, there are ways to do it quicker, even with the blast furnace group. Because we are in the process of expansion, we have configurations already in place. You could decide to replicate that as far as the iron making is concerned. That is one. Secondly, whatever we invest in, we are also conscious that it has to be carbon efficient because the carbon footprint is going to be important going forward. And so the size of the facility, the scale, et cetera, plays a very important role there. But I think your larger point is valid. The faster we can grow the better, and that’s what we will plan for.
Operator
The next question is from Amit Dixit of Edelweiss. Please go ahead.
Amit Dixit — Edelweiss — Analyst
— questions. the first one, again, continuing Pinakin’s point. In the long to medium term, what kind of sustainable EBITDA per tonne you are looking from NINL? And in particular, I just wanted to understand the reason for the seemingly aggressive bidding? That is the first question. The second question is essentially on a more data based question. What is the coking coal costs you incurred in Q3? And what is the likely cost in Q3? Thank you.
T. V. Narendran — Chief Executive Officer and Managing Director
Thanks, Amit. If you look at Neelachal and, obviously, the long-term EBITDA will depend on the steel prices and spreads. But generally, if you look at it, it is an integrated facility, it has iron ore available without the premium that we will have to pay if we were to bid for a new iron ore mine. So if you look at the cost base and the size that it can come to, it can certainly produce long products at a much cheaper rate than, let’s say, Tata Steel Long Products is doing today. So if I were to look at the EBITDA, it would be Tata Steel Long Products plus because — and to be fair, even comparable to Tata Steel Long Products EBITDA because the iron ore will be at cost. And the iron ore mine, which is at 100 million tonnes, we believe, can also — we can — I’m sure there are more reserves we need to prospect and look at it. So there are advantages there on the cost base and the scale, of course, can be built.
Like we said, it can go over 10 million tonnes. And a lot of the infrastructure is already in place. Unlike the greenfield site, this is a site which has the roads, which has the railway lines, which has a lot of logistics-related infrastructure already in place. And we have the advantage of being next to Kalinganagar where we’ve already built a lot of infrastructure, which can be shared with Neelachal. Different companies, so we obviously need to look at transfer pricing and things like that. But overall, it will be a very, very cost efficient and a world-class site the way we see it.
Koushik Chatterjee — Chief Financial Officer and Executive Director
For your second question, Amit, if I can take it. Our coal purchase cost in India was about — in the second quarter was about 167, which increased to about 269 in the third quarter. So that’s how I look at it. And our consumption cost, however, was about $230.
T. V. Narendran — Chief Executive Officer and Managing Director
So the consumption cost or rather the cost of coal went up by about $80 for India quarter-on-quarter, Q3 to Q2. In Europe, it was about EUR50, EUR55 per tonne. And Q4, we expect India to go up by about $40 and Europe to go up by about EUR30, EUR35. But Europe also has the advantage of lower iron ore input costs, which have been EUR30 less Q3 to Q2 and will be EUR30 less Q4 to Q3.
Operator
The next question is from Indrajit Agarwal of CLSA. Please go ahead.
Indrajit Agarwal — CLSA — Analyst
First going to NINL. Given that we have highlighted several other avenues of growth, and if I remember the presentation correctly, you had 15 million tonnes as the growth from organic and inorganic capacities going from 25 million to 40 million. Now that 10 million tonne has been taken care of by NINL, how should we look at other avenues or other assets on the block, with NINL or other steel plant or growth in our first oil capacities? That is my first question. And my second question is on the working capital. Year-to-date, we have seen about $2 billion of working capital build about INR14,000 crore order. How should we look at the unwinding of this working capital in the next few quarters? Thank you.
T. V. Narendran — Chief Executive Officer and Managing Director
Yes, so Indrajit, basically, what Neelachal gives us is options. We had always said that on flat products, we are comfortable. And long products, we will look at opportunities for growth simply because the existing asset or the land banks that we had was not — was more for flat products. So if you look at our existing sites, the Mira Manali side, which is the Angul site of Bhushan which is today at five million tonnes, can grow to 10 million tonnes. If you look at Kalinganagar, which is being expanded from three million to eight million, it can go to 16 million tonnes. And Neelachal can go to 10 million tonnes. So even if we assume Jamshedpur stays where it is, which is what we want to leave it at, maybe 10 million to 12 million tonnes, you have enough options between these sites to go beyond 40 million tonnes. In addition, as you know, we also have a plan to set up smaller facilities, electric arc furnace-based facilities in the Northwest and South, which can be scaled up at a pace at which we want and depending on carbon costs and everything else which comes in.
So I think Tata Steel is now well set for the growth ambitions that we may have, and we can realize those ambitions as long as it is aligned with our balance sheet and ability to deleveraging ambitions, so on and so forth. So I think we are in a position where we have all these options. And with the existing footprint, we can grow to beyond 40 million tonnes. And that was the objective of bidding for Neelachal to secure that kind of an optionality for the future. On working capital, I’ll let Koushik comment. But broadly, if you see the coking coal prices have gone up three times, right? So even at the same efficiency level during the year, we’ve added a lot of working capital. Obviously, coking coal prices come down. That’s an immediate opportunity to unwind, but Koushik can elaborate in more detail.
Koushik Chatterjee — Chief Financial Officer and Executive Director
Yes. So just to add on that, Indrajit, I think coking coal prices have gone up, steel prices have gone up. So it is — even when you reflect on the three elements. One is raw material holding value has increased, though the raw material tonnages have not increased which is the efficiency factor that we look at largely. Second is the finished goods reflects the higher coking coal prices. And finally, the debtors also reflect the price of steel, which is significantly higher than March ’21. So all of them together has resulted in this increase.
And we will certainly look at reducing them as we go forward. So we have, in the third quarter itself, been looking at releasing as far as India is concerned, we are putting special effort. So we should come down to a more normalized in the next couple of quarters because we see the volatility playing out over the next quarter or so because we will see further coking coal price increase in this quarter, but we are taking actions on the physical tonnages and number of days of holding, et cetera.
So a lot of initiatives has been undertaken. And we hope to stabilize it at this current level and then thereafter a rise. In a rising market, working capital does get blocked up. And in a falling market, it gets released, which is what we saw in the March ’21 of the year. So we will hopefully stabilize it and push towards releasing cash in the next couple of quarters.
Indrajit Agarwal — CLSA — Analyst
Okay.
Operator
The next question is from Prashant Kumar Kota of Dolat Capital. Please go ahead.
Prashant Kumar Kota — Dolat Capital — Analyst
Sir, we’ve seen this quarter’s results. Q4 is generally a stronger quarter for volume. And even if you take the higher coking coal costs and somewhat lower steel prices, we still have a very solid quarter in Q4 and probably absolute EBITDA will be as good as Q3 or probably higher. So on the point I’m coming to is we hardly have any debt of INR60 crores, INR1,000 crores. And in Q4, if you do some more working capital release, probably we’ll be at INR10 billion, INR10,000 crores worth of free cash flow. It will hardly be left with any debt, INR50,000 crores hardly. So versus EBITDA, sir, the — not the absolute number does look. So is there a risk that we are — we’ll go behind the curve in terms of capacity and ramping up in FY ’20, ’24 in terms of the industry?
T. V. Narendran — Chief Executive Officer and Managing Director
So I like your word hardly. I think we don’t see it hardly. But I think the point is valid that we are — we have now done significant overdeleveraging over the last two years. But I think we will — we are not saying we will miss growth for deleveraging. We are saying we will balance growth with deleveraging. As you can see, most of our growth from now on is organic because we have to build up capacities both in Kalinganagar and other and in Meramandali and also in NINL.
So these — the good thing about organic growth, they are not lumpy. They are over a period of time. And that helps us to match our cash flows with this and also gives us a lot more discretionary element as to how to speed up, how to prioritize risk capex. As you know that during the time when there was a downturn, we prioritize in our cold-rolling mill and pellet plant in Kalinganagar, which is near completion this — in the coming year.
So I think it is important for us to balance it. And I think we’ve done it pretty prudently and we’ll continue to do so. We are not doing mindlessly either deleveraging or the growth projects. And I think we are well poised with our larger size and more efficient capacities and stronger cash flows to prioritize both together. So I don’t think we will be missing out on anything at this point in time.
Prashant Kumar Kota — Dolat Capital — Analyst
Understood. Sir, just quickly on — one second question. So, if the coking coal prices remain where they are now, where they are now for the next three months, in Q1 FY ’23, what could be our dispenser coking coal consumption cost?
T. V. Narendran — Chief Executive Officer and Managing Director
Q3 or Q4?
Prashant Kumar Kota — Dolat Capital — Analyst
Next quarter to Q4. Next quarter to Q4.
T. V. Narendran — Chief Executive Officer and Managing Director
Q1 next year?
Prashant Kumar Kota — Dolat Capital — Analyst
Yes, sir. Yes, sir, assuming it remains same. Assuming it remains the same for the next 12 months. Same as it is.
T. V. Narendran — Chief Executive Officer and Managing Director
If it is — if we have — as Naren just guided a little while back, there’s a $40 increase that will happen in the Q4 as far as consumption is concerned. If it remains at that, then it will not have a delta impact. But the purchase of Q3 — Q4 will reflect in Q1 consumption.
Prashant Kumar Kota — Dolat Capital — Analyst
Yes, sir. quantum wise, how much will it be?
T. V. Narendran — Chief Executive Officer and Managing Director
I don’t have the ready number for Q1, but I can certainly give it to you offline.
Prashant Kumar Kota — Dolat Capital — Analyst
Its okay. Thanks for the opportunity. Thanks.
Operator
The next question is from Satyadeep Jain of AMBIT. Please go ahead.
Satyadeep Jain — AMBIT — Analyst
Am I audible?
T. V. Narendran — Chief Executive Officer and Managing Director
Yes.
Satyadeep Jain — AMBIT — Analyst
Thanks for the opportunity. A couple of questions. One on the capacity growth. You’ve highlighted the potential of maybe 40 million, 45 million tonnes across the portfolio. There is one more larger asset on the block of NINL. Given that you have so much optionality in your current portfolio, would you say no, the current portfolio meets our requirements, and we don’t look at any other acquisition? Or would that still be a consideration for you? Because we have been hearing about growth in deleveraging. Where does capital return fit into your capital allocation options when we look beyond next year? And tied to that would also be decarbonization regarding our blast furnaces in the next multiple years in NINL in the entire Indian portfolio. And these blast furnaces have — themselves would have 20, 30-year lives. So would you foresee blast furnace in your portfolio through 2060 possibly? That would be the first question. I’ll come to the second question after that.
T. V. Narendran — Chief Executive Officer and Managing Director
So Satyadeep, I’ll address the blast furnace part and let Koushik talk about the capital back that you asked. On the blast furnace, so we also need to look at a few things, right? So if you look at Europe, so there is a plan in Europe to decarbonize by the government and by the industry, right? So there is a huge investment happening in hydrogen in the infrastructure to not only generate hydrogen, but also to make sure hydrogen is available. And there is already a gas infrastructure in place. So if you look at India, in Eastern India, if you want to use anything other than a blast furnace to make steel, you don’t have scrap, you don’t have gas. So you have iron ore and you obviously have to use coal, right? So that is the reality until you build the infrastructure in India.
Secondly, India obviously has announced a 2070 net zero goal. So the policy road map is what we are discussing with the government because this transition is expensive and complex. And like in Europe, unless it is supported by government policies, it is cost negative for anybody to do anything which reduces the carbon footprint without any support. So I think that is a challenge we are dealing with in India. So what we are looking at is, firstly, how can we run very efficient blast furnaces with world benchmark as far as carbon footprint is concerned. Hence, I’m relating it to the earlier question on smaller blast furnaces and bigger blast furnaces. Secondly, how can you inject things into the blast furnace to reduce the carbon footprint, right?
And recently, we talked about the carbon CBM, that coal based methane — coal bed methane. That’s another because that has hydrogen. So you use that, you will reduce your footprint. Third is operating efficiencies as it is. We have reduced coking coal more than 100 kilos per tonne over the last few years. And of course, energy efficiency and many other things. So there will be multiple initiatives in the blast furnace route to really look at what is it can be done. Secondly, if you look at it globally for the steel industry also, we expect that blast furnaces will be there with CCU&S because there is not enough scrap in the world to really go only through the recycling group.
So there will be a book of options that steel companies can use. The third is by tweaking the quality of raw materials that you use, you can build on your carbon footprint significantly, and we will continue to do that. And fourthly, by charging more scrap in the steelmaking process, you can again bring down your carbon footprint significantly.
So there are multiple levers available for us. And over the next few years, depending on the infrastructure that is created in India, the supply and pricing stability of gas and hydrogen, you can decide that in these sites, beyond the blast furnaces that we are planning to build now, you can move towards gas-based DRI or hydrogen-based DRI and steelmaking. So I think those options are available to us beyond the blast furnaces that we’ve already given orders for. So that’s the flexibility that we have going forward, and we will pace it depending on the policy and the infrastructure transition in India.
Koushik Chatterjee — Chief Financial Officer and Executive Director
Just to add to, Satyadeep, on your earlier question. On will RINL or whichever else comes in will be looked at, but there is no firm view until it comes, and we will have to evaluate at that point of time. So the question is, what it brings and what value, et cetera, which we can’t answer at this point of time. And neither did we look at Neelachal on a car plant basis. Only when it fitted our strategy, we got interested in that. As far as capital returns is concerned, you’re absolutely right, and it’s very important for us, which is why you see us using the internal capital to deleverage, bring down the overall balance sheet risk significantly. That’s what’s been recognized even in the market. And we certainly will be looking at higher return on invested capital going forward. The growth in India needs us to grow our capability both in volume as far as value. So in every growth that we talk about, we are also talking about downstream value-added product segments and investing in them. So it is a way in which the capital returns can actually increase over time. And I think that’s our entire focus. You see this in Kalinganagar. We’ve mentioned this in NINL.
We are doing this in every acquisition that we are doing or our organic capex that we are doing. The last point that I would just want to supplement Naren’s is, we are also steadfast in our intensity as far as CO2 emission is concerned. We have made that public, and we’ll follow this off. And at this point of time, I think that is where our focus is because as we have more and more capacity, the intensity of carbon emission to go down is the most critical element that we as a management team can do. There is no alternative that has come about, which is feasible for large growth technologically. But we will track and migrate our transit to low carbon as and when it happens. So capital returns are certainly the first priority, which is why the balance sheet derisking was the first priority. Growth is an important priority. And doing it fast and getting the cash to cash cycle very important for higher returns.
Satyadeep Jain — AMBIT — Analyst
Okay. Just a follow-up, if I may. On the European front, there is an investigation in Netherlands. Is it possible to talk about what’s going on? What’s driving that? And also, there are two blast furnaces, if I understand it correctly, in Netherlands. One is due for relining next year and the other one is it is still a few years away. I know you’ve historically mentioned that the second one would be possibly looked at as a hydrogen DRI-based road. In the one that is coming up next year also, would there be a rethink of strategy? Or would you still go ahead? And what could be the capital expense there? That’s the last question.
T. V. Narendran — Chief Executive Officer and Managing Director
Sure. So Prashant — sorry, Satyadeep, the — Firstly, I want to say our Netherlands plant is one of the most carbon efficient and one of the cleanest steel plants in the world, right? So I think that is my starting point. But having said that, obviously, there are issues which we need to resolve. We have announced what is called a Roadmap Plus which is a program to reduce emissions very significantly from where we are even over the next three years, right? So this is something which has been announced last year, and that leadership team there is following through on that. What has happened is, obviously, over the last few years and there has been noise with the community, et cetera. There have been some cases which have been filed against management there on the subject on emissions, et cetera. Now recently, there was a report which came out which said that the emissions in the vicinity of our plant are higher than what we have reported as emitted. And we are — we don’t have the details to reconcile why it is different. We are working with the authorities to sort that out. But in the context of that report and in the context of the pending cases, et cetera, the local — the public prosecutor has said that they will look at it. We have said that we will cooperate with them. We are happy to transparently discuss with them. What issues are, we are committed to do whatever is required. So that’s where it is, and we will engage with the authorities to find the most appropriate solution to this.
But our commitment to run a clean and green plant continues. And all the plants that we’ve made will continue. Coming to your question on blast furnaces, See, again, the issue is even if we want to do something to the blast furnace, which is up for relining in the next one or two years, you don’t have enough gas or hydrogen to transition to an alternate route of that size, unless you decide to cut the production, right? So that is half the production in the site. And so what we are thinking is how do we plan the relining in a manner that you don’t plan for a 20-, 30-year-old life, you plan for as much of a life as you think you will need to have before the gas or hydrogen is available to transition to alternate routes. And the last one is which comes after that, we can take a call, hopefully, all the infrastructure and the supply is in place. So actually, this will transition to green at scale.
One is to transition to green for some small volumes. But to transition to green to scale is complex, is expensive, needs support of the government, needs supporting infrastructure, needs support in terms of supplies of hydrogen or gas. So that’s what is being worked out, and we will align ourselves with the readiness of the ecosystem as well as the needs of the community and the regulators.
Operator
[Operator Instructions] The next question is from Ritesh Shah of Investec. Please go ahead.
Ritesh Shah — Investec — Analyst
Question. Sir, how should one look at the numbers on incremental capital allocation for Tata Steel Europe or the production profile given relining is next year and there’s another furnace, which is two years out? So if one had to look at the production output versus targeted carbon intensity versus the capex that we look at for only specific for Tata Steel Europe, I would love to hear your thoughts on that. And I think for the other project, what you earlier indicated, I think we have already earmarked around EUR300 million, which contains order and emissions. If you could club both, that would be great, sir.
T. V. Narendran — Chief Executive Officer and Managing Director
Koushik?
Koushik Chatterjee — Chief Financial Officer and Executive Director
So I think fundamentally, we are not going to allocate any capital into Tata Steel Europe or in Netherlands. Netherlands is self-sufficient. I mean this year, they should close the year with more than EUR one billion of EBITDA, which should — which is going to give them the cash flows to build for the future. The EUR300 million — both the EUR300 million Roadmap Plus project, which is currently underway, as well as for the major repairs, if I were to use the word, for the blast furnace will be funded internally from the capital that is generated internally. And I think the Roadmap 300 will be multiyear. It’s not just one year. So it will take a couple of years to implement, and it will be funded from internal generation. And the repair work for the blast furnace or relining whatever you call it, will also be funded internally over the next two years or three years. Just now, they are in the engineering phase. What will happen during this phase, when the transition happens, is only one element, which is they will build slab stocks. And that is what we will see going forward, which could be as high as about 300,000 to 500,000 tonnes of slab stocks, which we are just now working to figure out how it can be minimized. But other than that, it will be essentially be at similar way this way.
Ritesh Shah — Investec — Analyst
Right. Sir, just continuing to the question. I think one of the key concern over here is the capex intensity for any green hydrogen related project that’s very high. So what is the direction in which the talks are going with the government? Basically, we had earlier indicated looking at U.K., Netherlands as two separate assets. So any progress over there? And is any of the governments buzzing towards actually helping out on the capex for the broader industry also for Tata Steel? I think it’s one concern on capital allocation. If you can give some comfort, it will guide you as well.
Koushik Chatterjee — Chief Financial Officer and Executive Director
So if I may just give you a sense that in Netherlands, there are already published schemes of subsidies, capital subsidies as well as OpEx subsidies. It’s called the SDE++ Then there are other schemes where the government is wanting to engage with us and which is what we are doing currently with them. So in Netherlands, at least, because it helps in decarbonizing the country as we take carbon out. So in many of these projects, the capital allocation in Netherlands will — in the transition go toward, for the decarbonization will be funded, A, through internally and, B, through the government subsidies and C, indirectly because of the high prices in Europe, it will be effectively directly be paid by the customers. So I think this is the three approach that we are seeing. Explicitly, we are keeping a very tight control on the cash flows to keep it as a capital to be allocated for decarbonization within Tata Steel Netherlands. Second, I think there’s active conversation going on, which they want to speed up because it is important for Tata Steel Netherlands to say that they will comply with the 2030 targets that Netherlands have kept for itself. And U.S. kept for themselves. So therefore, there is an acceleration of those conversations.
And finally, as you are seeing the market remaining strong to give us that delta to fund it. So I think that is the three approach. And I think over the next 12 months, we will get a very good idea as to how the government program on capital allocation and capital subsidies will happen. But it will also extend to OpEx because when you move towards hydrogen based, there will be an OpEx cost that also will have to be supported, which is what the government in Netherlands is also talking about. So the program is capex and OpEx. Because fundamentally, it’s a full transition to a low cost economy.
Ritesh Shah — Investec — Analyst
Sure. That’s very useful. Just a second question, how should we look at spreads for India and Europe? You have indicated on the coking coal consumption cost movement on a sequential basis. Are we confident of price increases to maintain similar levels of EBITDA given demand, is it good or bad? Some color over there would be quite useful. Thank you.
T. V. Narendran — Chief Executive Officer and Managing Director
Yeah. So as far as India is concerned, both Europe and India will see some impact of the input costs. The energy cost in Europe will be largely flat quarter-on-quarter. But Europe will see the impact of higher coking coal input cost, lower iron ore costs. India will see the impact of higher coking coal input costs, like I said, about $40 a tonne. As far as realizations are concerned, in India, we will see a quarter-on-quarter reduction in the realization simply because long products is positive quarter-on-quarter. Flat products is negative quarter-on-quarter. But more importantly, exports are significantly negative quarter-on-quarter simply because in Q3, we were servicing orders booked in August, September, October. Whereas in Q4, we will be servicing orders which were booked in November, December, January, right, before the prices have started going up.
So we will see that impact. So we expect — but the volumes will be higher in this quarter compared to the previous quarter, which will offset some of the reduction of the margin squeeze that you will see. So overall, Europe, we see it more positive from a margin point of view simply because we will have the benefits of the higher auto and packaging contracts that have been renegotiated in November and December, and which will flow through from January. Whereas in India, you will see a margin squeeze. But the volumes in both places will be higher than the previous quarter.
Operator
The next question is from Amit Murarka of Axis Capital. Please go ahead.
Amit Murarka — Axis Capital — Analyst
Hello?
T. V. Narendran — Chief Executive Officer and Managing Director
Yeah.
Amit Murarka — Axis Capital — Analyst
Yeah. Hi. Thanks for the opportunity. So my question was again on Europe. So we have seen spot prices actually coming off. And while you have said that in Q1 CY 2022 some contracts have been renegotiated up, but how do you see the general direction of realizations in Europe given the situation of softening spot prices?
T. V. Narendran — Chief Executive Officer and Managing Director
So Amit, the — we will have a benefit in our longer-term contracts, the auto packaging contracts. The — what is — the spot market certainly is seeing a softening. But overall, we are guiding that Q4 will be about GBP15 to GBP20 per tonne higher than Q3.
Amit Dixit — Edelweiss — Analyst
Right. And also, would you be able to kind of help us understand because obviously, like we have seen a lot of volatility in the prices as well as the commodity costs. But specifically on prices because you have like quarterly, semiannual, annual contracts, where would we be on the realizations versus, let’s say, a spot level? Like would we have reached parity largely? Or still there is some lag there in the realization of the prices?
T. V. Narendran — Chief Executive Officer and Managing Director
Are you talking Europe?
Amit Murarka — Axis Capital — Analyst
Yeah, Europe, yes.
T. V. Narendran — Chief Executive Officer and Managing Director
Yeah, Europe, the — now the contracts that we have signed are at higher than spot prices.
Amit Murarka — Axis Capital — Analyst
Okay. Sure. Thank you.
Operator
The next question is from Vishal Chandak, Motilal Oswal. Please go ahead.
Sumangal Nevatia — Kotak — Analyst
Hi. Thanks for the opportunity. So my first question is again with respect to the decarbonization. So if you look at other European players like SSAB and Salzgitter, they have all announced a vision kind of a plan of about $3 billion to $3.5 billion of spend to reach green steel programs by mid-2030s or early 2030s. So in that direction, do we have any ballpark number as to what kind of capex we are looking at? Obviously, relining one part of it, but if the green steel also really go down below one tonne of CO2, then blast furnaces et cetera will become obsolete and we’ll have to look at new ways, typically being electric arc furnace or some other method. So how do we really look at the long-term capex or life at Europe?
T. V. Narendran — Chief Executive Officer and Managing Director
Vishal, I’ll give you some comments, and then maybe Koushik can supplement. See, fundamentally, why blast furnaces been around for more than 100 years, because the cost advantage of a blast furnace as compared to any other process route is about $100 a tonne, right? So that is getting bridged with all these carbon costs. So any new steel which is produced through the electric arc furnace, would or using hydrogen — hydrogen will be even more expensive unless the cost of hydrogen comes down. So looking at much higher steel prices going forward purely to cover the cost, right? So — and in Netherlands, for instance, carbon footprint through the blast furnace is 1.8 tonnes, which is around the best in the world. right? So to that extent, we have the most efficient — carbon efficient blast furnace operating there. And so obviously, the carbon cost to our blast furnaces will be less than any other blast furnace operating in Europe. So we are well positioned to be the last blast furnace standing in Europe. That is one point.
The second point is we transition into green. Yes, it’s like building another steel plant, right? So you are investing in a process route. And so that’s why in Europe, everyone is clear that this transition cannot be afforded just by the industry. The industry will pay part of the cost, governments have to support it and customers have to pay more for green steel. Otherwise, who’s going to pay for this transition? And that’s why the government is also having a carbon modernization mechanism to make sure that these additional costs incurred by the European steel industry is not putting them in a disadvantage compared to someone else who can make steel cheaper through other process routes and sell it in Europe. So I think this balance is coming through in Europe.
We expect steel prices in Europe to be higher than it is, let’s say, in other markets where the carbon cost is not so high. And this transition will make sure that the efficient and the producers will continue to operate and be financially viable, which is what SSAB is doing it, Salzgitter is doing or what we will also do. But each country will follow depending on the infrastructure that is available. If you look at the Scandinavian countries, they have a lot of hydro power. So you have a lot of green energy available to transition more easily. If you look at France, it has nuclear. So different countries will follow different routes depending on what is the source of green power that they’re looking at. And I think Netherlands is looking at gas and hydrogen. And we will wait for that infrastructure and the supply side to be sorted out, and we will transition as fast as required.
Vishal Chandak — Motilal Oswal — Analyst
Thanks for the elaborate answer. Sir, my second question was with respect to Neelachal. So you’ve mentioned that at Neelachal, the long-term plan is to build a 10 million tonne portfolio of plant toward their land. The overall land which is available is 2,500 acres on which the existing plant as per the UI is about 2,200 acres. Would that mean that we need to scrap out the existing plant and then do a fresh layout? Or it means that we will continue with the existing plant and on side-by-side we’ll build an entire nine million tonne process over there? So how would that go? And also the current plant is only up to the slab cost stage trigger and build costing. So how do we intend to add the rolling mills also there? Would there be a space constraint or any other thing?
T. V. Narendran — Chief Executive Officer and Managing Director
So Vishal, just to give you a — so firstly, to answer your question more directly, we don’t have to demolish anything existing. There is enough place to build parallelly, right? Second point, I’ll give you a context. Jamshedpur is 1,800 acres. We are already producing 10 billion, 11 billion tonnes and if we want, we can squeeze in another three million, four million tonnes, right? So you can design and build. And Jamshedpur evolved over 100 years. So it’s not that you are out of space available to build. So we have experience in this. So we know how to do it and we can certainly take it to 10 million in places which are disrupting existing operations, right? So that is one thing. Secondly, sorry, I missed the — what was the second part of your question?
Vishal Chandak — Motilal Oswal — Analyst
Downstream, which is…
T. V. Narendran — Chief Executive Officer and Managing Director
Yes, Downstream. So yes, you’re right, just now it has only to steelmaking. But the advantage Tata Steel has is we already have what we call processing centers. We have leased our facilities for rolling. Already one million tonnes of rebars that we sell as Tata Tiscon is rebars ruled out of the billets that we have supplied with leased out facilities, which are 100% capacities committed to Tata Steel. So we just need to plug into that ecosystem. So 0.5 million tonnes of billets if you get. Because today, the EC formula for billets is 0.5 million if we’re going to take it to one million. That 0.5 million tonne can be immediately converted to Tata Tiscon rebars which fetches $100 per tonne more than any B2B sales in the retail market.
So we have those opportunities, and that was part of the synergy that we saw. Of course, we need to look at we have different legal entities, how do you manage the transfer pricing and everything else. But from an ecosystem point of view, rolling capacity is not a problem. We don’t need to invest in rolling capacity. With those billets, we can use leasehold capacities that are already in the ecosystem.
Vishal Chandak — Motilal Oswal — Analyst
Great. Sir, just last follow-up on the same question. What kind of capex we are looking at Neelachal over the next two years’ time frame? And I think would we be able to get out — have the commissioning of a new plant? By that time, what kind of capacities incrementally we are looking at?
T. V. Narendran — Chief Executive Officer and Managing Director
Yes, Koushik?
Koushik Chatterjee — Chief Financial Officer and Executive Director
So our first priority is to restart the current plant, which requires some amount of capex, especially in [Indecipherable] and other areas. And that’s going to cost us a few hundred million — a few hundred crores. But once we do that, so we are going to run the new plant on a parallel basis. And that’s the work — once the transaction gets closed, we will get a better feel of where the layout would be and how we would be looking and doing the pre engineering and implementation. But certainly, we will come out and demonstrate the timelines for the completion of that or buildup of that part of the expansion, which is — which will be about 3.7 million tonnes roughly to add up to 4.5 million tonnes in the first phase. So that’s something which I think in the next few months, we will be able to be in a better position post the closure of the transaction.
Vishal Chandak — Motilal Oswal — Analyst
Sure. Thank you very much, sir.
Operator
[Operator Instructions] The next question is from Sumangal Nevatia of Kotak. Please go ahead.
Sumangal Nevatia — Kotak — Analyst
Great significance and strategic relevance in this entire acquisition. If one can share, what is the overall reserves we had, it’s around 100 million tonnes. But what sort of steel capacity it can support? Are there any unexplored opportunities or reserves there? And will this entire four million, 4.5-odd million tonnes steel plant eventually will be integrated for iron ore?
T. V. Narendran — Chief Executive Officer and Managing Director
Yes. So Sumangal, what we know from what we have is that there’s at least 100 million tonnes of iron ore. But we haven’t had enough access to explore further, which we will do. And again, because we have a lot of experience in the subject doing mining for 100 years, and we have our own geologists in the team, we are sure that we will find something more than what has already been reported. So we will comment on that once we’ve had access and seen it in more detail. I think what we’ve done with Neelachal and all our other acquisitions has been secured iron ore beyond 2030. So whatever we are capacity as Tata Steel, whether it’s 40 million, 50 million I think we have between Gandel para, Kalamang, Vijaya [phonetic] mines from Usha Martin and now the Neelachal mines, we have enough to take care of our needs over — after 2030.
Of course, costs will be different. Of course, Neelachal is without the premium that we had to bid for in the others. So we can average down the cost. And because we have clarity of iron ore beyond 2030, we can now start building the infrastructure for that, the slurry pipeline, the transportation infrastructure. Because earlier, we were limited by the fact that we didn’t know where our iron ore mines would be after 2030. So these are the advantages that we have. As of now, we are self-sufficient — not as of now, I think for the foreseeable future, we’ll be self-sufficient as far as iron ore is concerned. And I think that is what has been our — what we’ve done over the last year or two through the auctions as well as through Neelachal and Usha Martin and Bhushan because all have come with iron ore mines.
Sumangal Nevatia — Kotak — Analyst
Understood. Understood. Sir, my second question is more of a top-level question. I mean, I just want to understand what is the logic of running this as a separate company. Given that we have so much of common infra and synergies with KPO, we are paying extra royalty for the iron ore transfer. And we also have a long product division in Jamshedpur. Overall, the management bandwidth is also well distributed. So all the reasons why we kind of merged Bhushan, also valid for merging Tata Steel Long Products. So I just want to understand the rationale of currently operating it as a separate company.
T. V. Narendran — Chief Executive Officer and Managing Director
Koushik?
Koushik Chatterjee — Chief Financial Officer and Executive Director
Yes. So I think, Sumangal, this is something that both the royalty costs have come during this year. And the acquisitions have come in or will come in, in the next couple of months. So we are certainly looking at how to look at synergizing all operations together. But as I said, both — all our listed companies are, at least Tata Steel Long Products is a listed company, and Tata Steel is listed companies, so we will have to consider in each board and figure out what needs to be done. All I can say and as I said earlier, that apart from the regulatory cost, which is the royalty cost, the team works seamlessly as one entity. So keeping all the regulations in place. So all that I can say is, at this point of time, I can’t talk anything beyond this. But in the future, whenever we have the opportunity, I’m sure the boards will consider what best needs to be done.
Sumangal Nevatia — Kotak — Analyst
Yeah. Got it. Thank you so much and all the very best.
Operator
The next question is from Sahil Sanghvi of Monarch. Please go ahead.
Sahil Sanghvi — Monarch — Analyst
Hello. Am I audible?
T. V. Narendran — Chief Executive Officer and Managing Director
Yes.
Sahil Sanghvi — Monarch — Analyst
Yes, so my question was more pertaining to Tata Steel Long Products. Considerable — considering the amount of acquisition, will it be all debt on the balance sheet? Or would you consider some rights issue also when we look at Tata Steel Long Products?
T. V. Narendran — Chief Executive Officer and Managing Director
Sahil, our holding in Tata Steel Long Products is almost at the brink of the allowable level, which is 74.9%. So rights issue is not something that will come in very easily from semi perspective because the margin of development will be very — is minimal, if at all. So we will — we are looking at structuring it in a manner such that it does not have any burden on Tata Steel Long Products and ensures that we can do the transaction well and even later on, continue to support as far as the build-out of NINL is concerned. So at this point of time, we’ll make it clear as soon as the transaction closes as to how we are structuring it. But we are mindful of the fact that Tata Steel Long Products cannot have the ability to take on this kind of capital raise in any form. So we will be ensuring that it doesn’t get burdened in the near future.
Sahil Sanghvi — Monarch — Analyst
Right. And my second question would be regarding the auto contracts over there for Long Steel — when it comes to Tata Steel Long Products. Has there been a revision also? And for how much magnitude?
T. V. Narendran — Chief Executive Officer and Managing Director
Yes. For H2, there’s been a revision. I think it’s about INR6,000 for long products per tonne compared to the previous contracts.
Sahil Sanghvi — Monarch — Analyst
Got it. Thank you sir and all the best.
Operator
The next question is from Kamlesh Bagmar of Prabhudas Lilladher. Please go ahead.
Kamlesh Bagmar — Prabhudas Lilladher — Analyst
Thanks. Realizations in India. So how much drop can we see there?
T. V. Narendran — Chief Executive Officer and Managing Director
Question clearly. Samita, could you?
Koushik Chatterjee — Chief Financial Officer and Executive Director
Realization in India and what…
Samita Shah — Vice President, Corporate Finance, Treasury and Risk Management
And our drop in Q4 in India.
T. V. Narendran — Chief Executive Officer and Managing Director
Okay. So Q4, the way we see it for India, it will be about INR3,500 per tonne lower than Q3. So just to break it up a little bit, in long products, it will be — I mean, I’m not talking about Tata Steel Long Products as a company, but Long Products as a business, it will be on the higher side. Flat products will be on the lower side. But the biggest impact is going to be the exports, which is at significantly lower NRs than what we have exported last quarter. So the net impact is currently as things stand, about INR3,500 based on what we see in February and March, if things change very significantly. Because now the sentiment is more positive than negative, then we will, of course, stand corrected.
Operator
From Pinakin Parekh of JPMorgan. Please go ahead.
Pinakin Parekh — JPMorgan — Analyst
Sure. Thank you very much, sir. Sir, just going back to the European question. Now, your peers have announced more aggressive plans in terms of ArcelorMittal with the French government fab. Now you mentioned that it is still at preliminary stage, and you highlighted that whatever capex has to be done, has to be done from those balance sheets. Now how do we — is there a way to basically codify this structure? Because going forward, if the markets where steel markets were to correct, but Tata Steel Europe is committed to capex, then there is a risk that the Tata Steel India balance sheet will again be called to fund that capex. So how can that potential multiyear capex at Europe, be ranked for the India balance sheet, irrespective of how the steel cycle moves forward?
Koushik Chatterjee — Chief Financial Officer and Executive Director
Pinakin, I think there are two things here. One is — we are talking about Netherlands because that is the most — in the most advanced stage, if I may say so, from a project point of view and conversations is more expeditiously done with the government of the Netherlands. So as I said, there is a program that they already have a subsidy program, which supports decarbonization. And we are — there is a process where you prepare application, submit the same, discuss with them and move forward. Earlier, the Netherlands government was more focused on CCUS. That transition has happened now or the most happening that they recognize because there are societal pressures on CCUS. And so we start talking about not the solution, but as a temporary way of capturing carbon. So the programs are also getting changed.
There is going to be a gap between announcement, talk and actual execution by whoever it is. And I think we can be aggressive and say a lot of things. But at the end of the day, it will take time. The hydrogen networks are being done. In Netherlands, for example, the existing gas network, they want to convert it into hydrogen network. And these are not overnight plays. This will take time. Our own engineering systems, our transition plan is underway. Every — almost every week, we look at how this transition is going to happen, how we’re going to — we are talking to the OEM suppliers on capital equipment. So what kind of equipments will happen, which is the furnace, which will be addressed or taken out first, etc.
So a lot of work is happening all on the same basis. And the estimation of capex, the spend will happen over four, five, six years, maybe longer. So I think the fundamental managerial focus that we have as a management team is to ensure that Tata Steel Netherlands takes advantage of the current market conditions, creates the capital for the transition and then seeks the support of the government. And if the CPM gets implemented by 2025, you can rest be assured that the prices will continue to be holding at a much higher level, which gives us advantage to create more internal capital. So I think, it’s not just a philosophy, but this year, this particular year, FY ’21, ’22 itself should give us enough of PCI capital to start a fair bit of the project as and when it comes. So I think that’s how we’re looking at it. And the reason why we are saying that it is to be done by TSN, it is because that we see that Tata Steel Netherlands has the ability to create the internal capital to do a fair bit of the project, supported by the government schemes and programs for the decarbonization and transition.
Operator
I would now like to hand over the conference to Ms. Shah to take the chat questions. Over to you, ma’am.
Samita Shah — Vice President, Corporate Finance, Treasury and Risk Management
Yes. Thank you, Nishall. So we have quite a few chat questions, and we’ve tried to collate them and answer as many as we can. First question, I think, is on iron ore. For all Tata Steel India entities put together, what is the current production level versus requirement? How do you see this moving forward? Are we looking at merchant sales volumes from India?
T. V. Narendran — Chief Executive Officer and Managing Director
So as far as iron ore is concerned, I think we are moving last — I mean, this year from last year’s 28 million to about 31 million, 32 million, and we’ll be at some 36 million or 37 million by the end of the year. Basically, we are expanding at the pace at which we need to use the iron ore because these are captive mines. Of course, if it makes sense. The government has come out with the recent amendments. We are still waiting for some clarifications. After meeting our requirements, if we are allowed to sell, what would be the royalty, etc. is being sorted out. And if we have the permissions, we will explore that. As far as the future is concerned, we already have environment clearances, I think, for about 52 million tonnes. So all our steel expansion for the next few years is fully covered, and we will pace our iron ore expansions as per the requirements of the steelmaking sites. And sales is an option also for some of the grades which we are not using. So we’ll explore those possibilities also.
Samita Shah — Vice President, Corporate Finance, Treasury and Risk Management
Thank you. There’s some questions on NINL in terms of funding the acquisition. The level of debt we will take and the way we will actually fund it. So maybe Koushik, if you could just clarify, I think you’ve spoken about it, but still a lot of questions on that.
Koushik Chatterjee — Chief Financial Officer and Executive Director
Yes. So the total enterprise value is 12,100, of which about INR6,600 crores is essentially going to go towards repayment for lenders, operational creators, employees, backlog payments, etc. So the way we are looking at it from a funding point of view is around 50% of the funding to be done through internal accruals of Tata Steel and 50% of bridge loans which we will aim to prepay over the next few quarters.
Samita Shah — Vice President, Corporate Finance, Treasury and Risk Management
Yes. Thank you. There’s a question on the broader macro outlook and steel prices in the medium-term, given the context of international inflation, government focus on commodity price changes, etc. So what is your pricing outlook, medium-term pricing outlook on steel prices?
T. V. Narendran — Chief Executive Officer and Managing Director
Is it globally or…
Samita Shah — Vice President, Corporate Finance, Treasury and Risk Management
It’s more international. Yes, it’s more international.
T. V. Narendran — Chief Executive Officer and Managing Director
International. So I think few things are happening, which we should recognize. Firstly, the steel trade is going through disruption, right? The biggest exporters of steel over the last decade or two were China, 60 million to 120 million tonnes a year; and Japan and Korea at some 30 million tonnes a year, right? Now all these countries are trying to reduce their exports because they want to reduce their carbon footprint, right? So all of them are importing raw material and exporting steel, and that’s a low-hanging fruit as far as reducing the carbon footprint is concerned. So the world trade is changing as far as steel is concerned, I think it will become more and more regional and local. And so it will be driven more by local and regional dynamics rather than global flows.
Second point is the cost of steelmaking is going up for everyone. For everyone because coal prices are today higher than steel prices for three years back. And iron ore prices, which dropped to below 100 is again back to 140. In Europe, energy costs are high, carbon costs are high. In Europe, everyone is investing to build new capacity, that means more capex and more capital costs. So overall, the cost structure of the steel industry is changing in addition to the trade flows also changing. So we believe that the steel prices going forward will be at a much higher level than we’ve seen in the last 10 years. It will continue to be volatile, as we’ve seen even in the last 12 months, but it will be volatile at a much higher level than we’ve seen in the last 10 years.
The other point which is happening is, globally, everyone is trying to spend their way in some sense out of trouble. You see it in the U.S. Even in Europe, huge amount of investment is going to go into transitioning into a green future. So that’s all capex. And any capex means steel is consumed either in the factories that make the products that are being built off of the green infrastructure. If you are to have infrastructure to support the transition to green that will mean consumption of steel. Similarly, in India, we’ve seen that there’s a 35% increase this year on top of a 20%, 25% increase last year. So every year, the capex is going up. Infrastructure focus is going up.
So the demand is expected to be strong. So I think the demand-supply balance will also be better. And nobody is adding capacities like it happened between 2000 and 2010 when China was adding 40 million, 50 million tonnes of capacity a year. The only place wherein capacity is being added at reasonable scale is India, and that is also — you know that in India, it’s not possible to add 40 million, 50 million tonnes a year, 10 million, 15 million tonnes. And that’s why we believe that having brownfield options is a great place to be in because starting any greenfield site will take much longer than it did in China or anywhere else.
So I think this is the situation. The steel business will be at a different place. If you look at governments, yes, governments are concerned about rising commodity prices, but steel prices today are much lower than it was six months back when a lot of this discussion was on a high. And also, I think India is still one of the cheapest places in the world to buy steel, and it has been for most of the last one year. So I think Indian exporters who are using steel made and sold in India are actually at an advantage, which is also reflected in higher engineering exports during this year compared to the previous years. So that’s, in summary, the way we look at it.
Samita Shah — Vice President, Corporate Finance, Treasury and Risk Management
Thank you. The next question is on the leverage ratio for FY ’23 or I think actually, it says what will be your net debt target for FY ’23. And a related question on account of the M&A, which has come is that since you said this 50% bridge funding, will you repay that using a U.S. dollar offshore bond issuance? Or will that be — how will that be actually taken out?.
Koushik Chatterjee — Chief Financial Officer and Executive Director
The bridge debt?
Samita Shah — Vice President, Corporate Finance, Treasury and Risk Management
For the NINL acquisition, since you said we’re using bridge funding. I think the question is how will the bridge be taken out?
Koushik Chatterjee — Chief Financial Officer and Executive Director
That’s easy, internal accruals. I think we’re not going to raise bonds to pay back bridges. So I think the very nature of this is essentially that deleveraging will continue, and therefore, we will certainly look at it. ’23 target, I think ballpark around the same level. We’re better positioned to clarify that somewhere when our financial results for March come out because we are in the process of doing our planning. But we have also said that our long-term net debt to EBITDA will be within 2.
So I think that is an important thing to keep in mind for all the growth that we are talking about. And it will be a 2-leg stuff between deleveraging and growth, as we’ve mentioned in the past.. But in the shorter term, I think we will be more around the current levels. As I mentioned in my commentary, post the NINL and with the bridge debt, it will not change very significantly from the levels that we are closing in December. So we should be able to maintain our debt levels. And next year, we should be continuing to do our deleveraging as we will spend on our capex.
Samita Shah — Vice President, Corporate Finance, Treasury and Risk Management
Thank you. The next question is about Tata Steel Netherlands and the investigation, which was reported recently. The question is, “What is the likely financial impact of this investigation on Tata Steel Netherlands?
Koushik Chatterjee — Chief Financial Officer and Executive Director
So just…
T. V. Narendran — Chief Executive Officer and Managing Director
As of now — sorry, Koushik, go ahead.
Koushik Chatterjee — Chief Financial Officer and Executive Director
No, I just wanted to say that as of now, the public prosecutor is basically saying I will look into it and see what is the allegation all about because this has been referred to him and complained about. It is not that he has initiated something on his own. So there will be a time when they will come across and see all our data information intent. And we have also said that we look forward to this investigation with confidence and cooperation. So I don’t think we can estimate anything at this point of time. Let this process get over, and then we will be in a better position.
Samita Shah — Vice President, Corporate Finance, Treasury and Risk Management
Okay. Thank you. There is a question on TS U.K., “Do you have any decarbonization plans? And can you shed some light on that?”
T. V. Narendran — Chief Executive Officer and Managing Director
So I think on U.K., basically, we are in conversation with the government. In U.K., it’s going to be different. Any decarbonization plan to look at how to better leverage the scrap that is available in U.K.. Unlike most of the countries in Mainland Europe, U.K. has a surplus of cash — of scrap and is an exporter of scrap. So we’re looking at — but the energy costs in U.K. are high. So any transition plan has to factor in the operating cost of using the recycling route with the lower carbon footprint of using the scrap, which is being exported out of U.K.
So this is a conversation going on with the government. We’ve submitted our proposals. We are awaiting a response from the government, and we are happy to take it forward as long as we agree on a plan with support from the government because the transition in the U.K. cannot be done without support from the government. While the business is standing on its own today, but in the longer term, the transition will need the support of the government. So we are waiting for the government to come back to us.
Samita Shah — Vice President, Corporate Finance, Treasury and Risk Management
Thank you. The next question, I think this has been partly answered. There have been many questions, I’m just going to take it again. “Are you looking — the steel is — the government might be interested in privatizing sale and they have a large land banks. So would you be interested and would you look at that asset?”
T. V. Narendran — Chief Executive Officer and Managing Director
I think we — our current position is what we have with us is enough for us to grow from in the 40 million to 50 million tonne range, as I described earlier. So we are in a position where we can exercise our options depending on the situation at that point in time. But I think our growth ambitions, at least for the next 10 years can be met with the land and the sites that we have today. And we’ll take a call depending on the situation.
Samita Shah — Vice President, Corporate Finance, Treasury and Risk Management
Thank you. The next question is on Tata Steel Long Products. The question says that, “You had announced the merger with Tata Metaliks and there hasn’t been any progresses since. In light of this acquisition, can you tell us your strategy for these two companies going forward?”
Koushik Chatterjee — Chief Financial Officer and Executive Director
Yes. So it’s — so we had some feedback from the regulators, et cetera. And in light of NINL, we’re going to reassess and come back by the end of March going from where we are headed to.
Samita Shah — Vice President, Corporate Finance, Treasury and Risk Management
Thank you. And I think this is probably the last or the second last question is on the dividend policy. “Is there a change in the dividend payout policy? I see a progressive dividend policy versus robust payout earlier. Any comments?”
Koushik Chatterjee — Chief Financial Officer and Executive Director
So I think we have — you have seen the dividend out over last year. It is a function of two things. It is a function of our current and future performance and also on our capital needs. And certainly, on the need to create shareholder value by paying out dividend. We recognize the fact that we have a large retail base also. So we balance all these priorities. And if you have seen the last decade or the last five years, we have always looked at servicing our shareholder requirements through dividend while maintaining prudence as far as the payout is concerned. So as a policy, we do have a policy which is articulated and publicly known in our website. But beyond that, we are relooking at how best to service our shareholders keeping in mind our future strategy in place.
Samita Shah — Vice President, Corporate Finance, Treasury and Risk Management
Thank you. And the last question, which we will take, which is again on capital allocation. “In sales, given the pace of debt reduction, the forecast capex and the enormous cash being generated by the business, is the buyback something the company will look at in the near future?”
T. V. Narendran — Chief Executive Officer and Managing Director
We’ll put it up to the Board for sure. But I think in a serious note, I think we have a significant amount of capex. We have given a guidance for capex of about INR10,000 or INR15,000 crores in the long term. INR10,000 to INR12,000 in the shorter term. Our capex is — next year is going to be higher because we are going to pace out on our Kalinganagar expansion and complete the same. So that it in turn, can generate the cash flows. So we will certainly look at capital allocation as a very important part. But whatever other opportunities to create shareholder value, the board is very engaged and we’ll continue to do so. And as a management team, our best job is to ensure that we can create the profitability and cash flows with options for the Board.
Samita Shah — Vice President, Corporate Finance, Treasury and Risk Management
Thank you. I think we’ve taken most of the questions, which were answered. So with that, we will end here. To all our viewers. Thank you very much for joining us today, and we look forward to connecting with you again after next quarter. Bye-bye, and take care.
T. V. Narendran — Chief Executive Officer and Managing Director
Thank you.
Koushik Chatterjee — Chief Financial Officer and Executive Director
Thank you.