UK’s top coal firm seeks deal on subsidies

Date: 17/09/1998

By Peter Chapman

THE UK's biggest coalmining company will consider dropping legal action against the European Commission for approving massive subsidies to pits in Germany and Spain in return for extra access to these markets, according to industry sources.

They say RJB Mining plc would abandon its case, which is due to start at the European Court of First Instance next month, if Bonn and Madrid agreed to buy "between 8 and 10 million tonnes" of UK coal.

"This court action could be overtaken by some form of commercial agreement that compensated for the distortions caused by state aids in Germany and Spain," said one.

RJB's move is inspired by Welsh anthracite mining firm Celtic Energy's decision to abandon its challenge to another slice of German state aid after agreeing a compensation deal with producers Sophia-Jacoba and Preussag Anthrazit.

The industry source said that RJB Mining had been reluctant to launch its bid for a judicial review of the Commission's decision, but felt it had little option at the time but to try to force Germany and Spain to repay their aid.

"What the UK has tried to do is to get coal into Germany and Spain but, because these countries have played all kinds of games to stop this, the industry has very reluctantly had to take legal action," he said. "In a perfect world, it would much prefer to sell a limited tonnage."

He added that if a deal was to be struck to avert a protracted court battle, Germany would have to agree to take the bulk of the coal. "If Germany agreed to take 5 to 6 million tonnes from the UK, it would be small fry relative to its overall consumption," said the source. "But it would virtually wipe out the overproduction problem facing UK industry."

RJB, which took over most of the UK's remaining state-owned pits three years ago, is fighting to retain its share of the domestic coal market after a long-term deal to supply British power firms came to an end this year.

Power generators increasingly prefer gas to coal as their raw material because it is cheaper and more environmentally friendly.

The company announced in July that it was planning to take action after the Commission found that 5.2 billion ecu of German government aid to four major collieries was legal because it "helped to solve the social and regional problems affecting the future of the German coal industry".

RJB also made it clear then that it would challenge the Commission's decision to allow 2.6 billion ecu of Spanish subsidies paid between 1994 and 1998 to offset the effects of restructuring in its coal industry.

The British firm claims that its costs are one-third of those incurred by rivals in Germany and one-quarter of those in Spain, but subsidies keep it out of these markets and allow less efficient firms to make inroads into the UK.

Meanwhile, British Tradeand Industry Secretary Peter Mandelson is poised to step up efforts to force EU applicant Poland to bring down its coal subsidies.