British Coal rejects need for large subsidies

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BRITISH COAL has privately rejected the idea that it needs large direct subsidies to save any of the 31 mines earmarked for closure.

The company is concerned over speculation that ministers are considering a subsidy of up to pounds 10 a ton which would take the form of a levy on electricity bills. British Coal management believes that at most a subsidy would be needed on eight million tons - to allow it to displace imported coal.

A senior company source said this would cost about pounds 80m in the first year and about pounds 200m over five years. 'It is less than a quarter of what is paid to Nuclear Electric in one year (through the non-fossil fuel levy) and would add less than a penny to the average domestic electricity bill, even in the first year.'

The source added that the company was determined not to be seen as a lame duck looking for handouts.

The Commons Select Committee on Trade and Industry inquiry into pit closures is likely to conclude that, according to a source, pounds 10 a ton is 'way over the top'. A lower figure would make the rescue package more palatable to ministers, some of whom are gearing up to oppose some of the detail of the subsidy plan by Michael Heseltine, the President of the Board of Trade.

British Coal is believed to be close to concluding contracts with the electricity industry under which it will sell 40 million tons next year and 30 million tons in the four subsequent years. The company supports a limited subsidy aimed at displacing imported coal. This could save eight of the doomed mines and 8,000 jobs.

The select committee meets tomorrow to agree the final form of its report, which is expected to be unanimous when published next Monday. It is expected to highlight good prospects of the price of British Coal dropping to world prices within two to four years.

Taking into account productivity and technical changes and a subsidy to ensure regional electricity companies buy 10 to 15 million tons more, it is likely to say 10 to 15 pits could be reprieved.

A further two pits could be saved because of a commitment by Customs and Excise to impose higher taxes on oremulsion, the environmentally harmful slurry-based coal substitute.

Meanwhile, energy experts have warned that the Government must build at least three more nuclear reactors if the UK is to meet its environmental commitment to cutting back on sulphur dioxide and carbon dioxide emissions. Professor Ian Fells, an expert in energy conversion at the University of Newcastle, said the consequences of not building more reactors and cutting off imports of nuclear power from France would 'be horrendous for the environment'.

In a special memorandum for the select committee, Professor Fells and a fellow energy expert, Professor Nigel Lucas, have laid out their optimum scenario for the UK energy sector. Their plan would reserve 55 per cent of the market for coal, 25 per cent for nuclear, 15 per cent for natural gas and 5 per cent for renewable energy.

Professor Fells said that this would allow a coal market of 60 million ton which, even allowing for imports, could save about half the doomed mines.