Originally it was hoped that a Bill on the privatisation of the beleaguered coal company would receive royal assent next summer with the sale proceeding almost immediately.
The wide-ranging energy review will also consider changes in the laws governing safety and mining procedures - some dating back to 1908 - which could help British Coal to cut its costs. Industry sources believe production costs could be cut by between 15 and 30 per cent by removing some legislative and bureaucratic burdens.
The review by the Department of Trade and Industry was prompted by a storm of outrage when British Coal said it would close 31 pits with the loss of 30,000 jobs.
A report issued yesterday by Robert Fleming Securities also predicted that the high price of UK coal would force the Government into a U-turn over the sale of the company. Simon Taylor, Flemings' electricity analyst, said that to preserve miners' jobs UK coal would have to be sold at a loss to the electricity industry. This would prevent privatisaton in the near future.
Under the existing government- imposed contracts with the generators, which expire in April, British Coal sells at 188p per gigajoule compared with 120p for imported coal. New contracts being negotiated offer 150p, but for much lower tonnages of coal.
Neil Clarke, chairman of British Coal, said if no contracts were signed and the company was forced to sell on the world market, many more mines would have to be closed with the loss of thousands more miners' jobs.
The DTI said that a task force of up to 20 people would carry out the review, taking evidence until 1 November. The inquiry will consider the economics of planned gas-fired generating stations, which critics say will produce more expensive power than coal yet displace even efficient coal- fired plant.
Many of the gas-fired projects have already signed 15-year deals to supply regional electricity companies. The regional companies will be penalised by the industry watchdog, Offer, if they are found during the review not to be buying economically. But it is unlikely that Offer would directly intervene to stop the gas-fired plants being built.
A further question mark hangs over state-owned Nuclear Electric, which accounts for 23 per cent of the generating market and receives a subsidy of more than pounds 1bn a year to cover decommissioning and waste management costs. The Government is expected to examine whether Nuclear Electric's ageing Magnox reactors should be closed down. The company claims that the cost to the country of closure could be several billion pounds over the next few years.
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