Dark times for Union’s coal sector

Date: 16/05/1996

By Tim Jones

WHEN the Commission comes to debate the future of the EU's support regime for the coal industry at the end of May, its discussion will be far from academic.

The European Coal and Steel Community (ECSC), the oldest of the Communities founded by the Treaty of Paris in 1951, is being put out to pasture before it expires in 2002. As expiry approaches, the ECSC is handing over responsibilities to other bodies of the EU.

But the discussion is about much more than institutional tinkerings on which competences will pass from the ECSC to the European Investment Bank or Structural Funds.

This, after all, is a building block of the Union. The brainchild of the Communities' founding father Robert Schuman was meant to bind together the vital coal and steel industries of West Germany, France, the Netherlands, Italy, Belgium and Luxembourg.

The embryo of the EU's institutional structure was put in place with the creation of the Community - an executive body, an assembly and a council of ministers. Its decline is the mirror image of the industries it represents.

While the slow death of the European steel industry has been widely reported, that of coal mining and processing has been sidelined.

The European coal industry has collapsed in the past six years. Between 1990-94, the number of jobs in the industry shrank by 65,000 and deliveries by 70 million tonnes. At the same time, imports from third countries rose by five million tonnes.

Between 1986 and 1994, EU coal production fell by 100 million tonnes or 42&percent;. In spite of serious attempts to reform the industry, the average production cost of EU coal is 114 'ecu per tonne coal equivalent' (TCE), whereas the price of coal imported from third countries rarely exceeds 40 ecu per TCE.

The cost of EU production fell 22&percent; between 1989-1994, but over that same period, the price of imported coal dropped by 40&percent; to its lowest level since the end of the Seventies.

Yet once the two industries were spoken about in the same breath. From Scotland to the Ruhr valley, iron and steel industries were created in areas of coal exploitation.

The industrial and imperial strength of France, Germany and the UK were largely based on the combined industries. The ECSC was conceived as a means of controlling the re-emergence of German strength in these sectors after World War II.

The Ruhr coalfield is an icon of European industrial history. Originally developed in the 11th century alongside the emerging towns of Cologne, Duisberg, Essen and Dortmund, this rich coalfield supported the nascent iron-making industry.

Production in the Ruhr really took off in the 1870s when the local coking coal was found to be suitable for iron furnaces.

If the sector's rise epitomised developments in the industry, its decline provides similar lessons. As has happened everywhere else, more than a century of exploitation means that the pits are becoming increasingly deep and difficult to mine. Migration north into the deeper mines of the Ruhr pushed up the coal production costs at a time when competition from other cheap energy sources got under way.

The mining workforce shrank from 500,000 in 1956 to less than 100,000 today in line with massive restructuring. Twenty-six coal companies combined in 1969 to form Ruhrkohle AG, a company which controls 94&percent; of hard coal production in the Ruhr basin.

This story has been repeated throughout the large coal- producing countries.

The UK, Germany, France and Spain are well-endowed with coal reserves, but the majority of these are deep deposits requiring mining at depths of more than 1,000 metres with hard-wearing and costly equipment - pushing up production costs.

Precipitate decline accelerated in the Eighties. Mine closures and industry restructuring reduced the number of workers employed in the extraction of hard coal by more than half.

Most of these were in the UK, after a national coal miners' strike in 1984-85 failed to roll-back an ambitious closure and privatisation plan from the government of Margaret Thatcher. Belgium closed its last two pits in 1992 and there are none left in the previously pit-dominated South Wales.

As the number of jobs plummeted, productivity soared by 58&percent; between 1985-93, while capital spending has concentrated on developing new mining technologies, increasing the share of production by surface mines and on the closure of uneconomic pits.

The UK industry is now in private hands after British Coal was sold to RJB Mining and Scottish Mining, while the German industry - led by Ruhrkohle, but including Reinbraun and Saarbegwerke - is restructuring, along with the smaller French and Spanish industries.

Nevertheless, the huge and painful restructuring carried out in the UK, which led to the longest national strike in British history, has not been carried out elsewhere.

While the UK industry led the way in closing down pits and shedding staff, even Germany has taken measures to reduce sales of subsidised hard coal by 50 million tonnes by early in the next century. Charbonnages de France is obliged by law to find alternative jobs for its workers.

The German, French and Spanish industries still rely massively on subsidies to survive. At the end of April, the Commission cleared aid worth almost 10 billion ecu to the coal industry. The bulk of this (7 billion ecu to be exact) came from the German state. Of this, 4 billion ecu went to cover payments to mines for coal for electricity generation, 1.3 billion ecu to cover the supply of coal and coke to the EU's iron and steel industry, and 62 million ecu for Saarbegwerke.

While the Commission approved this German aid for 1995-96 as part of the restructuring plan it authorised in December 1994, it felt the speed of the reduction in capacity in the industry was insufficient.

But the Commission's impatience is nothing compared with that of the UK government, which wants buyers of its former loss-making coal-mining units to compete on a level European playing-field.

When Richard Budge's RJB Mining bought the bulk of the former British Coal business in 1994, he paid 950 million ecu - much more than anyone in the industry had expected.

Guarantees put in place by the UK government may have had some part in that. At the time of privatisation, the government obliged the electricity power-generators - PowerGen and National Power - to hold long-term contracts for the supply of coal from the buyer.

This market is guaranteed until 1998. Then, RJB will have to sink or swim in a market-place dominated by subsidised European companies while the UK power-generators are busy building gas-powered stations to replace coal. “We can certainly be contrasted with Germany,” said a UK official. “There were some small operating aids at privatisation and ongoing compensation for issues such as subsidence and pensions, but nothing like the German state subsidies. It makes a nonsense of the whole thing.”

In fact, the vetting of subsidies to coal was tightened up considerably in 1993 by a decision of the Council of Ministers. Aid for investment was removed from the code but operational aid was left in, while state aids had to be approved by the full Commission college.

The quantity of aid, nevertheless, remains significant - rising by 32&percent; measured as subsidy per tonne between 1986 and 1993, as a Commission report to the ECSC Consultative Committee last month revealed.

For Jan Van Der Stichelen, secretary-general of the Association of Coal Producers of the EU (Cepceo), the immediate future for the industry is bleak in the run-up to the expiry of the Paris treaty. “We think we will have a very difficult environment between now and the year 2005,” he said. “Electricity firms are building more and more gas-powered stations.”

Yet, the reserves of energy in Europe tell a different story. “It is imperative that we return to coal in the coming years because we are sure that the price of gas will rise in the next ten years. We have 250 years of coal reserves, 18 years of gas and 8 years of oil.”