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After delivering negative returns to shareholders over the past year, Tata Steel shareholders could face further challenges due to operational issues plaguing its international business.

The company faces a €27 million fine for environmental violations imposed by the Netherlands government on its operations at IJmuiden.

Additionally, the Dutch government has threatened to potentially shut down operations if the company fails to undertake the necessary capital expenditure to address the violations.

The expense, which will be the company’s next significant overseas capital expenditure after the United Kingdom, involves restructuring the 7 million tonne per annum-IJmuiden plant to produce green steel through direct reduced iron (DRI) and electric arc furnace (EAF) processes. The restructuring could require up to $5 billion, some analysts say. These analysts spoke on condition of anonymity.

However, weak steel demand in Europe remains a key impediment, with demand expected to stay flat in the near term, thereby shrinking earnings further even as interest expenses from potential borrowings mount.

The analysts cited say that the $5-billion restructuring bill is expected to cover restructuring costs such as closing blast furnaces, replacing them with DRI and EAF steelmaking processes, potential redundancy costs, and putting in place extensive anti-pollution measures.

Tata Steel Netherlands has been in regulatory crosshairs due to frequent environmental violations at the IJmuiden plant, with the recent fine being the latest iteration.

In June, a Bloomberg report quoted a Dutch government spokesperson saying that the government subsidies to restructure the IJmuiden plant for the production of green steel may reach nearly $3.3 billion, partly in response to environmental issues as a result of emissions at the plant. In response, Tata Steel said in a regulatory filing that it was in negotiations with the government after the latter was given a mandate by the Parliament, but no final figure regarding financial support was agreed with the government.

Tata Steel’s stock has delivered for investors in the longer term, but has been a disappointment over the past year, according to analysts.

Over the past year, the steelmaker's shares have traded lower by 1.24 percent on the National Stock Exchange, trading at Rs 138.14 in the early hours of trading on December 30. On the other hand, the company’s listed peers and competitors, Jindal Steel and Power and JSW Steel, have delivered positive returns to investors. While Jindal Steel and Power’s stock has risen by nearly 23 percent over the past year, JSW Steel’s returns have been more modest, at around 3.5 percent over the same period.

The €27 million (approximately Rs 240 crore) fine is nearly equivalent to Tata Steel Netherlands' EBITDA for the July-September quarter, which stood at Rs 243 crore. Among Tata Steel's two main overseas operations, the Netherlands remains profitable at the EBITDA level, while the United Kingdom operations are undergoing a long-standing and controversial restructuring process that has resulted in the closure of heavy-end assets.

The IJmuiden plant, along with Tata Steel’s Indian operations, is expected to supply material to Tata Steel UK’s downstream operations, which serve clients such as Tata Group firm Jaguar Land Rover.