Bleak outlook for coal industry: Up to 15 more pits could close as the imposition of VAT on domestic fuel further depresses demand. Mary Fagan reports

THE IMPOSITION of value-added tax on domestic fuel bills will cut coal demand by around 10 million tons over the next few years, according to a senior electricity industry executive, driving a further nail into the coffin of British Coal.

The company already faces a cut of 10 million tons next year in its sales to the generators, PowerGen and National Power. Sales are already down to 40 million tonnes this year from 65 million a year ago. At the same time, its stocks of coal for which there is no buyer are soaring by up to 1 million tons a month because the Government 'reprieved' a dozen pits earmarked for closure while British Coal attempted to find extra sales.

Industry sources now believe that British Coal will be forced to close at least half of its remaining 30 working mines within a relatively short time.

The mining workforce has already more than halved to 20,000 since October when British Coal caused outrage by saying that 31 pits would close with the loss of 30,000 jobs. This is in addition to thousands more jobs lost or due to be cut this year among non- mining staff.

The generators are already understood to be burning less coal than expected this year because of the growth of nuclear power and the introduction of gas-fired plants. Furthermore, some coal-fired power stations are not working to capacity because work on the electricity transmission wires limits their output.

As a result, the generators still have around 35 million tons of coal stocks while British Coal has 14 million tons and rising - hampering the company's ability to secure the future of all its mines.

The Government recently added to coal's woes by saying that PowerGen could burn imported orimulsion, a bitumen-based product which environmentalists call the world's dirtiest fuel, at two power plants.

According to an electricity industry source, everything that has happened in the months since some pits were 'reprieved' has acted to reduce still further the market for coal. It now seems increasingly unlikely that the generators will buy any extra coal in the current financial year.

In any case, future sales will have to be split between British Coal and independent mining companies - including those bidding to take over mines where production has ceased.

British Coal has offered 19 pits where production has ceased for lease and licence to private companies. Although up to 18 organisations have come forward, it is unclear how many want to mine the coal, and how many have other projects in mind.

Private miners are also stymied by a regulation which limits the number of men they can have underground at a pit to 150 at any one time. Legislation to change this is likely to be introduced as part of the privatisation of British Coal, which ministers will attempt to achieve by next summer. British Coal insiders believe that 1995 is a more realistic time frame.