18. Provisions for liabilities and charges

18. Provisions for liabilities and charges

(i) The rationalisation provision relates to costs arising from approved restructuring measures at Tata Steel Nederland (TSN) under the SCALE transition programme. The provision includes unavoidable costs directly associated with the implementation of these measures, such as employee termination benefits, site rationalisation costs and other directly attributable exit and closure obligations.

A provision is recognised when a detailed formal plan has been approved by management and communicated to affected parties, creating a constructive obligation, in accordance with IAS 37 Provisions, Contingent Liabilities and Contingent Assets. A portion of the provision relates to restructuring measures within specific operational functions where implementation is subject to ongoing employee consultation and related legal processes. Management considers that, as at the reporting date, a present obligation exists in respect of the associated termination benefits, with remaining uncertainty relating primarily to the timing of execution rather than the existence of the obligation. The amount recognised represents management’s best estimate of the expenditure required to settle the obligation at the reporting date. The provision does not include costs associated with future activities or operational losses.

The provision is measured at management’s best estimate of the expenditure required to settle the obligation at the reporting date and does not include costs associated with future activities or ongoing operational losses. Movements in the provision during the year reflect charges recognised for restructuring measures approved under the SCALE programme, utilisation of the provision as measures were implemented, and adjustments resulting from updated estimates where applicable.

The provision is classified as current based on the expected timing of the underlying cash outflows arising from the reorganisation measures.

(ii) Environmental provisions mainly comprise asbestos-related provisions and steel slag management provisions, both of which relate to obligations arising from past activities and represent present obligations under applicable environmental and safety regulations.

The asbestos provision relates to the safe management, removal and disposal of asbestos-containing materials identified at certain sites. This provision was assumed as part of the business combination with LAG Velsen and represents obligations that existed at the acquisition date. The provision covers unavoidable remediation activities required in connection with maintenance, refurbishment or demolition of existing assets and is measured based on management’s best estimate of future costs necessary to comply with statutory health, safety and environmental requirements.

The steel slag provision relates to obligations associated with the handling, storage, treatment and, where necessary, remediation of steel slag resulting from historical and ongoing steel production activities. These obligations arise from environmental permits, regulatory requirements and long‑term site management responsibilities for slag storage and processing facilities.

Both provisions are recognised and measured in accordance with IAS 37 Provisions, Contingent Liabilities and Contingent Assets. Measurement is based on expected future cash outflows and reflects assumptions regarding remediation techniques, regulatory standards and the expected timing of expenditures. Provisions are classified as current or non‑current depending on the anticipated settlement period.

(iii) Emission Scheme Provisions (EU ETS)

The Group participates in the European Union Emissions Trading System (EU ETS), under which it is required to surrender European Union Allowances (EUAs) to settle obligations arising from verified carbon dioxide (CO₂) emissions generated during the reporting period.

Free EUAs received under the scheme are not recognised as assets, as they are obtained without cost and are intended to settle emission obligations arising from normal operations. A provision for emission scheme obligations is recognised only where the Group’s verified CO₂ emissions exceed the number of free allowances received. The provision represents the present legal obligation to purchase and surrender EUAs to cover emissions in excess of the free allocation, arising from emissions generated prior to the reporting date.

The provision is recognised and measured in accordance with IAS 37 Provisions, Contingent Liabilities and Contingent Assets. It is measured at management’s best estimate of the expenditure required to settle the obligation at the reporting date, determined by multiplying the volume of verified CO₂ emissions exceeding free allowances by the quoted market price of EUAs at the reporting date. Where free allowances fully cover emissions, no provision is recognised.

Movements in the emission scheme provision during the year reflect charges recognised for emissions generated during the reporting period, utilisation of the provision through the surrender of EUAs to the relevant authorities in settlement of prior‑year obligations, and the resulting closing balance for emissions generated but not yet settled at the reporting date.

The measurement of the provision involves estimation uncertainty, primarily relating to the final quantity of verified emissions subject to regulatory confirmation and the EUA market price at the reporting date. Market prices are derived from active trading markets, and valuation techniques are applied consistently from period to period.

(v) Employee benefits provisions primarily relate to long‑term employee benefits and include obligations for long service awards, sabbatical leave, disability benefits and continued salary payments during long‑term sickness.  

These provisions represent the present value of the Group’s obligations arising from employee service up to the reporting date and are recognised in accordance with IAS 19 Employee Benefits. As the benefits are generally settled more than 12 months after the reporting date, they are classified as long‑term employee benefits.

The obligations are measured using independent actuarial valuations, reflecting management’s best estimates of future benefit payments. The actuarial calculations are subject to key assumptions, including inflation rates, future salary increases, discount rates determined by reference to market yields on high‑quality corporate bonds, and relevant demographic assumptions such as mortality, employee turnover and disability incidence.

Provisions are classified as current or non‑current based on the expected timing of settlement, with amounts expected to be settled beyond 12 months after the reporting date presented as non‑current liabilities.

(vi) Other provisions primarily relate to legal and similar matters arising in the ordinary course of business. The provision represents management’s best estimate of the expected outflow of resources required to settle the dispute, based on the circumstances known at the reporting date.

The provisions do not include amounts relating to fines, penalties or future operating losses. Due to the inherent uncertainty associated with litigation, the ultimate resolution of the dispute may differ from the amount provided. Where appropriate, and to the extent not prejudicial to the Group’s position, further information is disclosed in the contingent liabilities section of the financial statements.