Secret deal saves coal industry

THE FUTURE of Britain's coal industry looks assured. Senior industry sources believe PowerGen and Eastern are close to signing long-term coal contracts with Richard Budge, head of RJB Mining, the company which operates most of Britain's deep-coal mines.

The announcement next week of new contracts with Britain's largest generators would suit Peter Mandelson perfectly, as he could be hailed as the saviour of the coal industry at Labour's conference in Blackpool, and prove New Labour has not lost touch with Old Labour.

Without new contracts, the core of the British mining industry would be doomed. Some 9,000 jobs at RJB Mining would go. Killing coal would be political suicide.

Mr Mandelson paved the way for new contracts last week when he announced a deal with PowerGen. The company has won permission from Mr Mandelson to buy East Midlands Electricity, a retail supplier, and become the largest integrated power company in Britain. In return, PowerGen has to sell two 2,000 megawatt coal-fired stations and accept lower "earn- out" payments from Eastern Group.

This last detail points to a secret deal. The "earn-out" payments relate to coal plants sold by PowerGen to Eastern. The market structure means the pounds 40m annual "earn-outs" Eastern has paid to PowerGen discourage Eastern from burning coal. Cutting these raises Eastern's incentive to burn coal and helps fund a project Eastern announced last week - a pounds 100m flue gas desulphurisation unit for its West Burton station, letting it burn coal more cleanly.

Senior industry figures believe a secret deal has been struck. One said: "Of course, officially, Mandelson is above wheeling and dealing. But behind the scenes, the minister is pressuring the three generators for coal contracts. We think Eastern and PowerGen may already have signed."

Mr Mandelson's deal will have come at a price. Professor Stephen Littlechild, the departing industry regulator, advised that PowerGen and National Power should each sell three large power stations or 6,000 megawatts of generating capacity. In his view, this would break the generators' stranglehold on the market and reduce prices. By letting PowerGen sell fewer power stations, Mr Mandelson has upped the generators' clout - and consumers may have to pay higher prices for electricity.

New contracts alone will not secure coal's future. The inherent market bias against coal will have to go. The dash for gas will have to be stopped to secure long-term demand for coal-fired stations - to be achieved by the Energy Review that Mandelson is due to publish within the next two weeks. With foreign gas set to account for 70 per cent of Britain's market by 2020, the review is set to argue that coal is strategically important.

Industry sources believe the moratorium on new gas-fired station permits will be extended for three years. As they take two years to build, that would guarantee coal a stable market for five years.

All three of the major power groups - National Power, PowerGen and Eastern - are expected to sign contracts with RJB Mining. A spokesman would not comment on new contracts, but said: "We await with interest the Energy Review, which has been conducted with great thoroughness."

Start your day with The Independent, sign up for daily news emails
News
Young Winstone: His ‘tough-guy’ image is a misconception
people
Sport
Adnan Januzaj and Gareth Bale
footballManchester United set to loan out Januzaj to make room for Bale - if a move for the Welshman firms up
Arts and Entertainment
Ellie Levenson’s The Election book demystifies politics for children
bookNew children's book primes the next generation for politics
News
Outspoken: Alexander Fury, John Rentoul, Ellen E Jones and Katy Guest
newsFrom the Scottish referendum to the Ice Bucket Challenge, our writers voice their opinions
PROMOTED VIDEO
Arts and Entertainment
Lena Headey as Cersei Lannister in Game of Thrones
film
News
i100
Sport
Yaya Sanogo, Mats Hummels, Troy Deeney and Adnan Januzaj
footballMost Premier League sides are after a striker, but here's a full run down of the ins and outs that could happen over the next month
News
Nigel Farage celebrates with a pint after early local election results in the Hoy and Helmet pub in South Benfleet in Essex
peopleHe has shaped British politics 'for good or ill'
Sport
Tim Sherwood raises his hand after the 1-0 victory over Stoke
footballFormer Tottenham boss leads list of candidates to replace Neil Warnock
ebooks
ebooksA year of political gossip, levity and intrigue from the sharpest pen in Westminster
Voices
Strictly Come Dancing was watched by 6.9m viewers
voicesIt has been hard to form generally accepted cultural standards since the middle of the 19th century – and the disintegration is only going to accelerate, says DJ Taylor
Arts and Entertainment
Roffey says: 'All of us carry shame and taboo around about our sexuality. But I was determined not to let shame stop me writing my memoir.'
books
News
Danielle George is both science professor and presenter
people
News
i100
News
Caplan says of Jacobs: 'She is a very collaborative director, and gives actors a lot of freedom. She makes things happen.'
people
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

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

iJobs Job Widget
iJobs Money & Business

Selby Jennings: VP/SVP Credit Quant- NY- Investment Bank

Not specified: Selby Jennings: VP/SVP Credit Quant Top tier investment bank i...

Selby Jennings: Quantitative Research | Equity | New York

Not specified: Selby Jennings: Quantitative Research | Global Equity | New Yor...

Selby Jennings: SVP Model Validation

Not specified: Selby Jennings: SVP Model Validation This top tiered investment...

Selby Jennings: Oil Operations

Highly Competitive: Selby Jennings: Our client, a leading European Oil trading...

Day In a Page

War with Isis: The West needs more than a White Knight

The West needs more than a White Knight

Despite billions spent on weapons, the US has not been able to counter Isis's gruesome tactics, says Patrick Cockburn
Return to Helmand: Private Davey Graham recalls the day he was shot by the Taliban

'The day I was shot by the Taliban'

Private Davey Graham was shot five times during an ambush in 2007 - it was the first, controversial photograph to show the dangers our soldiers faced in Helmand province
Revealed: the best and worst airlines for delays

Revealed: the best and worst airlines for delays

Many flyers are failing to claim compensation to which they are entitled, a new survey has found
The stories that defined 2014: From the Scottish independence referendum to the Ice Bucket Challenge, our writers voice their opinions

The stories that defined 2014

From the Scottish independence referendum to the Ice Bucket Challenge, our writers voice their opinions
Stoke-on-Trent becomes first British city to be classified as 'disaster resilient' by the United Nations

Disaster looming? Now you know where to head...

Which British city has become the first to be awarded special 'resilience' status by the UN?
Finally, a diet that works: Californian pastor's wildly popular Daniel Plan has seen his congregation greatly reduced

Finally, a diet that works

Californian pastor's wildly popular Daniel Plan has seen his congregation greatly reduced
Say it with... lyrics: The power of song was never greater, according to our internet searches

Say it with... lyrics

The power of song was never greater, according to our internet searches
Professor Danielle George: On a mission to bring back the art of 'thinkering'

The joys of 'thinkering'

Professor Danielle George on why we have to nurture tomorrow's scientists today
Monique Roffey: The author on father figures, the nation's narcissism and New Year reflections

Monique Roffey interview

The author on father figures, the nation's narcissism and New Year reflections
Introducing my anti-heroes of 2014

Introducing my anti-heroes of 2014

Their outrageousness and originality makes the world a bit more interesting, says Ellen E Jones
DJ Taylor: Good taste? It's all a matter of timing...

Good taste? It's all a matter of timing...

It has been hard to form generally accepted cultural standards since the middle of the 19th century – and the disintegration is only going to accelerate, says DJ Taylor
Olivia Jacobs & Ben Caplan: 'Ben thought the play was called 'Christian Love'. It was 'Christie in Love' - about a necrophiliac serial killer'

How we met

Olivia Jacobs and Ben Caplan
Bill Granger recipes: Our chef's breakfasts will revitalise you in time for the New Year

Bill Granger's healthy breakfasts

Our chef's healthy recipes are perfect if you've overindulged during the festive season
Transfer guide: From Arsenal to West Ham - what does your club need in the January transfer window?

Who does your club need in the transfer window?

Most Premier League sides are after a striker, but here's a full run down of the ins and outs that could happen over the next month
The Last Word: From aliens at FA to yak’s milk in the Tour, here’s to 2015

Michael Calvin's Last Word

From aliens at FA to yak’s milk in the Tour, here’s to 2015