Sky News has learnt that ministers at the Department for Business, Energy and Industrial Strategy (BEIS) have signed off on the package, which will encompass grants, possible indemnities, loans on commercial terms and other items.
The move will, if finalised, smooth the path towards a takeover of British Steel that would salvage many thousands of jobs.
City sources said on Friday that the government’s agreement to provide the funding would enable the Official Receiver (OR) to grant Ataer Holding a formal period of exclusivity within which to complete a takeover of the UK’s second-largest steel producer.
Some of the figures associated with the support package have yet to be finalised but in aggregate it is understood that it could amount to a long-term sum worth more than £300m.
The final number could vary depending upon which elements are ultimately utilised by Ataer.
Insiders said that the funding would not breach EU state aid rules – which had been a factor in the government’s decision not to provide additional money to British Steel before it collapsed into insolvency in May.
Ataer, which is a subsidiary of Oyak, Turkey’s military pension fund, is understood to have submitted a formal and final offer for British Steel earlier on Friday to the OR following the government’s endorsement of a support package.
The Turkish fund has offered a headline price of between £60m and £70m to take control of British Steel, according to sources.
Oyak is itself the largest shareholder in Erdemir, the Turkish steelmaker which had denied earlier reports that it was associated with the bidding process.
One person close to the discussions, which are being led by EY on behalf of the OR, said a deal would lead to the production of “the greenest steel in Europe” because of Ataer’s plans to convert British Steel’s Scunthorpe plant to using gas in the coming years.
Ministers are also said to have settled on a remedy for the problem of EU carbon credits, which forced the company to seek an emergency £120m loan from the government in April.
Details of that solution were unclear on Friday afternoon.
An announcement about formal exclusivity being granted to Ataer is likely in the next few days, with a further period of between six and eight weeks of due diligence likely to follow.
Sky News revealed on Tuesday that the leading bidder was a vehicle connected to Oyak.
Sources cautioned, though, that the talks could yet founder given their complexity.
If the deal is concluded, it would provide a rare piece of good news for an industry which has struggled to keep its head above water in recent years.
The disclosure of government agreement to provide further financial support to British Steel comes on the same day that it emerged that the UK economy contracted in the second quarter, the first such decline in seven years.
Andrea Leadsom, the new business secretary, and the business minister Nadhim Zahawi are understood to have been instrumental in getting the talks about a rescue deal for British Steel to such an advanced stage.
One Whitehall source said that Ms Leadsom’s background as a banker and Mr Zahawi’s experience as a prolific business dealmaker prior to entering politics were a key reason for Boris Johnson’s decision to appoint them at BEIS.
“It is clear from the situation at British Steel that the PM has picked his ministerial team at BEIS shrewdly,” the source said.
The submission of Ataer’s final proposal to buy the company comes days after Sky News revealed that lenders to British Steel were putting pressure on EY to seal a takeover or begin closing down the Scunthorpe site.
White Oak ABL, an asset-based lender that agreed to lend £90m to British Steel in July 2018, has been lobbying advisers working on the auction to bring it to a swift end.
One insider suggested that the OR had signalled to the government that it was preparing to pull the plug on the business as recently as last Friday unless it received a credible proposal.
British Steel, which employs more than 3000 people at Scunthorpe and is responsible for about 25,000 jobs overall, is losing roughly £5m-a-week, according to sources.
Other bidders have continued to pursue British Steel, including Liberty House, the industrial conglomerate, and an unnamed industrial conglomerate referred to by ITV News.
Greybull Capital, which was the company’s owner for three years before it collapsed, has also been interested in buying parts of the business.
Since its collapse into liquidation 11 weeks ago, British Steel has been funded through a taxpayer-backed indemnity.
EY has told bidders that it would like to conclude a deal by the end of August, following the annual summer shutdown at Scunthorpe.
British Steel’s collapse into insolvency came just weeks after Mr Clark handed a £120m government loan to the company to help it meet its obligations under an EU scheme for industrial polluters.
The crisis prompted MPs on the business select committee to launch an inquiry into the future of the UK’s steel industry, although evidence sessions will not kick off until the autumn because of the ongoing sale process.
A spokesperson for the OR said: “The sales process is ongoing and the Official Receiver continues to assess the most viable offers received.”
A BEIS spokesperson said: “This government will leave no stone unturned to get a good solution for British Steel at Scunthorpe, Skinningrove and on Teesside.
“The Official Receiver continues to run the business, whilst the sales process is ongoing.”
Author: Mark Kleinman