Blair calls halt to gas-fired power stations as coal crisis mounts

The Government last night attempted to defuse the deepening crisis over the fate of the coal industry by announcing a moratorium on further approvals of gas-fired power stations. But as Chris Godsmark and Anthony Bevins report, ministers admitted the ban would do nothing to solve the looming industry shake-out when existing supply contracts with power generators expire next spring.

The unexpected change of policy was unveiled by Tony Blair, in Prime Minister's Questions, yesterday afternoon, just before John Battle, the Energy Minister, faced MPs before the Commons Trade and Industry Select Committee.

Mr Blair told the Commons that the country's energy policy was too important "to be left simply to short-term market forces". But he warned that the moratorium on new gas-fired stations was "no panacea" for the mining industry's problems.

Labour MPs from mining constituencies have been perplexed by the lack of a coherent energy policy since the Government took office. They hope that the RJB Mining threat of up to 5,000 redundancies will force Ministers to grasp the need for urgency, and that yesterday's announcement was the first instalment.

Labour MPs, especially on the left of the party, were delighted, but the Tories were unimpressed. John Redwood, the Conservative spokesman, said in a later statement: "Given the imminence of pit closures and job losses, we don't want a review, we want an answer. The energy industry needs to know whether there will be licenses for more gas stations, or not. It needs to plan for its future investment, and the coal industry needs to know whether it has any future at all."

Mr Battle said the Government would embark on a review of the long-term security of supply and fuel diversity in the power market and was deferring decisions on outstanding applications to build gas-fired power stations until the investigation was completed. A moratorium, which the Government had previously rejected, was one of the main demands of coal producers, who claimed the dash for gas by power generators was forcing coal out of the market.

It emerged that the decision on a moratorium was taken at the highest level of government yesterday morning. A DTI submission to the committee, dated 2 December, made no mention of the move, instead stating the previous Government policy which was to consider each application on a case by case basis.

Mr Battle told a committee room packed with industry executives, union officials, and miners that he made the move after seeing press reports suggesting National Grid was concerned about the over-dependence on gas power in the future. "Put very simply it's about ... whether we can keep the lights on reliably ... that means not becoming over dependent on one fuel," said Mr Battle.

But he insisted the policy would offer no immediate help to the coal industry next April, when high price long-term contracts with generators expire. "I have never argued that this is a panacea in the short term to get through sorting those contracts."

The moratorium puts the future of 27 gas-fired power station applications in serious doubt. Together they total 7.8 gigawatts of new capacity, enough to displace more than 20 million tonnes of coal.

Mr Battle was forced to vigorously defend his energy policy against union criticisms that he had not done enough to help the coal industry but he reiterated to MPs that there could be no government subsidies for RJB Mining, which owns most UK pits, and the Government could not intervene in the company's private negotiations with generators.

Powergen, the second largest coal fired generator has yet to sign contracts with RJB for next year.

Richard Budge, RJB's chief executive, last night suggested a new solution to the crisis, telling MPs the Government could step in to buy up surplus coal next year. "Why doesn't the Government give me an order for 20 million tonnes for the next two years at pounds 1.25 a gigajoule. If I sell it at a higher price they can have the money back," said Mr Budge.

He refused to speculate on possible closures next year insisting that all his 17 pits had business plans in place for the future. "The idea that I've been sitting on a closure programme of five to eight collieries couldn't be further from the truth," Mr Budge added. But RJB also played down the crisis by suggesting that it could sell some eight million tonnes of coal to Germany and Spain next year.

Mr Budge insisted he hadn't failed in his negotiations with generators by sitting out for too high a price. "It wasn't a case of brinkmanship ... but what we will not be able to do is run the business at a loss."

Earlier unions claimed Mr Battle was not doing enough to help the industry and was more interested in attacking RJB. Neil Greatrex, president of the Nottinghamshire Union of Democratic Mineworkers, said he was "extremely concerned" about Mr Battle's approach.

Mr Greatrex claimed half the industry could shut down before Christmas, while the remaining pits would have to close after 2000 when tougher pollution targets came into force.