Coal sale faces delays

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The Independent Online
Government hopes of clinching a deal this week which would secure the future of British Coal are likely to be dashed, raising doubts about whether it can meet its timetable for the sale of the coal company.

The key hurdle are the regional electricity companies, which are afraid that plans to make them pay a higher than market rate for coal-generated electricity could put them in breach of their legal duty to sell electricity as cheaply as possible.

The plan in Whitehall was to announce that British Coal had won large future contracts from National Power and PowerGen before Parliament breaks up in mid-July, clearing the way for rapid privatisation.

The Energy Minister, Timothy Eggar, has been urging British Coal and the generators to reach a compromise which would make the former attractive to investors. But the generators have refused to sign up unless the regional electricity companies agree to buy the power generated from the coal.

The regional companies, soon facing a review of how they are regulated, do not wish to be locked into a five-year deal, which is what the Government would like. They are also unable to agree with the generators on the price they should pay.

Tony Hadfield, managing director of Northern Electric, said: 'I consider the gap between us and the regulators to be wide enough for there to be no agreement in the next week.'

If the holiday season delays talks further, the timetable for the sale is likely to slip. The Government is planning a bill setting out the framework for the coal sale, to be tabled in the autumn session of Parliament. It would like royal assent by the middle of next year, with privatisation commencing around September. But for this to run smoothly the coal deal must be settled by the end of July.

The Government's problem is that it does not want to be seen to intervene in commercial negotiations. But industry sources say Mr Eggar and his officials regularly meet senior executives from the companies concerned to press the issue.

Whitehall is trying to cajole the companies into agreements they do not want, and at a pace they consider too fast. The current coal contracts do not expire until next spring, but to wait until then would derail efforts to privatise British Coal.

It is believed that National Power and PowerGen will agree to take a total of about 40 million to 45 million tons, tapering off to between 30 million and 35 million over five years. That compares with 65 million tons today, and means that thousands more miners' jobs will be lost. The British Coal rule of thumb is that 1 million tons in lost sales means the loss of 1,000 miners' jobs.

The price of the electricity is also a thorny issue. It is understood that prices around 2.6p to 2.7p a unit are being discussed, compared with an average 3.3p which the regional companies pay the generators today.

In spite of the lower price, the regional companies fear that if cheaper power becomes available elsewhere, they will incur the wrath of the regulator, Offer. They are obliged under their licences to buy as cheap as possible and pass the benefit on to consumers.

This might not be possible if they are tied into coal deals. Stephen Littlechild, Director- General of Offer, has refused to intervene to comfort the regional companies. For this reason, some of them are refusing to budge.

(Photograph omitted)

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