Power deal safeguards Scottish pits: ScottishPower and Hydro-Electric agree pounds 400m five-year supply contract with British Coal

BRITISH COAL is to supply more than 10 million tonnes of coal to ScottishPower and Scottish Hydro- Electric in a pounds 400m deal that safeguards the medium-term future of the Scottish coal industry.

Under the five-year deal, to be back-dated to April this year, the power generators will buy the entire 2-million-tonne output of the Longannet mine in Fife, Scotland's last remaining deep coal mine. It will be burnt in the Longannet power station, which sits directly on top of the mine.

The generators will also buy an extra tranche from British Coal's open-cast pits, starting at 300,000 tonnes and rising to 800,000, which will be burnt at the Cockenzie station. The surplus electricity will be exported to England and Wales through the interconnector, whose capacity is being increased by the National Grid Company. An interconnector is also planned with Northern Ireland, giving further export opportunities.

The deal replaces the existing contract, which was due to run to March 1995. The generators will pay 15 per cent less for the coal than they were - bringing the price into line with that paid by the English generators under the deal hammered out earlier this year - but in return British Coal is to be given another three years' security. Analysts say the contract should add pounds 10m to ScottishPower's pre-tax profits this year, and pounds 2m to pounds 3m to those of Scottish Hydro, which has a stake in Longannet.

Speaking at Longannet yesterday, Neil Clarke, chairman of British Coal, contrasted recent pit closures in England with prospects north of the border. 'In England and Wales the market for coal for electricity generation is sharply contracting,' he said. 'Here it is expanding. This deal will secure the future for the coal industry in Scotland in coming years as it makes the transition to private operation. The newly privatised business will have an opportunity to continue the momentum.'

He said the pressure on the coal producers was not as high in Scotland because it had avoided the rush to build gas-fired power stations seen in England. No new gas- fired stations were being built, partly because there was already overcapacity, and partly because the generators controlled distribution in Scotland. It was the distributors, the regional electricity companies, that led the 'dash for gas' in England to end their reliance on PowerGen and National Power.

Malcolm Edwards, former British Coal commercial director and a potential purchaser of the Scottish pits - which are likely to be sold as a unit at privatisation - was not impressed by the deal.

'I would have hoped British Coal would have done a bit better,' he said. Mr Edwards, who is involved in Mining Scotland, a consortium that includes the Scottish unions and Leigh Industries of Staffordshire, said the Scottish region, which will include large open-cast pits as well as Longannet, remained one of the most attractive propositions.

The Longannet mine did have to beat off competition from foreign suppliers to win the contract. Its position under the power station gives it an advantage, but according to the Boyd report, commissioned by the Government last year, it is also one of the lowest-cost mines in Britain, producing at pounds 1.40 a gigajoule.

Separately, the generators are signing contracts with Scottish private mines to take up to 400,000 tonnes of coal a year over five years. One of the beneficiaries of this should be Monktonhall, near Edinburgh, which was taken over by its workforce last year. The miners, who each invested pounds 10,000, will vote this week on a pounds 3m rescue package put forward by RJB Mining, a South Yorkshire-based company.

The mine has run up debts of more than pounds 3m and analysts say it will be forced to close if miners reject the package, under which they would lose all but pounds 1,000 of their pounds 10,000 stakes. Industry sources said yesterday that it was likely the miners would say no, even though this would probably lead to Monktonhall's receivership.