DTI spurned check on Budge

Confidential document shows Government chose not to scrutinise finances of winning coal bidder

THE Department of Trade and Industry decided against carrying out a full financial assessment of RJB Mining, the buyer of the bulk of British Coal, according to a confidential document seen by the Independent on Sunday.

The decision to waive a proper assessment of the company was taken even though RJB was to owe the Government £125m in deferred payments under the terms of last year's controversial privatisation.

A letter written by David Childs, of the law firm Clifford Chance, in February reveals that there was "great reluctance" on the part of the Government to carry out a full financial assessment of RJB Mining. The letter does not explain why this was so. Mr Childs was advising the Government on the sale of the coalfields to RJB.

The sale of most of England's coal assets to RJB has aroused controversy both in Whitehall and in the City.

Labour politicians are up in arms because RJB is run by Richard Budge, a man deemed by Coopers & Lybrand, the leading accountants, to be "unfit to be concerned in the management of a company".

Coopers wrote a highly critical receiver's report concerning Mr Budge's conduct as a director of AF Budge, the family firm that collapsed in 1992 owing creditors around £100m.

In the City the coalfields sale attracted criticism because many analysts felt that RJB, bidding around £300m more than its nearest rival, had bid too high to make the business viable. Against this background, the Government's decision to accept deferred payments from RJB without any apparent security and without first undertaking a full financial assessment is bound to attract controversy.

One analyst, who declined to be named, said: "There is unquestionably a risk that this company could struggle once the contracts to supply coal to the power stations end in March 1998." When RJB won the contest to take over the coalfields, it raised around £1bn in the City of London, including a £494m loan from a group of banks.

The banks have most of their loans secured against the cash-flow that is promised, at least for the next three years, from the contracts already signed with the power generators. The Government, it appears, has no security for its loan.

The Government's advisers declined to comment this weekend about why they had decided not to carry out a full financial assessment of RJB, which would have allowed it to secure a guarantee for its money.

But one source close to the negotiations said that the subject of RJB's financial suitability consumed many hours of discussion before Christmas.

The source explained that one of the problems in carrying out a financial assessment of RJB would be that the Government, if it then approved the finances, would effectively be giving a stamp of financial stability to a private company. The Government might then be called upon to provide compensation to creditors or shareholders if RJB went into receivership. The source also said that the Government's advisers took into account the fact that Barclays' investment bank, BZW, would have done a due diligence test when it helped RJB to raise around £1bn in the City.

The Department of Trade and Industry said only that it had undertaken sufficient checks to satisfy itself of RJB's viability.

Many critics of RJB's bid said that they could not understand how Mr Budge would make the figures stack up.

Last week BBC's Panorama programme questioned other aspects of Mr Budge's suitability for owning the coalfields. It disclosed that Mr Budge was being interviewed by the DTI's Insolvency Service for possible disqualification as a director at the same time as a separate section of the DTI was considering him as a coalfields buyer.

Martin O'Neill, Shadow Minister for Energy, wrote last week to Michael Heseltine, President of the Board of Trade, asking whether the Government knew at the time of awarding the contract that Mr Budge had an unreliable record.

RJB's shares finished the week 22p lower at 404p. Charles Kernot, mining analyst at Paribas Capital Markets, reckons the shares are worth 256p given deteriorating conditions for coal.

A model of a Neanderthal man on display at the National Museum of Prehistory in Dordogne, France
Richard Dawkins dedicated his book 'The Greatest Show on Earth' to Josh Timonen
newsThat's Richard Dawkins on babies with Down Syndrome
Arts and Entertainment
Eye of the beholder? 'Concrete lasagne' Preston bus station
architectureWhich monstrosities should be nominated for the Dead Prize?
ebooksAn evocation of the conflict through the eyes of those who lived through it
Dinosaurs Unleashed at the Eden Project
Arts and Entertainment
Life and Style
This month marks the 20th anniversary of the first online sale
techDespite a host of other online auction sites and fierce competition from Amazon, eBay is still the most popular e-commerce site in the UK
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Quantitative Analyst (Financial Services, Graduate, SQL, VBA)

£45000 per annum: Harrington Starr: Quantitative Analyst (Financial Services, ...

Application Support Engineer (C++, .NET, VB, Perl, Bash, SQL)

Negotiable: Harrington Starr: Application Support Engineer (C++, .NET, VB, Per...

AIFMD Business Analyst / Consultant - Investment Management

£450 - £600 per day: Harrington Starr: AIFMD Business Analyst / Consultant - I...

Business Analyst Solvency II SME (Pillar 1, 2 & 3) Insurance

£450 - £600 per day: Harrington Starr: Business Analyst Solvency II SME (Pilla...

Day In a Page

Middle East crisis: We know all too much about the cruelty of Isis – but all too little about who they are

We know all too much about the cruelty of Isis – but all too little about who they are

Now Obama has seen the next US reporter to be threatened with beheading, will he blink, asks Robert Fisk
Neanderthals lived alongside humans for centuries, latest study shows

Final resting place of our Neanderthal neighbours revealed

Bones dated to 40,000 years ago show species may have died out in Belgium species co-existed
Scottish independence: The new Scots who hold fate of the UK in their hands

The new Scots who hold fate of the UK in their hands

Scotland’s immigrants are as passionate about the future of their adopted nation as anyone else
Britain's ugliest buildings: Which monstrosities should be nominated for the Dead Prize?

Blight club: Britain's ugliest buildings

Following the architect Cameron Sinclair's introduction of the Dead Prize, an award for ugly buildings, John Rentoul reflects on some of the biggest blots on the UK landscape
eBay's enduring appeal: Online auction site is still the UK's most popular e-commerce retailer

eBay's enduring appeal

The online auction site is still the UK's most popular e-commerce site
Culture Minister Ed Vaizey: ‘lack of ethnic minority and black faces on TV is weird’

'Lack of ethnic minority and black faces on TV is weird'

Culture Minister Ed Vaizey calls for immediate action to address the problem
Artist Olafur Eliasson's latest large-scale works are inspired by the paintings of JMW Turner

Magic circles: Artist Olafur Eliasson

Eliasson's works will go alongside a new exhibition of JMW Turner at Tate Britain. He tells Jay Merrick why the paintings of his hero are ripe for reinvention
Josephine Dickinson: 'A cochlear implant helped me to discover a new world of sound'

Josephine Dickinson: 'How I discovered a new world of sound'

After going deaf as a child, musician and poet Josephine Dickinson made do with a hearing aid for five decades. Then she had a cochlear implant - and everything changed
Greggs Google fail: Was the bakery's response to its logo mishap a stroke of marketing genius?

Greggs gives lesson in crisis management

After a mishap with their logo, high street staple Greggs went viral this week. But, as Simon Usborne discovers, their social media response was anything but half baked
Matthew McConaughey has been singing the praises of bumbags (shame he doesn't know how to wear one)

Matthew McConaughey sings the praises of bumbags

Shame he doesn't know how to wear one. Harriet Walker explains the dos and don'ts of fanny packs
7 best quadcopters and drones

Flying fun: 7 best quadcopters and drones

From state of the art devices with stabilised cameras to mini gadgets that can soar around the home, we take some flying objects for a spin
Joey Barton: ‘I’ve been guilty of getting a bit irate’

Joey Barton: ‘I’ve been guilty of getting a bit irate’

The midfielder returned to the Premier League after two years last weekend. The controversial character had much to discuss after his first game back
Andy Murray: I quit while I’m ahead too often

Andy Murray: I quit while I’m ahead too often

British No 1 knows his consistency as well as his fitness needs working on as he prepares for the US Open after a ‘very, very up and down’ year
Ferguson: In the heartlands of America, a descent into madness

A descent into madness in America's heartlands

David Usborne arrived in Ferguson, Missouri to be greeted by a scene more redolent of Gaza and Afghanistan
BBC’s filming of raid at Sir Cliff’s home ‘may be result of corruption’

BBC faces corruption allegation over its Sir Cliff police raid coverage

Reporter’s relationship with police under scrutiny as DG is summoned by MPs to explain extensive live broadcast of swoop on singer’s home