More than 7,000 pit jobs could be saved if Britain ended imports of subsidised French electricity. But Michael Heseltine, President of the Board of Trade, fears the cross-Channel underwater link - known as the interconnector - could not be severed without risking a diplomatic row and claims for damages by the state-owned generator, Electricite de France (EDF).
His decision could provoke opposition from the Conservative backbench critics of the Government's energy policies who rebelled when the closure of 31 pits was announced last October.
The Independent has learnt that the Government agreed secretly in 1990 to underwrite continued imports of French electricity, even though there are no opportunities for reciprocal exports.
The Department of Energy, now disbanded, indemnified the privatised National Grid Company against loss of profit caused by government policies.
The indemnity, criticised by senior British Coal managers as a privatisation 'sweetener', means the Government will compensate regional electricity companies - owners of the national grid - if they have to pay more for their supplies of electricity.
The indemnity was never discussed in Parliament. The only public reference to its existence came in a Department of Energy minute issued on 2 November 1990, a day after Parliament had risen in preparation for the Queen's Speech.
Mr Heseltine was told last month in a memo by Department of Trade and Industry lawyers that Article 30 of the Treaty of Rome would be breached by British legislation cutting French imports. The Government could be prosecuted in the European Court and sued for damages by EDF as well as paying substantial sums under its indemnity deal to the privatised electricity companies.
'This would be a serious matter and not one the Government would wish to provoke,' Mr Heseltine said in a private briefing for backbench MPs. 'Such an infringement of the Treaty of Rome might also cause the commission to be less co-operative than they might otherwise have been in giving approval to other measures coming out of the coal review.'
French imports are cheaper than much British-generated power. EDF has denied 'dumping' electricity in Britain at less than its cost, but 'doubts persist about how they do their calculations', a senior coal industry source said.
French imports are virtually guaranteed the equivalent of 7 million tons of coal. Commissioned in 1986, it was meant to encourage mutual trade and planning of the two electricity systems. But almost all the trade has been one-way, with imports rising by one-third between 1987 and 1991.
The deal with EDF expires on 31 March, with a new contract under negotiation. If the privatised electricity companies agree soon to buy further supplies from EDF, the taxpayer will have to compensate them if Parliament decides that British collieries should meet the demand instead.
The Department of Trade and Industry last night confirmed the indemnity had been announced in a memorandum to Parliament.