Eastern signs 100m pounds coal contract with PowerGen

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The Independent Online
EASTERN Electricity has broken ranks with the rest of the regional electricity companies by signing a five-year contract with PowerGen to buy electricity generated from coal.

The deal, valued at more than pounds 100m a year, could break the deadlock that has prevented the two generators signing contracts to buy future supplies from British Coal.

James Smith, chairman of Eastern Electricity, said the contract with PowerGen depended on the generator signing a parallel five- year contract with British Coal based on the tonnages and prices that are now being discussed.

PowerGen and National Power are negotiating new contracts to buy 40 million tonnes from British Coal next year and an annual 30 million tonnes in the next four years. This compares with 65 million tonnes at present. The generators have said they cannot sign until the regional companies agree to buy electricity from the coal.

Discussions between the parties have dragged on for months, putting in question the future of the coal industry.

Ed Wallis, chief executive of PowerGen, said: 'The deal with Eastern will help safeguard British pits and miners' jobs.' He said the electricity to be sold was equivalent to 8 million tonnes of coal.

Dr Smith said that by signing first he had obtained the best deal for his customers.

It is believed that Eastern has gone it alone to negotiate better terms and prices with both generators.

The other 11 regional companies are collaborating to reach agreement with National Power and PowerGen.

However, Dr Smith said this approach was inefficient. He was also worried that it could attract the attention of the Office of Fair Trading.

He hoped to sign a deal with National Power before Christmas.

The agreement between Eastern and PowerGen also allows an escape clause if the Government's review of energy policy dramatically changes the situation.

The Department of Trade and Industry has signalled that it favours one-year contracts and that it may want higher tonnages of coal. This is because the volumes of coal currently proposed sparked the announcement by British Coal that it would close 31 pits with the loss of 30,000 jobs.

A spokeswoman for the DTI said: 'This is a commercial decision and we have been assured that the contract provides for change and so will not pre-empt the outcome of our review.'

Another regional company, East Midlands Electricity, said it was keen to have a five-year deal but that nothing would happen immediately. The company has been a leading player in the supply industry's negotiations with the generators.

(Photograph omitted)