TATLY - Tata Steel Limited (TATLY) Q1 2024 Earnings Call Transcript
2023-07-25 22:10:06 ET
Tata Steel Limited (TATLY)
Q1 2024 Earnings Conference Call
July 25, 2023 3:30 AM ET
Company Participants
Samita Shah - VP, Corporate Finance, Treasury and Risk Management
T.V. Narendran – CEO & Managing Director
Koushik Chatterjee - Executive Director & CFO
Conference Call Participants
Sumangal Nevatia - Kotak Securities
Satyadeep Jain - AMBIT Capital
Pinakin Parekh - JP Morgan
Amit Murarka - Axis Capital
Indrajit Agarwal - CLSA
Tarang Agarwal - Old Bridge Capital
Ritesh Shah - Investec
Kirtan Mehta - BOB Capital
Presentation
Operator
Ladies and gentlemen, good day, and welcome to the Tata Steel Analysts' Call. Please note that this meeting is being recorded.
I would now like to hand over the conference to Ms. Samita Shah to please take it forward. Over to you, ma'am.
Samita Shah
Thank you, Kinshuk. Good morning and good afternoon to all our viewers. On behalf of Tata Steel, I'm delighted to welcome you to this call to discuss our results for Q1 FY '24. We have with us our CEO and Managing Director, Mr. T.V. Narendran; and our ED and CFO, Mr. Koushik Chatterjee. They will share their thoughts on the results and answer any questions you may have. Our presentation is uploaded on our website and I hope you've had a chance to go through it. As always, the safe harbor clause on Page 2 of that presentation will guide the entire discussion today.
With that, thank you and over to you, Naren. You're on mute.
T.V. Narendran
Thanks, Samita. Good afternoon and good morning to everyone. I'll start with a few comments and then hand over to Koushik. The economic slowdown in key regions has obviously weighed on global commodity prices and steel in general. And the U.S. and EU continue to face inflationary pressures and a tight monetary policy, while the Chinese recovery has been more muted than expected.
One of the outcomes of this is higher steel exports from China, which has led to a moderation of global steel prices between May and June 2023. In fact, China was exporting about 8 million tonnes a month, which is -- which it had last done in 2016. While key steelmaking inputs, coking coal and iron ore prices did move lower the steel spot spreads peaked in May before moderating for the rest of the quarter.
In India, the economic activity continued to improve and the apparent steel consumption was up 10% year-on-year for the quarter. And despite good domestic demand, steel spot prices declined in line with international prices and sentiments in the market. And hot rolled coil prices dropped by about INR4,000 during the quarter for that in India.
Moving to our performance. Our crude steel production in India was around 5 million tonnes. Production was up 2% year-on-year, but marginally lower on quarter-on-quarter basis because of planned maintenance shutdowns. And the India production now stands at about 70% of the overall portfolio and will continue to rise in the coming years.
India deliveries grew 18% year-on-year, primarily driven by the rise in domestic deliveries to chosen segments such as automotive and retail. And our well-established brands like Tata Tiscon and Tata Steelium had best ever first quarter sales. Our net realizations improved by almost INR1,000 per tonne quarter-on-quarter despite the market movement, primarily driven by contract sales and product mix.
And moving to Europe, our steel deliveries were around 2 million tonnes in the first quarter. Revenue per tonne was up about GBP33 per tonne on a quarter-on-quarter basis. And as we had explained in the past, our contract and product mix ensure that our net realizations are different from the benchmark, which is a Northwest Europe in a Chinese (ph) spot, with a one quarter lag.
And in the previous quarter, the drop in NRs was 50% lower than the decline in the benchmark and consequently the improvement in this quarter was also correspondingly lower. Overall, the high revenue per tonne was offset by elevated input costs, including energy and the ongoing relining of one of the two blast furnaces in Netherlands and that we had guided last quarter as well, that the blast furnace, one of the blast furnaces was down for relining. And that will obviously impact Q1 and Q2 for us.
In terms of growth, multiple projects are underway across India and we remain focused on leveraging the expected pan-India growth across steel and new segments. For instance, we have leading market share in auto and the 5 million tonne expansion at Kalinganagar will lead in consolidating our leadership position in auto and grow our presence in value-added segments such as oil and gas, solar, et cetera.
Similarly, Neelachal and the upcoming electric arc furnace in Punjab will drive our retail presence. And in terms of reach, we have more than 200 distributors now with over 20,000 dealers. And we'll continue to expand our virtual presence with the e-commerce platforms like Aashiyana where our sales in the last 12 months has crossed 1,600 crores. We are also looking to grow in downstream portfolio across wires, tubes, ductile iron pipes and tinplate where we have a dominant market share.
And in tubes, we have recently commissioned, along with our partners, two new mills, which will increase the capacity in tubes from 1 million tonne to about 1.3 million tonnes. And our investments are strategically focused on business sustainability and growth. Tata Steel is committed to being net zero by 2045 and multiple initiatives are already underway, calibrated to each operating location.
In Netherlands, we are pursuing Roadmap+ for the last few years to bring about significant reduction in emissions, dust, odor and noise. And we are also engaged in discussions with our technology providers and the government as we make choices on the process route and the technology and transition to green steel as we have promised to do over the next few years -- greener steel over the next few years.
In India, we've undertaken various trials, including injecting hydrogen in the blast furnace to reduce emissions and have also initiated measures to replace around 379 megawatts of coal-based power with renewable energy. Looking ahead. In India, the domestic demand remains supported by government spending and improving consumption across and new segments. However, the drop in international prices and seasonality have dampened prices. And we expect a drop in realizations of INR100 per tonne from -- in Q2 compared to Q1 in India, but we will, of course, benefit from the drop in coking coal consumption by about $57 per tonne quarter-on-quarter.
In Europe, our net realizations are expected to drop by about GBP38 per tonne. Coking coal consumption is expected to improve by about $46 per tonne. And the ongoing relining, as I've mentioned earlier, of one of the blast furnaces, that our [indiscernible] is taking time and will obviously continue to impact costs in the second quarter as it did in the first quarter. And separately, the upgradation of the cold rolling mill, where we had some issues post upgradation is now getting resolved and we should be back to normal production there as well.
Thank you. And over to Koushik.
Koushik Chatterjee
Thanks, Naren. Good morning, good afternoon or good evening to all who have joined in. I will begin with the quarterly performance provided on Slide 23. Our consolidated revenue stood at about INR59,490 crores with improvement in realizations across geographies despite the uncertain operating environment and moderation in global steel prices. Our consolidated EBITDA stood at about INR6,122 crores, which translate to a consolidated margin of 10%.
At the India Tata Steel stand-alone level, the EBITDA stood at INR7,348 crores, which translates to an EBITDA per tonne of INR15,895. Excluding the ForEx impact, the EBITDA was slightly higher at about INR7,403 crores. As provided on Slide 28, there was drop in EBITDA on absolute basis primarily due to lower volumes compared to the previous quarter, as the fourth quarter is typically a seasonally stronger quarter.
Within costs, material costs were down, but this was partly offset by higher conversion costs on account of royalty related expenses which increase normally with a lag. The royalty increased by about INR353 crores to about INR1,315 crores due to higher notified IBM prices. Overall, the EBITDA margin was stable at about 23% quarter-on-quarter. Further improved profitability was witnessed in the Neelachal operations, which turned EBITDA positive within nine months of the acquisition.
At Tata Steel Europe, EBITDA loss stood at about GBP153 million and on a per-tonne basis was broadly similar to the fourth quarter, in line with the guidance that we gave. As shown in Slide 30, the steel production was lower quarter-on-quarter given the relining of one of the blast furnaces in Netherlands, but deliveries were close to 2 million tonnes, as we began to consume the buildup stocks that we had done earlier. Improvements in revenue per tonne, broadly offset by elevated costs, including energy. As previously explained, we have hedges in place and the drop in spot natural gas prices will take a quarter to reflect in the P&L.
Other income has increased by about INR1,000 crores, primarily driven by the increase in the standalone accounts. We have signed a lease agreement with Tata BlueScope Limited, which is a 50-50 joint venture with BlueScope Australia for the line -- the coated lines at Meramandali and Khopoli. And this led to the reclassification of these assets and accordingly it's reflected in the accounts. Consolidated PAT considers a gain of about INR338 crores, which is net of tax, on account of this transaction.
Let me speak a few words about the taxes, which stood at about INR1,331 crores. The current tax was about INR1,027 crores and was broadly in line with the tax and profitability of the India operations. The deferred tax was about INR303 crores on a net basis and is a combination of movement of various entities. We have completed the buy-in of the remaining liabilities and with this, the British Steel Pension Scheme has been successfully derisked.
Similar to previous instances, this has led to a noncash deferred tax of about INR1,200 crores. However, this has been partly offset by other non-tax -- deferred tax credits at other facilities such as Europe. I would like to mention that there is a residual asset surplus relating to British Steel Pension Scheme in the books of about GBP200 million. As we get the execution completed with Legal & General, this will also be reflected as a deferred tax charge in the future.
The volatility in steel markets has also impacted working capital and cash flows. There's been a buildup of around INR2,500 crores in this quarter. However, this was more due to the price effect, as our working capital number of days remained stable at around 34 days compared to about 37 days in fourth quarter. Moreover, in the last 12 months, we have released about INR9,200 crores through the various working capital measurements that we have taken as a management.
We continue to commit to growth in India, as Naren mentioned, and spent about INR4,089 crores on capital expenditure during the quarter. We have been steadily prioritizing growth in India, and our overall CapEx spend has been about 15,500 crores in the last 12 months. This will obviously lead to our consolidation of our market position. At Kalinganagar, the 5 million tonne expansion plan will drive volumes as well as positively impact our fixed costs coverage. We continue to prioritize Kalinganagar growth and have spent close to about 18,900 crores till date.
Apart from that, we have started commissioning the 2.2 million tonne cold rolling mill in phases. The full hard cold rolled coil is already being produced. The CAL and the galvanizing lines will be commissioned subsequently. Furthermore, the savings in operational efficiency on account of the 6 million tonne pellet plant has started to begin reflecting in our performance.
In IJmuiden, the ongoing relining of the blast furnace 6 is being financed by internal accruals of TSN operations. The upgradation of the cold mill 21 is close to completion. While the relining of blast furnace 6 will weigh on performance in the next quarter, there will also be product mix improvement on account of the cold mill upgrade. Neelachal has ramped up as well and is now close to operating capacity at the rated capacity of about 0.9 million tonnes. The coke plant will be commissioned in this quarter and is expected to drive cost efficiencies in the future.
Overall, the working capital and cash flows, on account of higher CapEx have led to an increase in the net debt of about INR3,600 crores on a quarter-on-quarter basis, which is now about INR71,397 crores. Our finance costs are broadly stable on a quarter-on-quarter basis. The net debt-to-EBITDA is about 2.9, and net debt-to-equity is 0.69. The group liquidity remained strong at about INR30,500 crores, including INR19,000 crores of cash and cash equivalent. As stated, that we are keen to prioritize growth in India and are recalibrating our deleveraging targets accordingly given where the market conditions are.
We are now looking to continue to deleverage. That will remain the priority over the next couple of years, but focus on growth continue to take a higher and higher priority. And the sustainability is the core of our strategy, which includes providing comprehensive disclosures. We published our first business responsibility and sustainability reporting, which you would have read, covering about 14 entities that make up about 98% of our revenues. We've also published the climate change report, aligned with the recommendations of the TCFD, in the integrated report of FY '23.
And finally moving to the UK.: We are in regular and intense conversations with the government, who have also indicated their willingness to secure a decarbonized and competitive future for the UK steel industry. Tata Steel has clearly articulated that the solutions have to be implemented quickly, has to be financeable in an effective manner and will require to transit out of some of the end-of-life assets. So this is broadly where we are, as far as our performance and the future of Tata Steel is concerned.
Thank you, and over to the floor for question-and-answers. Thank you.
Question-and-Answer Session
Operator
We will now begin the question-and-answer session. [Operator Instructions] The first question is from Sumangal Nevatia of Kotak Securities. Sumangal, please go ahead.
Sumangal Nevatia
So my first question -- yeah. My first question is on the Europe division. So we've -- one is, if you could just share what's our outlook on returning back to some breakeven and some positive at the EBITDA level over the next few quarters. And overall, I mean, are we seeing light at the end of the tunnel? I mean we've been incurring almost $800 million annualized loss at the EBITDA level over the last three quarters.
So I mean, what are our targets and views for next one to two years? And do we have any stiff targets, as far as some return on capital employed, under which we will decide to take some tough decisions as far as that business division is concerned? So yeah, I mean, overall just on some near-term guidance on profitability and how we are seeing next two to three years.
T.V. Narendran
Yeah. So I'll give you some inputs and then Koushik can supplement. So even (ph) if you talk to the last three quarters, so if you look at the last three quarters, Q3 of last year was when really the highest energy prices and the lowest demand, in some sense, it is, as the conflict in the UK panned out in some sense of the term. So though -- while we did have some hedges to protect us for some quarters, so this was where we had a challenge in -- particularly in Netherlands because UK is separate. And if I look at Netherlands, it's always been a EBITDA positive, cash positive business which had not required support from India, but the last two quarters have been different for these reasons: One is, we were hit by these input costs going up very significantly, thanks to the conflict.
And secondly, as we guided in the last quarter, there's a blast furnace relining which meant, out of the two blast furnaces, one blast furnace was shut down for six months pretty much. That means Q1 and Q2 of this year, so you're seeing the impact of that. So while -- we did stock up on slabs. And that's why the sales drop has not been as much as the production drop, but firstly, those fixed costs which we have for a 7 million tonne production is now distributed over a much lower production, which is reflecting in core numbers and evidence. UK is a bit more reflective of softer steel prices. And oftentimes when we have softer steel prices, we do have a challenge in UK. As Koushik said, in UK there is a conversation going on with the government to find a long-term solution, which we hope that will come to a conclusion in the next few months.
And in Netherlands, also apart from the blast furnace starting up in the second half of the year and we going back to normal production levels in second half, there is a transition plan being made, so as far as the performance, operating performance, is concerned, Netherlands should come back to normal levels which is typically cash positive and EBITDA positive. We should come back to those levels in the second half of the year, but UK, yes, has some structural challenges which we are trying to deal with.
Koushik, do you want to supplement on what I said?
Koushik Chatterjee
Yeah. Thanks, Naren. So just to -- since Sumangal, you asked about, in fact, two questions. One is on the next few quarters; and next couple of years, so let me just try to articulate the two parts. I think, the next few quarters, we will -- the next quarter will -- as Naren guided, that there are pressures on prices. In Netherlands, our relining will get completed more around the end of next quarter, the early part of the third quarter. And from third quarter, onwards, I think Netherlands will certainly come back to its normal operating levels. And maybe, the second half of the third quarter onwards, it will certainly come back to its operating level. And we expect that Netherlands will continue to be strong in the context of the market that exists there.
And it has -- historically, if I look at last decade of numbers, it has always as Naren mentioned, it's been a PAT-positive and a cash-positive business, so I, we expect to do that. We are also taking a lot of efforts in terms of structurally improving that. And that is going to have a cost impact or cost takeout impact in -- but it will not happen in this year. It will happen over quarters in next year, onwards. And we would -- because we will have to become ready for the decarbonization in Netherlands. And that's the reason why the cost structure will start getting aligned to the decarbonized position, which will happen in a few years’ time.
In the UK, we would certainly see the -- in the next couple of quarters a similar kind of range of performance, but as I mentioned and as Naren mentioned that we will be coming to a -- we will enter a decisive position sometime in the H2 of the year. And we will have to take calls and which is under consideration and we will have to come to a different operating structure and operating model, so -- but that would not happen before March '24. This will -- the process will take time and that is what we will be looking at. UK in the long term, in the next two to three years, we will certainly look at a different operating model. And depending on the conversations with the government, we will then have to look at a reconfigured hardware in the UK and see where it goes. And I am sure that we will have the time and opportunity to talk more of it in details as we go along in the second half of the year.
So this is where I would put it and like you, we are extremely mindful of the EBITDA losses and then the performance losses that happened in the -- in our European portfolio, but I can also assure you that we are working towards a structurally more robust operating configuration in both UK and in the Netherlands.
Sumangal Nevatia
Got that. That's very reassuring. Thank you for the elaborate answer. My second question, sir, is on the capacity expansion. So one is on KPO 2 blast furnace, we are nearing the commissioning maybe sometime towards the end of the year. So now since we are not many quarters away, is it possible to give some specific time line, as far as which quarter we can see commercial production to start from KPO 2 blast furnace? Number one.
And number two, we've put a very impressive and informative Slide 11 on -- in our deck, as far as next 2030 expansion time lines and potential of reaching 40 million tonnes. The important element here is the iron ore because, by 2030, what I understand, we will be -- all our iron ore mines will be put on auction. And we might not be able to retain all of them, so what's our strategy on iron ore given that we are now articulating our 2030 target, as far as steel capacity is concerned?
T.V. Narendran
Yeah. So as far as Kalinganagar is concerned, the cold rolling mill and pellet plant have already started working. The galvanizing lines, annealing lines will get commissioned over the next few quarters. The blast furnace is expected to come on by Feb, March. That's the current time line. Blast furnaces, as you know, ramp up quite fast, so if we have a good ramp-up, you should start seeing the volume impact clearly next year, which is the next financial year.
The steel melt shop, we've already added or we should be adding another stream, another caster, so that should add about 0.5 million tonnes straightaway. We will get some benefit of that this year. That should start by October or November, but the full benefit will come once the blast furnace comes and the complete steel melt shop expansion is done. So I think FY '25 is when you will start seeing the volume impact. I think we'll give you more specific guidance closer to that, but you will start seeing the volume impact.
The cost impact is already being felt because, with the pellet plant commissioned, we have stopped buying pellets. We used to buy a lot of pellets. We've also started shipping pellets to Meramandali from Kalinganagar, so our cost impact is already being felt. Cold rolling mill will again help us margin, if not help us on the volume, because you're converting hot rolled into more value-added products, but the additional volume will start coming from second half of the year in terms of the steel melt shop a little bit. And that's why, if you'll see, in the beginning of the year, we had guided a 1.5 million tonne increase in volume this year compared to last year.
And some of it was coming from Kalinganagar, and some of it from Neelachal. As far as our 2030 plans is concerned. And I'll note all our existing mines, as in the mines which we've had for a long time, will come up for auction in 2030. As per the law, we have a right of first refusal. In any case, we will participate in the auctions, so we can always bid for it and bid to win if we want to. So that is one option. Secondly, we've also started -- we participated in an auction. We've got a mine already, the Nandanpura mine. In addition to that, with Neelachal, one of the reasons we bid for Neelachal is it also has about 110 million tonnes of iron ore.
With Bhushan, we got another 100 million tonnes of iron ore. The Nandanpura mine is about 350 million tonnes of iron ore. And with the Usha Martin steel business acquisition, we got about 25 million tonnes of iron ore, so we already have about 500 million tonnes of iron ore with us, which goes -- which is with us for the next 30, 40 years, but obviously that's not sufficient for the kind of volumes at which we will be operating, so we will continue to bid for more iron ore mines between now and 2030. And we have the option to bid for the mines -- our own mines which will expire in 2030.
So the objective is, of course, to make sure that we are secured on iron ore and obviously manage the weighted average cost of our iron ore. There may be some mines where we may have to bid more. There will be somewhere we will get it at a less of a premium and we'd manage as well.
Sumangal Nevatia
Got that. That’s very elaborate. Thank you and all the best to the team.
Operator
The next question is from Amit Dixit of ICICI Securities. Please go ahead.
Samita Shah
Amit, we can't hear you. Kinshuk, let's move to the next speaker, please.
Operator
The next speaker, Satyadeep Jain from Ambit Capital. Please go ahead. Satyadeep, please go ahead.
Satyadeep Jain
Hi. Thank you. Am I audible?
Samita Shah
Yes.
Satyadeep Jain
Yes. A couple of questions. First one, as a follow-up to Sumangal's question. Obviously the blast furnace relining will be complete in another quarter or so and the energy hedges roll off. Given where the spreads are, could we -- and given all these tailwinds from rolling-off of energy hedges and completion of blast furnace relining, could we possibly look at breakeven EBITDA for the entire European entity by the end of third quarter given where spreads are? And tied to that would be in the annual report there was a target of $1 billion for debt reduction and working capital reduction. We've seen working capital increase and debt increase in this quarter, but would management maintain that target for the entire FY '24? So that's the first question.
T.V. Narendran
Yeah. So I'll answer on the -- so it's like this. We certainly expect the Netherlands business to be positive EBITDA in the second half. And the plan for the year is for it to be positive EBITDA for the whole year, right? And if you look at the current spreads, they are in the range of EUR260, EUR270, which is better than normally you look at EUR225, EUR240. The reason why those spreads in the last year became less relevant is, normally when you look at spreads, you didn't look at the electricity prices and gas prices. Spread was looked at only iron ore, coal and steel price, right? Because electricity and gas prices were typically about EUR30 or EUR40 a tonne.
It wasn't as material as iron ore and coal, but over the last year, that EUR30, EUR40 went to EUR120. Now it is settling back at EUR90 and EUR80 and EUR70 and as it comes back, you will at EUR270 also be very comfortable. So the second half of the year, you will see the lower energy prices coming back to -- still higher than long-term average but coming back to more normal levels. And we will see the production back to normal levels, which will make sure that our costs are back to normal. So that's why Netherlands is very clearly back on track in the second half of the year, but I think UK is where obviously we have a challenge. We are still looking at the numbers for H2. And at this point in time, I think we'll wait for the Q2 call to really give you a guidance for H2 on particularly UK, yes.
Koushik, do you want to add to that or -- and also comment on the debt?
Koushik Chatterjee
Yeah. So just to add on it, Satyadeep, a couple of points. One is just to build on what Naren explained. And for the full year, certainly Netherlands will be in positive EBITDA; and that's what we are going to be working on. It will start certainly from the third quarter, onwards. And then we'll look at fourth quarter as it comes, but full year, our target is certainly to be that. In the UK, there will be pressures on this as it is continuing at this point of time, so the -- on an underlying basis, on a combined European entity, we will certainly focus towards being breakeven. That is on a combined basis.
On a reported basis, if we move on to taking structural actions in both Netherlands and in the UK and UK in particular, there would be a structural cost takeout that will get reflected in the reported numbers in the second half. So I will just say that we will fork out, in the second half, between the underlying performance, which we'll continue to focus on the breakeven and including moving towards a positive zone, but on the reported side, if we have to take structural actions, especially on the UK, et cetera., some of these actions will have cost implications which will get reflected in the second half results. So I think that is how I would put it.
And I think the -- on your question on the debt. I think, sometime back when we had an Investor Day, we essentially said -- and I think I can remember I was criticized for saying that -- why is your net debt-to-EBITDA target so high. Because you would have -- be swimming in money, so -- but I think we have taken the right call to say that it will be between 2x and 2.5x. I think that's -- that net debt-to-EBITDA goal will continue to be there. There will be -- it is not something that we have a quarter-on-quarter basis, but certainly on a year-on-year basis, we will try to adhere to that 2x to 2.5x levels, including with the higher capital allocation.
But if there are extraordinary costs that comes in because of events like, for example -- the blast furnace relining in Europe is one in 10 or 15 years, so those kind of things do have to be absorbed to ensure sustainability of the business. Such things -- if that happened, then it distorts for a while but doesn't take our eye off the ball, as far as deleveraging is concerned. And we'll continue to be in that zone. Maybe, when we are allocating peak CapEx, that can get breached for a while but again come back because that CapEx is meant for good purpose and increase our EBITDA in due course of time.
So I think I would stick to that parameter and ensure that our deleveraging is also a same priority as we grow on our CapEx, but in India, we are seeing a multitude pipeline of growth, be it in Kalinganagar at this point of time or the EA furnace in Ludhiana. And pipeline is really strong, so therefore we are really looking at it. What does -- while the deleveraging and keeping the balance sheet and the investment grade is a big priority for us, I think we will try to balance between that as well as keeping the growth engine on in a substantial manner. So I think what you need to track, which is the 2.5x net debt-to-EBITDA -- which is this quarter at 2.9x. By the end of the year, we will certainly want to bring it back to that 2.5x level.
Satyadeep Jain
Second question, on the European decarbonization. In the presentation, it is mentioned the blast furnace one will be transitioned by FY '30, so can you remind us? When is the relining due for blast furnace one, the other one in Netherlands? And by -- how long would it take for that to complete it? And the CapEx for that transition. And tied to that would be entire carbon border adjustment tax, that there is talk in India of a voluntary carbon pricing. If companies want to take that lower price and use that to ship products to Europe, how would European steel companies generate ROC on the decarbonization CapEx, if some of the -- and companies also use that lower voluntary carbon price to ship steel to Europe on the C band (ph)?
T.V. Narendran
So firstly, in Netherlands, basically one blast furnace, which is called the BF6, is being relined. The bigger blast furnace, BF7, which produces 3.5 million tonnes, is up for relining maybe in 2026 or 2027. The plan is what we've already said when we did the BF6 relining, is this is the last relining that we are doing because we want to transition away from blast furnaces, into DRI-based production with an electric arc furnace to support it and later maybe a reduction -- reducing electric furnace. So those discussions are going on internally on phasing the right technology based on the technology maturity and to solve the product mix and other conditions, so that work is pretty advanced. And a lot of work has been done already.
Already, the engineering work has been done on some of these options. We're having very detailed conversations with the Netherlands government. And there also -- so in Netherlands, the advantage we have is a lot of this transition can be supported by the cash flows that we generate out of Netherlands, so we're looking at how can we find that optimal balance of -- between the cash flows that we generate, the support that we get from the government and any project financing that we may take for that project. So that work is going on, but largely it could be -- it is something that we expect to be self-sufficient and taking care of itself.
As far as the what you asked. See basically the carbon border adjustment mechanism is linked to the tax, carbon tax, that we pay in Europe based on the carbon footprint that we have, so if you look at it from that perspective: Already our Dutch plant is one of the most carbon-efficient plants in the world. It has a carbon emission of 1.8 tonnes per tonne of steel compared to Tata Steel in Jamshedpur which is at 2.11 and the best in India, all right?
So if you were to apply the carbon tax, anybody shipping from India with a higher carbon footprint will be at a disadvantage. And I don't think the European government is going to allow anyone to ship material without paying that carbon tax when the local industry is already paying that carbon tax. Because then you're penalizing more carbon-efficient industries like the one we have in IJmuiden and importing steel from less-carbon-efficient process routes. So I think the way carbon border adjustment mechanism is framed is to look at your carbon footprint and pay tax accordingly.
Now if you can make steel in India with a lower carbon footprint and ship it to Europe, that's a different matter, but today our European facility is one of the most carbon efficient in the world, so if you apply the principles of carbon border adjustment mechanism, we won't be any less competitive than we are today. And as we transition into a greener process route, that carbon footprint comes even lower. So I think, while in India -- of course, the carbon border adjustment mechanism is being discussed at multiple levels, but from a European standpoint, it's not just us. Most of the steel industry in Europe and the governments in Europe are supporting this transition. And I'm sure that they will ensure that in Europe there is no unfair competition from less-carbon-efficient sources.
Koushik Chatterjee
So if I may just add to -- Satyadeep, to that point with -- Naren explained. The CBAM is actually a carbon equalization process, so therefore, if you -- if any company in India, and for that matter, anywhere in the -- else in the world, was to adopt voluntary internal carbon pricing, that has to reflect in the carbon -- in the product that goes to the -- Europe. So just by adopting an internal carbon pricing will not change the embedded carbon. You have to actually produce the product which has equalized carbon or less carbon than what European standards will provide.
So I think that it's kind of an illusion if somebody were to think that if I apply -- like Tata Steel today applies $40 internal carbon pricing, but as Naren mentioned, our carbon footprint is 2.1, so that doesn't make us any way competitive with -- vis-à-vis carbon as with the CBAM if it was to come in force today. We have to reduce it to the average levels of carbon which CBAM will specify in 2026, so I think that needs to be cleared in our minds, that what really makes sense -- and all the transitions that are happening in Europe are looking at a sustainable business case and an investment case for this transition, which I would presume would be in the zone of between, say, 8% to 12% of ROIC.
Satyadeep Jain
Thank you.
Operator
The next question is from Pinakin Parekh of JPMorgan. Pinakin, we are unable to hear you. We...
Pinakin Parekh
Sorry. Can -- am I audible now?
Operator
Yes, we can hear you, Pinakin.
Pinakin Parekh
Yeah. Thank you very much. Sir, my first question is going back to the debt reduction. So is it fair to say that now the $1 billion absolute net debt reduction guidelines that we had at the beginning of the year now would not stand and we should look more at debt-to-EBITDA even -- which would mean that the absolute debt could be higher?
Koushik Chatterjee
So no. I think -- let me correct myself. So the net debt-to-EBITDA is a frame that we are looking at, has been looking at. Earlier, we said 2x to 2.5x, if you recall, when we had that conversation on the Investor Day, I think, a year or two back. That continues to be our frame. The $1 billion debt reduction number is also a number that we will continue to pursue, but the question is that which is -- like, for example, this quarter, we had about 7,200 crores of repayment which partly we had to refinance. So that's why you don't see it in this, because the working capital increase and the CapEx increase have offset that number, and as a result of which, you see a INR71,000 crores net debt number.
Going forward, in the next quarter, we have 4,500 crores, part of which will be repaid. So we will continue to do that on a gross basis, but the fact is that our allocation of CapEx is also increasing. And there is some volatility which you can see in the coal prices and steel prices, which is reflecting in the working capital, so if I were to take out the working capital impact, we would have certainly seen a net debt reduction. But because of the working capital being -- blocking it in some ways and because it is not on the gross basis but on the liability movement because fundamentally the raw material prices or the coal prices moved sharply down, the creditors numbers came down.
So I don't see that we are giving up on the $1 billion target. We may surplus it -- surpass it or we may fall short of it, but we will keep working on that $1 billion and also the net debt-to-EBITDA number, so there are two frames in this equation. We will continue to do that. All that I said is then our CapEx allocation are increasing more than what we have done in the past. In the past, we have also put deleveraging ahead of CapEx, and by which, we have also slowed down our CapEx, like Kalinganagar, which in hindsight has actually not helped us.
So the ongoing CapEx is not starved of funds. We will continue to push that, close the CapEx, start getting the output of that kind of growth and continue to deleverage. So it's not a binary thing, honestly, Pinakin. It's -- actually it works in parallel and we have to manage it based on the circumstances of each quarter and each year as it comes across.
Pinakin Parekh
Sure. Thank you very much, sir. So just to follow up: If we were to take a view of the next 12 months, yes, there is India CapEx. And there is volatile earnings, but is there a risk to the target $1 billion net debt reduction not being met because of unforeseen spending in Europe, especially in UK? I mean just trying to understand that -- between the India CapEx, the Europe CapEx and the debt reduction, we understand the priority is India CapEx, but what between Europe and the debt reduction?
Koushik Chatterjee
Yeah. It is -- so I think it's a valid point. And I think the -- if you look at -- let's look at 2023 financial year or '22, '23. We had a similar $1 billion, but we did not kind of need it because we started allocating more and more CapEx to Kalinganagar and the volatility in working capital did affect. In Europe, for example, Netherlands is sitting on almost EUR0.5 billion of cash, so as far as the -- and that is reflected in the net debt number because you have that cash sitting there.
Now the blast furnace relining, for example, is funded through internal generations and internal cash of Tata Steel Netherlands. And that is going to reflect -- as you spend the money, then that gets reflected in the net debt also if you are stopping your production because of the blast furnaces, yes. And therefore, it will get related, but it will come back again and replenish that because that is actually the core, corpus. And we add to that corpus to ensure that decarbonization in Netherlands is done primarily by government support as well as by internal cash flows, and that's how we are going to structure that stuff.
Now in the UK, if there are any extraordinary structural cost that as I said is incurred, that will take cost -- cash out of the system. And I think that is important because, once we have done that, we will actually ensure that we get into a level where that cash bleed comes down very significantly, if not to a neutral and positive zone. So in the next 12 months. So if I look at till July 2024, there is certainly the objective of ensuring that we repay on the basis of some of our scheduled repayments, which doesn't get refinanced but paid out. That will be one target.
And secondly, how do we optimize on the cash that we may have to pay out to do any restructuring, as far as Tata Steel UK is concerned?
Pinakin Parekh
Understood. Thank you very much, sir, for the detailed answer.
Operator
The next question is from Amit Murarka of Axis Corp -- Capital. Amit, please go ahead.
Amit Murarka
Good afternoon. Thanks for the opportunity. So the first question is on Europe again. So the energy hedges have actually been impacting numbers as you've highlighted. So could you just help understand generally like what is the periodicity of these hedges? And what is the quantum of impact that could be coming in relevance to the spot prices just to better understand the benefits that will come in subsequent quarters?
T.V. Narendran
So typically, we hedge, I think, three quarters at 25% every quarter. So that's why, in some sense, Q1 and Q2 would be the peak of what we hedged maybe three quarters back, right? So from Q2, in fact, in some sense, Q1 was a peak. From Q2, you will see if I add the gas prices and electricity prices on a pound per tonne basis. Q1 is the highest, Q2 will start dropping and then Q3, Q4 will drop further. So that's pretty much a trajectory. Most of the drop will come in H2. So that's why the benefits will accrue more in H2 than in H1.
Koushik, do you want to add to that?
Koushik Chatterjee
No, that's perfectly fine. Actually, the hedging happens on a rolling basis and an increased percentage basis. We are also reworked the approach to it given the volatility because when the prices are the maximum, the view from the entire analyst community is it will remain like this. And that kind of also helps us to take the hedges, but then the market has moved very differently. So one is working on consensus, the other one is to also get a sense as to how the market moves, and how much is the risk appetite to keep it open. So I think we -- you will see that the impact of the hedges will wear out, and the energy prices are a lot more range bound at this point of time. So that would not kind of make too much of an impact going forward.
Amit Murarka
Sure. And is that possible to quantify, like what could be the hit of those hedges in Q1?
Koushik Chatterjee
Samita?
Samita Shah
[Technical Difficulty] details with you. And just to add, in FY '22, actually, we benefited from the hedges. If you see how the spot prices had moved because we had hedges in place, our costs were actually much lower in FY '23. In FY '24, we will see some of that impact, and we can share the number with you.
Amit Murarka
Sure. And my next question is also on Europe. Like, so this quarter, like at least from the reported P&L, I see that there's almost a $60, $65 per tonne Q-o-Q improvement in the realization. If I remember right, you had guided for a much lower, $15 or so. So is there any one-off in that or it's actually been much better than you thought?
T.V. Narendran
No, I think the guidance that we gave was -- it was pretty much, Samita, if you remember what we have guided is what we got, right, such a big variance in the realizations. Yes, I'll just give you the number.
Samita Shah
Are you talking about Europe, specifically?
Amit Murarka
Yeah, Europe.
T.V. Narendran
We'll come back to you on this. But lastly, if I remember right, both the cost guidance and the net realization guidance for Q1 compared to Q4 was pretty close to what we have guided. And basically, our guidance for Q2 is GBP38 per tonne reduction in realizations in Europe, about INR3,200 per tonne reduction in realizations in India, to some extent, supplemented by coking coal consumption prices reducing by about $50 per tonne in both Europe and in India. In Q1 compared to Q4, the guidance on the coal consumption was also close to what we get it.
Samita Shah
Yes. Just to add to that, Amit, while the NRs and the coal guidance we've discussed, I think there were some additional costs because of the cold rolled mill taking a little more time to stabilize. And of course, the blast furnaces being down. So some of these costs have actually impacted the profitability, which is what you're seeing.
Operator
[Technical Difficulty] is from Indrajit Agarwal of CLSA. Indrajit, please go ahead. Indrajit, we are unable to hear you. We request you to please send in your question via chat.
Indrajit Agarwal
Can you hear me now?
Operator
Yeah, Indrajit. We can hear you.
Indrajit Agarwal
Hi. I have two questions. First, can you explain better the BlueScope team? What exactly have we done here? And what kind of advantages can we see?
Koushik Chatterjee
Yeah. So on BlueScope -- actually, BlueScope -- Tata BlueScope is a 50% -- 50-50 JV, which has been in force since 2005, '06. And it is a very significant player in the coated products market in -- especially the building systems and construction. So as per the JV agreement, all the coated products in the building systems space is being done or should be done by the JV. Now when we acquired Tata BlueScope -- sorry, Bhushan Steel, we actually had similar product lines in Bhushan, which would have essentially violated the JV as also to have parallel products in the market.
So to ensure that we are consistent with our approach on -- as far as the JV principles are concerned, we actually agreed with BlueScope that we will ensure that we have a long-term lease of these facilities and assets into the BlueScope JV. And that JV will effectively continue to face the market, make the products, the substrate comes from Tata Steel, and it continues to ensure that system-wise, we are a, compliant with the JV agreement and, b, more importantly, the market continues to be fed in a more aggressive manner on the coated products, which is a very value-added segment, and it is also growing very significantly. So that is fundamentally the arrangement.
And the accounting implications of that, which is essentially then you derecognize the assets in your books and convert it into a lease assets and we'll continue to get the lease charge as well as margin on those assets going forward, will be the earnings for Tata Steel. So that's fundamentally the arrangement.
Indrajit Agarwal
So effectively, when we look at the release, then it moves from EBITDA to other income. Is that the correct way to look at there?
Koushik Chatterjee
That's correct. The turnover goes, the EBITDA goes, and it goes to the other income.
Indrajit Agarwal
So the current other income run rate could continue in the foreseeable future right Or there is no one-off.
Koushik Chatterjee
No. Not in this manner. It will be in the form of a lease charges. So this is a fair valuation transfer that has happened, which is what has got reflected. What will come in the future is basically the lease charge as well as the margin capital charge and the margin on the leased assets. So that number will be much smaller than what you saw in.
T.V. Narendran
Reported very good numbers. [Multiple Speakers]
Indrajit Agarwal
My second question is again going with Europe, right? So there are a lot of news floating around, what kind of -- so there are a lot of news floating around what kind of support the UK government is extending. So any initial thoughts on what is the current -- where are we on the discussions currently? What kind of support are we looking for and what is it that is promised any quantification?
Koushik Chatterjee
So I think what I would suggest is that, Indrajit, let us complete the whole discussion with the government because there's not just a support money point of view. There is also support from policy point of view. There is a lot more other enabling support that we are in discussion with. These are -- they have accelerated and picked up speed, and we would hope to come to a frame. As I said that in the second half of the year, we will be in a better position to actually come out and say what is our plan for UK going forward.
T.V. Narendran
I think there's a bit of...
Koushik Chatterjee
Yes. There's somebody speaking behind, so I couldn't kind of...
Operator
[Technical Difficulty] is from Tarang Agarwal of Old Bridge Capital. Tarang, please go ahead.
Tarang Agrawal
Hi. Good afternoon and thank you for your time. I have a couple of questions. One on Slide 10 of the presentation, it's mentioned that at about 23% of the CapEx was for environmental and social initiatives. Is it 23% of the entire CapEx for FY '23 or if you could just clarify that? And the second is, what is the absolute level of working capital as on 30th June? And while you've explained it in a fair bit of detail as to how you see it, I just wanted to understand, I mean, is there an absolute target that you would perhaps operate with, given the overall cash flow metrics of the business?
Koushik Chatterjee
So this 23% of the CapEx for environment and social is based on a total portfolio basis. That's what we have disclosed in the past also.
Tarang Agrawal
So that's 23% of all the CapEx spend in FY '23?
Koushik Chatterjee
So if I look at it, a large part of CapEx in Europe, be it Netherlands, in the UK, in India, have what we call as CAT 1, category 1, which includes environment, which includes the license to operate, those kind of categories, which are like must CapEx, which is safety CapEx and so on. Those all taken together is this number.
T.V. Narendran
It would include investments being made to improve emissions, many other, reduce CO2, whatever, all that will come under that.
Koushik Chatterjee
On your second question, I think I'll -- what I'll do, I'm just searching for the numbers to give you. But effectively, maybe Samita, you can give it to Tarang. And I think fundamentally, what we are saying is the gross working capital, which is -- which we manage mostly by number of days holding, whether it's inventory, finished goods, spares, et cetera, slabs and any work in progress. That bit in number of days has been pretty tight. What also happens, which is actually in our world, it is the efficiency metrics.
Now for example, there are special situations. For example, Netherlands was stocking up slabs for the blast furnace relining shutdown. So there was an increase that happened in the last three quarters. But this quarter, for example, Netherlands is deeply positive in working capital release because those slabs have got consumed and has got converted to sales. So fundamentally, we look at it in the efficiency metrics in number of days. And that is what is the main part.
The second bit of it is the creditors, which is the net of effect on the working capital, which goes up and down based on the large buys on coal and iron ore, especially in Europe. Now that is a fluctuating a bit, which ensures that we continue to manage this bit in the manner in which the creditor line can be as flat as possible. The volatility of price effect does come in. In gross working capital also the volatility of steel prices gets into the debtors as well as into the finished goods.
So we manage these metrics, and we have seen this volatility in not only with us, but all our peers, because that is the way with long supply chain, especially on coal and for iron ore also in Europe. These do have fluctuating impacts. But even within that, we then optimize on the number of days. We keep reducing every one day is a big release in the working capital and that's how we approach, but the exact numbers, Samita can give it to you.
Tarang Agrawal
Yeah. Just one more last question then for the annual report. If I look at the stand-alone financials, the capitalized expenses is in the order of about INR4,500 crores. And our CapEx in the stand-alone financials was in the order of about INR9,800 crores. So is my understanding right that a reasonable part of the CapEx in the stand-alone financial has gone in for the INR4,500 crores of pre-operating expenses?
Koushik Chatterjee
No. We don't have pre-operating expenses. What we have -- what we do is we capitalize at the end of the year assets which are commissioned. And therefore, of the total CapEx, it is actually additive rather than being a subset. So if you spend -- see -- some part of it will be work in progress, some part of it will be capitalized. These two should add up to the CapEx that we spend for the year.
Operator
Next question is from Ritesh Shah of Investec. Ritesh, please go ahead.
Ritesh Shah
Hello.
Koushik Chatterjee
Yeah.
Ritesh Shah
Yeah. Hi. Sir, thanks for the opportunity. A couple of questions. Sir, you indicated residual surplus of GBP200 million pertaining to BSPS. How should one understand the cash flow impact over here?
Koushik Chatterjee
Cash flow impact is zero. There is no cash flow impact. This is all -- so you see the fund or the BSPS is a separate entity. And this was in our books, and as we did the buy-in with the insurance company, the assets and liabilities both started going away. And it had surplus because that's the surplus that helped us to do the buy in. So as it went out, the surplus also went out. And when you take out the surplus, then the deferred tax impact, which is a noncash impact, hit the P&L. So there is no cash flow impact in the entire buy in that we have done of GBP8 billion.
Ritesh Shah
Sir, the reason I ask is, I think end March, there was a surplus of around INR6,600 crores, and there is a technical requirement of 103% of the liability, which the insurer would like to have, that's a minimum number. So it might leave out certain quantum, is there a hope that, that could come back to the India balance sheet? So the question was more pertaining from that angle.
Koushik Chatterjee
No. No hopes for that because it is -- as I said, it's a separate entity, which gets consolidated in the TSUK books and hence in Tata Steel books. But this is completely a noncash transaction. The bit on the surplus is the trigger point with not only the insurance company, but also with the trustees that when it reaches a surplus, we can do a full derisking, which is why it's, in effect, a lock, stock barrel transfer in parts, and that's what we have achieved. And in the end, there will be some residual, which will also have to be taken out because we are not the owners of the assets. The owners have moved into the insurance company. So there's no cash flow impact positive or negative that will happen.
Ritesh Shah
Sure. Sir, second, you indicated we'll take a decisive action on Tata Steel UK. Sir, why do you use our decisive in second half? Specifically, you also have elections around the corner, which becomes a bit of a volatile situation. So is there anything that we are looking at it from a number standpoint, which made you use the word decisive?
Koushik Chatterjee
The decisiveness is purely because the assets have come to -- coming to the end of life. And therefore, to ensure that the safety of the employees working and compliance to all the regulatory stuff, we need to come to a view. It has nothing to do with any other extraneous factor because it is clearly because of the way the assets are at this point of time. And when we talk about the asset, let me also clear it is the heavy end assets, which are coming to an end of life. And we need to take actions as a responsible corporate on these assets. So this is essentially the reason.
Ritesh Shah
Yes. This is helpful. I'll join back the queue for more questions. Thank you so much.
Samita Shah
Yeah, Ritesh, Just to answer your question -- just to add to the question on the BSPS charge out of the GBP200-odd million, which Koushik mentioned, there would be a corresponding deferred tax charge of around GBP50 million. So that's what you need to factor in.
Ritesh Shah
Sure. That's helpful. Thank you so much.
Samita Shah
Thank you.
Operator
[Technical Difficulty] the conference over to Ms. Samita Shah for the chat questions. Over to you, ma'am.
Samita Shah
Thanks, Kinshuk. So the first question is actually on the consolidated EBITDA. And can you please draw a bridge to INR6,122 crores? So this is, I think, really coming from the TBSLDs and how do we kind of arrive at that number?
Yes. So essentially, if you -- when we are looking at EBITDA, we are actually looking at it slightly differently from the way you do. So we are really looking at total income and then excluding expenses, whereas I think when you are looking at it, you exclude other income, and that is essentially the difference of what gives us INR6,122 crores.
So we'll move to the next question. What is driving the -- this is on TSLP. What is driving the higher sales realization at TSLP? Is there any one-off in that?
Would you like to take that, Naren?
T.V. Narendran
No, there is no.
Koushik Chatterjee
No, there is no [Technical Difficulty] at best would be if the iron ore sales is included.
T.V. Narendran
So higher compared to the previous quarter, but actually, the quarter-on-quarter is lower.
Samita Shah
Yeah. It's in line actually. So I'm not sure where -- there is better profitability. I don't know if you're referring to that. Your question says sales realization. Sales realization is pretty much flat.
T.V. Narendran
TSLP is, of course, benefiting a bit from the strong auto market because TSLP has a lot of products going to auto. But quarter-on-quarter, it's not -- the only thing is -- okay, Samita, it's possible that the Neelachal numbers are consolidated into TSLP and Neelachal sales in Q1 would be higher than Q4, so I don't know if that is...
Samita Shah
Thank you. What is the expected reduction in net sales -- in NRs in second quarter for India operations? I think you explained it. Let me just...
T.V. Narendran
Yeah. We said about INR3,100 per tonne quarter-on-quarter reduction.
Samita Shah
What's -- this is on Netherlands and the decarbonization project. What sort of funding are we expecting from the Netherland government?
T.V. Narendran
I think the conversation is still on, too early to give a specific number. But I think what we also highlighted to the Netherlands government is the kind of support that the other countries in Europe are providing to our peers in Europe. So whether it is Germany, whether it's Spain, so the conversation is going on, on what would be a fair level of funding, not only to support us in the transition, but also to make sure that we have a reasonably level playing field in Europe post the transition.
So I think that's where we are. When we are closer to conclusion, we can share the details, but I must say that we've had very positive conversations with the government. Of course, just now there's a change of government -- political leadership, but we continue the conversations with the senior bureaucrats in the Dutch government. Koushik, anything you want to add?
Koushik Chatterjee
No, I think that's the fair summary. I think this will take some time to crystallize. And I think because we will also have to come back with our CapEx estimation of that transition, and we are just now working -- starting to work on the technology partner as well as on the engineering and design work. So it is a bit parallel conversation and that sign-off will happen. Potentially, it will take at least about a year or so to get into the final state. But there is work to be done, which is what we are doing. And the support, as I said, even in Netherlands, it's a combination of policy support as well as funding support.
Samita Shah
Thank you. The next question is on the sale Tata Steel UK. So it says Tata Steel UK has been importing HRC from Tata Steel India. Are these imports being done to support Tata Steel UK operation or to be sold in the local market or both? And also, do these imports fall under the UK steel safeguard quotas?
Koushik Chatterjee
Yeah. The second answer is yes. It falls within the quarters, and we are complying with the quarters. But these exports to UK are part of the downstream alignment, and we are not selling directly into the UK market. It is actually given as a substrate to the UK downstream, for example, the tubes and then Tata Steel UK. sells it -- converts it and sells it to their customers in place.
Samita Shah
Thank you. The next question is on steel exports from India and how that is facing issues. So it says what is the impact of China -- higher Chinese exports? Indian steel exports have been facing stiff competition from Asian origin, so it is China and Japan and the Vietnamese and Middle Eastern markets? Is this a cause of concern? And are you looking to explore new export markets?
T.V. Narendran
For Tata Steel, exports has always been about 10%, 15% of our production. Last quarter, I think we've exported 5% of our production. So we are not so dependent on exports to sell the volumes that we produce. But overall, yes, the Chinese exports for most of the last quarter was at 8 million tonnes. So for two, three months, it was at 8 million tonnes a month and above, which is the highest that it has reached since 2016, because 2015, '16, it had gone to about 10 million tonnes a month, and that is when there was a lot of noise against Chinese exports across the world.
Since then, China cut down some exports, it was at about 5 million to 6 million tonnes a month level, which to me is a level which the world can live with. So 8 million is certainly a cause of concern, but we believe that it's an outcome of Chinese steel producers producing more in the Jan-March quarter in anticipation of an economic recovery, which didn't happen. And we are already seeing a tempering down of those sentiments and reflecting in the production level.
So the latest info I have is the last -- recent month, I think the exports is likely to be at around 7 million -- between 7 million and 8 million, less than 8 million, and we expect that it will over the next few months come down to a 5 million, 6 million tonne level because the Chinese government is also not encouraging exports as they did five, six, seven years back, because today, they also have carbon reduction targets. And I think the steel industry is being told that they don't want to be really importing iron ore and coal, leave a carbon footprint behind an export a lot of low-value steel.
So I think there is a discipline, which will come in anyways, and we expect the second half of the year to be more balanced. So it will reflect both then a direct impact on Tata Steel because of our exports includes an indirect impact because it will have an impact on the overall steel prices. I expect that if Chinese steel exports come down to 5 million, 6 million tonne level, then hot-rolled coil prices should be more in the $600 to $650 range rather than the $550 to $600 range that it is in just now.
Samita Shah
Thank you. The next question is on CapEx. What are your CapEx plans for FY '24 and '25, a split between India and Europe? And on Kalinganagar, what is the remaining CapEx and total project cost? So we don't give guidance for FY '25, but maybe for FY '24, you could give them some color on?
T.V. Narendran
'24, we've already said INR16,000 crores. And I think about INR11,000 crores out of that was supposed to be for India, if I remember right, Koushik, I think INR11,000 crores to 12,000 crores was India, largely Kalinganagar CapEx. Obviously, there is no constraint on supporting Kalinganagar CapEx. So as long as they can execute, as fast as they can execute and spend, the money will be given, and we budgeted for whatever is required by the project team. As Kaushik mentioned, we've already spent about INR18,000 crores on the Kalinganagar project. And as they require more funds, it will be made available. The focus is on executing the projects as fast as possible.
Samita Shah
Thank you. The next question is on NINL. You had mentioned you would be expanding NINL. So can you please share some light on the time line and the plans for NINL?
T.V. Narendran
Yeah. So our first objective was to make sure that NINL is on full capacity and all the facilities in NINL, which had been -- which were set up, but had never functioned or hardly functioned were back on track. So I think we've fulfilled that objective within a year as we had wanted to. So the last major facility, which will come on track is a coke plant, as Koushik said, which is already the heating is going on and should start production by August. So with that, we will be at an optimal production level and at an optimal cost level in Neelachal. We -- also the mines, the Neelachal mines, iron ore mines are also operating and is feeding the requirements of Neelachal. So I think, the existing network configuration infrastructure is being fully utilized.
Now comes to the next phase. We've already -- we've got the approval from our board to grow the retail engineering in this Board meeting. So we will now get into the detailed work. We already have worked out the configuration that we want to have to take it to about 4 million to 4.5 million tonnes with the first phase of expansion. I think over the next 12 months or so, we will finalize the full detail and go to the Board because we've also changed the way we look at some of these approvals. We do the detailed engineering, take it to an FEL3 level of readiness before we go to the Board, so that as soon as we get the Board approval, we also get all the environment clearances and everything else that's required so that as soon as we get the Board approval, then we can hit the ground running and actually reduce the cash-to-cash cycle.
So that's the approach we'll be following here. So the work is going on in full speed and by next year, we should be ready to get the approvals and move on, and we have said that Kalinganagar will be at 5 million tonnes clearly by 2030, if not earlier. So that's on track. Not Kalinganagar, it's Neelachal will be on track.
Samita Shah
Thank you. The next question is on iron ore. What would be our iron ore requirements by 2030? And how much of our iron ore capacity is coming up for re-auction?
T.V. Narendran
So typically, [indiscernible] is 1.6 tonnes of iron ore per steel. So if you look at our plans for 2030, it's 40 million tonnes, let's say, 36 million tonnes out of that is blast furnace based. And if you say 3 million to 4 million tonnes is EAF based. So basically, you do 1.6 into 36. So you roughly have about 70 million or so, right? So 60 million or so. So that's the requirement, 60 million to 65 million tonnes of iron ore.
As I said, we already have with us reserves of 500 million tonnes of iron ore, 500 million to 550 million tonnes of iron ore available beyond 2030. And some of these mines like the Kandalpara mine. This is -- this was not a producing mine. It was a greenfield mine which we're developing. So we bid for that so that we could develop it in time for 2030. So just now, we will focus on the mines we have and places like Kandalpara will start making -- I mean start producing iron ore in 2030 and thereabouts.
Between now and 2030, we want to obviously bid for more iron ore mines in Orissa and in Jharkhand when they put up for auctions. And then in addition, in 2030, we also have option to bid for our existing mines. So our objective is to make sure that we are fully covered of our -- for our iron ore requirements. By 2030, we will anyway be producing 60 million, 65 million tonnes of iron ore to support our footprint. So basically, self-sufficiency in iron ore is clear, clearly there till 2030 and beyond 2030, we are expecting that we'll be successful in our bids for our mines and also the mines that we bid for between now and then, and we'll be self-sufficient after 2030.
Samita Shah
And the question which we, I think, get often has been asked, so I will say this. In terms of inorganic growth, are we open to assets such as RINL, NMDC steel, or even Vedanta steel assets? And is this baked into our deleveraging target?
T.V. Narendran
So I think what we've said is that our focus on inorganic growth over the last few years has now given us enough sights for us to achieve our growth ambitions by the pure organic growth. So with the existing sites between Kalinganagar, the Bhushan site, Neelachal site and the existing Jamshedpur site and the EAF facility that's we're going to put up while we set a $40 million target by 2030, in these sites, you can go up to 50 million tones.
So in many ways, our growth ambitions for the next decade can very easily be realized by making best use of existing sites and that will be the most cost optimal way because you are leveraging or better utilizing the infrastructure that has already exist or being created in these sites. So we don't really need to pursue inorganic growth to realize our growth ambitions. So that's why we have said that our priority is on organic growth, but at the same time, obviously, we'll be watching carefully what's happening in the inorganic space.
Samita Shah
Thank you. Just before I go back to the chat questions, there was a question on working capital. So as we had explained, there was a working capital increase of around INR2,500 crores this quarter. This is more in terms of prices rather in terms of days where they've been broadly stable. The overall consolidated number is about INR24,000 crores, of which around INR14,000 crores is in India and just sharing that number, so all of you have it. With this, we will go back to the voice questions. I think there are a few analysts still waiting in line. So over to you, Kinshuk. Thank you.
Operator
Thank you, ma’am. The next question is from Kirtan Mehta of BOB Caps. Kirtan, please go ahead.
Kirtan Mehta
Am I audible?
T.V. Narendran
Yeah.
Kirtan Mehta
In relation to the iron ore mines, where we have 500 million to 550 million tonnes of reserves potential, the current level of production limit under the existing environmental clearances, and what are the additional environmental clearances that we have applied, which can enhance this limit at this stage? And what is the ultimate level at which this can ramp up by 2030?
T.V. Narendran
So basically, Kirtan, the environment clearances are applied for when we need them. We have environment -- so we typically plan the expansion of our iron ore mines to be aligned with our increase in steel production. So we have enough environment clearances to take care of Kalinganagar, let's say, moving from 3 million to 8 million, right? So we've already -- last year, we produced over 38 million tonnes of iron ore. So we will move on to about 45 million tonnes, 50 million tonnes over the next few years as our steel requirements, steel capacity or production keeps going up. So that's not a bottleneck. I think we planned it well so that we have all the environment clearances in place.
And like I said, our goal is not to have to buy any iron ore from the market or any pellets from the market. We had to do it over the last two, three years sometimes simply because of inorganic growth, we grew faster than we had planned. The iron ore expansion was planned to cater to the Kalinganagar expansion. But once we acquired Bhushan and once we acquired Neelachal, et cetera, we obviously -- and Usha Martin Facility, we had to obviously use some of our iron ore for those facilities. So there was a bit of a lag, but now we are back on track. And if you're going to do only organic growth, then it's much easier for us to manage the iron ore requirement.
Kirtan Mehta
Right. Understood. Second question was on Europe side, where we have said that over the next two, three years, from the two, three-year perspective, the Netherlands would be EBITDA positive as well as cash flow positive. In the past, we have not really shared what is the Netherlands sort of the individually make. Is it possible to share sort of the average EBITDA that they've made over the cycle over the last six, seven years, and the average cash that Netherlands facility has normally generated?
Koushik Chatterjee
So yes. So on that, we normally don't give the -- we used to manage and run Tata Steel Europe as one entity. But if I can give you a range, the Netherlands EBITDA per tonne range has been between EUR70 per tonne to about EUR140 per tonne. In 2021, '22 context, it was much higher. So -- and typically, Netherlands have been free cash flow positive about EUR200 million thereabouts on an average basis. And as I said, that in '21, '22, it had generated more than EUR500 million of free cash.
But -- so there are -- that's why the point that Naren mentioned that over years, it has normally been a positive PAT and positive free cash flow, not only EBITDA. And our expectation is that post relining when the steady state reaches, it would continue with its past performance. There's nothing that needs to be done. What needs to be done is to ensure that its future ready in terms of its cost structure towards the decarbonization. And that's a special initiative that all our colleagues in Netherlands are working towards.
Kirtan Mehta
Thank you for this clarification. I’ll go back to the queue.
Operator
That was the last question for today. I would now like to hand the conference back to Ms. Samita Shah for closing comments. Over to you, ma'am.
Samita Shah
Thank you, Kinshuk. Thank you, everybody, for joining us today. And I hope you've got the answers you were looking for. And with that, we will end here. Thank you, and have a good day. Bye-bye.
T.V. Narendran
Thank you.
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Tata Steel Limited (TATLY) Q1 2024 Earnings Call Transcript