Government subsidies likely option for coal industry boost

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DIRECT subsidy for British Coal is emerging as the favoured option in the Government's attempt to save some of the 31 coal mines earmarked for closure. That could threaten subsidies given to the nuclear power industry.

It is understood that government advisers believe coal subsidies would be the most likely to work although no advice has yet been given to Michael Heseltine, the President of the Board of Trade.

These subsidies could have serious implications for Nuclear Electric, which receives more than pounds 1bn a year through a levy on electricity bills.

European Community regulations limit direct state aid to 20 per cent of primary energy production in each EC state. That limit is largely taken up by the levy in the UK, a very small proportion of which goes to support renewable energy schemes.

Antonio Cardosa e Cunha, the European commissioner for energy, said last week that he had no objections to state aid for British Coal, as long as the rules were not breached.

But, he continued: 'Your Government has chosen to support nuclear.'

Earlier Mr Cardosa told the Trade and Industry Select Committee that although he had been personally shocked and concerned at the plans to axe 31 pits by next April with the loss of 30,000 jobs, there were limitations to what the Commission could do.

A source close to the Government acknowledged that state aid for coal would almost certainly be to the detriment of nuclear power.

Mr Heseltine has already raised the issue of coal subsidies in a long list of options under consideration during his review of UK energy policy. The review is examining whether aid could help British Coal compete more effectively in the UK and whether it could export into continental Europe.

The list also questioned the development of nuclear and gas-fired generation, and went as far as to ask whether British Coal should be privatised. But Mr Heseltine stressed that he had as yet no preferred solutions.

The row over the growth of nuclear and gas - regarded by many as the main cause for the decline of British Coal - was further fuelled last week when the electricity regulator, Offer, explicitly questioned whether the nuclear levy was still appropriate.

At the same time, Professor Stephen Littlechild, the director-general of Offer, caused a furore by giving a clean bill of health to the 'dash for gas' in electricity generation.

The nuclear industry argues that British Coal already receives a massive indirect subsidy because its relatively expensive coal production is reflected in higher prices for consumers. Offer estimates that this subsidy was about pounds 1bn in 1990/1. It is unlikely that the Government would want to increase or prolong that burden on the voting public.

The uncertainty over the nuclear industry puts a question mark over the future of the Sizewell B nuclear reactor, currently under construction in Suffolk, and the ageing Magnox reactors.

Earlier this month, British Coal urged the Government to adopt plans aimed at saving 13 of the threatened pits and 8,000 jobs. The mining unions attacked the proposal as not going far enough.