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UK Coal Threatens To Close 5 Pits

09 May 2006 - By Christopher Hope, Industry Editor

The much-hyped renaissance of the British coal industry could be about to come to a shuddering halt unless power companies pay more for their fuel, UK Coal has warned.

Britain's biggest coal producer is threatening to close five of its seven pits and cut 1,500 jobs unless it can force through price rises with major customers like Eon, Drax and Electricite de France. Pits that could close in the "near future" are Thoresby, Welbeck and Kellingley, in addition to Harworth and Rossington, accounting for 233m tonnes of coal reserves, it warns in a submission to the Government's energy review.
The Drax power station

UK Coal says prices must rise to secure the future of coal
on the doorstep of power stations such as Drax

Despite the much-trumpeted return of coal - with prices doubling in the past two years - UK Coal has been unable to take advantage of these rises because it is locked into long-term contracts.

Talks with customers have started, the outcome of which is vital to ensure the continued viability of the British coal industry.

The firm says 300m tonnes of coal can be recovered from its remaining seven deep mines. However, unless it can find new financing, five will close, with the loss of 1,500 jobs. UK Coal complains that generators have adopted a policy of only buying indigenous coal if it is priced at or below the international price of coal - which it claims costs the industry £100m a year.

Generators are typically willing to pay 40p a gigajoule (equal to £9.60 a tonne) more for foreign coal than they are paying for coal mined on the doorsteps of power stations that are burning it, it says.

The submission, which will be published on the Department of Trade and Industry's website this week, adds: "UK Coal states that action must now be taken to preserve the security of deep-mined coal supply for the longer term by reviewing these pricing assumptions and adopting new contractual arrangements."

UK Coal is understood to be pushing for 40pc rises in the price it can charge for its coal. One source said: "Someone must decide do they want these power sources on their doorstep for the next 20 years or do they want them to be closed in the next three to four years."

Soaring gas prices have meant that the UK has become increasingly reliant on coal for its power - in recent months, 50pc of Britain's electricity generation has come from coal.

The submission urges ministers to recognise that "public policy for security of energy supply and affordable electricity must take priority over the short-term commercial interests of individual generators".

UK Coal's submission is one of several hundred to the energy review team at the DTI. Energy minister Malcolm Wicks will make his recommendation to Prime Minister Tony Blair by July.

Drax said: "The company will continue to source its coal in the most commercially sensible way." A source added: "It is a marketplace and you can buy coal from wherever you want to."

An Eon spokesman added: "We get our coal from a variety of sources when we take a look at our coal requirements."