Ministers are trying to pressurise regional electricity companies to buy the electricity generated from the coal. But the regional companies are now in disagreement over the approach to the negotiations and the extent to which they should collaborate.
The dispute means that the Government is unlikely to be able to announce contracts for British Coal, which it wants to privatise, before the Conservative Party conference next week.
The companies applied last week to the Office of Fair Trading for permission to discuss contracts with the generators as a group. But they have yet to apply for approval from the European Commission to ensure they do not break EC competition rules.
The problem is that some companies want full-blown collaboration on negotiating the details of the individual contracts while others say that only an outline contract should be negotiated as a group, with the details worked out individually later on.
The continued delays are beginning to threaten Government hopes that British Coal could be privatised next year.
The coal company faces a sharp fall in orders from its main customers, National Power and PowerGen, once Government-imposed contracts run out next year.
The generators are willing to sign a five-year deal for 40 million tonnes initially, falling quickly to 30 million a year compared with 65 million at present. But they will do so only when the regional supply companies have signed parallel contracts to buy the electricity generated from the coal.
However, many supply companies are already locked into buying large amounts of electricity generated from natural gas.
Several regional companies last night denied they were attempting to block a deal. Doug Swinden, marketing director of Eastern Electricity, said: 'We are actively seeking to conclude the process of signing contracts which will enable the sale of British Coal.'