Industry in crisis: The mines: Profitable collieries on list for closure

BRITISH COAL'S list of mines due for closure includes some of the most efficient in the UK, producing coal at well below the prices being negotiated with the electricity generators, National Power and PowerGen, writes Mary Fagan.

According to McCloskey Coal Information, which carries out analyses of the industry, collieries including Markham near Chesterfield and Point of Ayr near Prestatyn, have recently been producing coal at about 120p a gigajoule, which means the mines are profitable. The figure compares with 185p a gigajoule paid by the generators under their contracts with British Coal. Even under proposed new five-year contracts the generators will accept an initial price of 150p. Bentley, another pit earmarked for closure, is estimated to be producing at 130p a gigajoule, and a British Coal source revealed that some of the ill-fated mines have managed to get production costs below pounds 1. Foreign coal can be imported for between pounds 1 and pounds 1.20, but the generators must pay for transport to the power stations.

British Coal said on Tuesday that while some closures could be blamed on high production costs, many of the mines would go purely because their market had been pre-empted by natural gas. But British Coal refuses to reveal costs at individual mines because the negotiations for contracts with the electricity industry are not yet complete.

Figures published in McCloskey's International Coal Report also show that the cost of electricity generated by some gas-fired plants will be significantly higher than those on offer under the new coal contracts.

According to the report, some of the planned Combined Cycle Gas Turbines (CCGTs) will produce electricity at 2.9p or 3p a unit. This compares with under 2.8p which the generators are offering the regional electricity supply companies next year for electricity generated from UK coal. The price offered by the generators would fall further over the subsequent four years. All of the CCGT project teams insist their particular plant will be competitive with coal-based electricity, in spite of a recent sharp increase in the cost of gas. But the consensus is that only those plants which bought cheap gas before the price rise will be economic.

The regional electricity companies, however, are locked into 15-year contracts to buy electricity from the gas-fired plants. Most are also partners in the consortia building the plants. The electricity supply companies could be in breach of their licences if the industry watchdog, Offer, decides they are not buying at the lowest possible cost.

Michael Heseltine, President of the Board of Trade, said he had no intention of stopping any CCGTs from going ahead. He had not asked the operators of the plants to prove they would be economic. He said: 'We do not run British industry by asking companies to explain why they are investing their money.'