Coal faces death by stealth: Reprieve or no, survival prospects are bleak. Mary Fagan reports

QUIETLY and rapidly, the British coal industry is being shrunk to the size which, when it was announced by ministers little more than seven months ago, was thought to be so shocking that it threatened to bring the Government down.

With the public outcry and political crisis defused, British Coal is pushing ahead with a programme of pit closures and job losses which may end up coming close to the original plan of 31 pits and 30,000 jobs.

Over the next few weeks 20 deep mines will be advertised to the private sector. If there are no takers, British Coal will close them down. That will leave the company with just 30 pits, of which 12 previously earmarked for closure have been 'reprieved' for a time at least, as a result of the Government's White Paper on the future of coal.

Reprieved, in British Coal's language, means 'market testing' - an uphill and tortuous attempt to persuade National Power and PowerGen to buy more coal on top of their existing five-year contracts. With an estimated 34 million tons of stockpiled coal (National Power says that its 20-million-ton mountain is worth pounds 700m) and the ability to import cheap foreign coal, the prospects for coal appear gloomy indeed.

Last week Neil Clarke, British Coal's battle-weary chairman, promised that his drive for extra sales would be 'exhaustive'. 'We have got to rigorously market-test and re-test,' he said.

But the generators are in no hurry, and there must be a large question mark over the prospects for the reprieved 12. British Coal is itself thought to have 11 million tons of coal lying idle above ground, and the 12 mines are adding to that at a rate of about a million tons a month.

Then there is the cost - undisclosed - of keeping the mines producing coal no one wants to buy. Mr Clarke claims slowing production is not an option, since it would increase unit costs and make it even harder for British Coal to compete with imports.

John Baker, the chief executive of National Power, said: 'Our position is that we will be taking more coal, but there is no urgent need today.

'To comply with fair trading legislation both here and abroad, we will have to test the market when seeking more supplies of coal and I cannot see that being until the autumn.' If the generators can be persuaded to take more UK coal, existing private mines and those who take over British Coal's unwanted pits will have to be given a fair crack at the whip.

The generators are under pressure from shareholders to cut the amount of cash tied up in stockpiles of coal. The Government, which still has a 40 per cent stake in the generators, also has an interest in seeing the coal mountains reduced.

As one company source said: 'The Government is the major shareholder and they understand that you are tying up pounds 700m, of which at least half is excessive. Other shareholders see the benefit of releasing cash to look, for example, at opportunities abroad.'

One coal industry source pointed out that although the Government has promised a subsidy to help British Coal (and those who lease the company's pits), the fundamental market position is still the same as it was in October.

The Government had done nothing to slow the trend to gas-fired generation, stem the onslaught of nuclear power or stop power imports from France. He added: 'There is absolutely no market to save all of those 12 pits. All that has happened is that Michael Heseltine has bought some time.'

Since October, 16,000 of the 40,000 miners have voluntarily left the industry, drawn out by a mixture of enhanced redundancy packages and sinking morale. The company currently has 24,000 mineworkers and 8,000 management and clerical staff, but about half of the latter are also expected to be axed. According to the coal industry source: 'There is no immediate sign of a slowdown in the free-fall.'

The unions, in spite of a sustained and energetic campaign against the closures, were dealt a severe blow last week, when the High Court ruled that British Coal's criteria for closing the first 10 mines on its hit list were reasonable, and that it has met its obligations in terms of consulting with the unions. The legal battle over closing the 10 has cost British Coal an estimated pounds 150m in extra losses and legal costs, but its victory makes it easier to close other pits facing the axe.

British Coal's productivity has increased by 130 per cent since the 1984/85 miners' strike. Those who have been questioning how the drive can be sustained may be surprised to know that productivity this year is already up by 20 per cent on a year ago. The unabated drive for lower unit-costs begs an important question. If the generators want a few million tons more coal, how easy would it be for British Coal to supply its slice of the extra business from mines other than the 'reprieved' 12?

Until this year, British Coal charged the generators about 180p a gigajoule for coal. Under the new five-year contracts, the price has fallen to about 150p and will fall to nearer 130p by the end of the contract period. British Coal has already offered 90p to 95p in an effort to tempt generators to buy more above the contracts. That, however, is still higher than what National Power and PowerGen could get on the world market.

A further threat comes from the Treasury which, in its efforts to cut the Budget deficit, is determined to pare down any government subsidy to coal as low as possible.

Try as British Coal might, no one is under any illusion. The company is struggling against near-impossible odds. All but the most optimistic must realise that what shook the nation in October is, by stealth, rapidly coming to pass.

(Photograph omitted)