Government may use direct subsidies to save miners' jobs

THE Government is expected to publish this week two key reports that will help to shape the future of the UK coal industry. Consultants at Ernst & Young and Caminus will report respectively on British Coal's management record and the market for coal.

The reports will be published amid growing speculation that direct subsidies will be used to save some of the 30,000 mining jobs under threat at 31 mines earmarked for closure. It is believed that advisers to ministers at the Department of Trade and Industry see subsidies as one of the best ways of saving some of the mines.

Subsidies, which could be paid for by a levy on electricity bills, would help British Coal to compete more effectively against imported coal, natural gas and nuclear power.

However, this solution could have a significant effect on Nuclear Electric, which receives a subsidy of more than pounds 1bn a year from a levy on bills. Under European Community rules, state subsidies are allowed for only about 20 per cent of primary energy production in each member country. Almost all of the allocation in the UK is taken up by nuclear power.

The UK Offshore Operators Association yesterday joined the ranks of those lobbying for 'fair play' in the Government's energy review. The association said 55,000 jobs and 25 new gas production projects would be under threat if the Government decided that no new gas-fired plant should be allowed to create a bigger market for coal.

John Parziale, president of the association, said that this meant a potential annual investment of up to pounds 2bn could be lost.

'If the Government restricts the development of the gas market in Britain we will be unable to continue the high level of development in the oil and gas industry, which is currently running at pounds 5bn to pounds 6bn a year,' he said.

British Coal believes the dash for gas in power generation and the growth of nuclear power are to blame for the company's decline.

It emerged yesterday that British Coal's mines achieved record production of 7.16 tonnes a manshift in the first week of the new year. This represents an 18 per cent increase in productivity compared with this time last year.