UK: Government urged to act on underpriced coal for generators

The government is under increasing pressure to help broker a deal between Britain’s coal producers and electricity generators over long-term purchase contracts that value the fuel at below market rates.

Yesterday UK Coal, Britain’s biggest producer, warned that it would make a loss for the year because of disruption at four of its five deep mines in July and August that meant it lost more than 400,000 tonnes of production. It said it was unlikely to make up the shortfall in the final quarter of the year.

UK Coal, which supplies about 7% of the coal used by British power stations, said the loss of production was mainly due to geological problems.

The company is also struggling with the burden of long-term contracts at below market rates. UK Coal receives about three quarters of the price that generators pay for Russian coal.

Yesterday, chief executive Gerry Spindler said that 3m tonnes of capacity – just under a third of the total – was in jeopardy “without recognition of market prices in the contracts”.

Mr Spindler, an American, refused to be drawn on where capacity might be closed and acknowledged the government was reluctant to become involved in commercial contract arrangements between producers and electricity generators.

“Given my background, I’m loth to see the government get involved in commercial contract positions except for the fact that it always has to some extent,” he said.

Mr Spindler rejected using the coal industry forum – involving producers, generators and government – as a mechanism for contract negotiations, but warned: “If you accept as a goal the preservation of domestic capacity, we have to foster negotiations one way or another.”

Michael Clapham, Labour MP for Barnsley West and Penistone and a member of the Commons trade and industry select committee, warned that increasing competition for world coal supplies from countries such as China could make Britain more dependent on Russian coal.

“The government has to get both sides together and try to facilitate them arriving at a solution even if it has to be that the government has to pay the generators a given amount,” he said.