UK: British Coal minefield for sale. (3 of 4)

UK: British Coal minefield for sale. (3 of 4) - How does all of this add up? Unfortunately, because of the many variables, it is not easy to assess British Coal's potential sales after the current contract's expiry in 1993. The CCC dares its estimate of

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Last Updated: 31 Aug 2010

How does all of this add up? Unfortunately, because of the many variables, it is not easy to assess British Coal's potential sales after the current contract's expiry in 1993. The CCC dares its estimate of 59 million tonnes of deep-mined coal by 1995. McCloskey Coal Information analyst Guy Doyle suggests that pit coal sales could fall to 40mtpa by then. Either of these would be traumatic to the mining community.

Among the deep mines, future shutdowns are likely to hit Yorkshire and Nottinghamshire hardest. Wales and the North are already decimated, with only remnants of the industry. Open cast mines, which account for 20% of group sales, are luckier - they are low cost and profitable and will be the sweetener in the privatisation package.

What makes everyone blanch is the fact that of the deep mines left, more than half produce within 10% of average costs. The high-cost names fluctuate with the comings and goings of geological problems. What this means is that the group could end up closing down some potentially profitable mines.

In one respect, however, British Coal has an ace in its pack. At the expiry of the present contract in March 1993, the generators will still need British Coal to lean on, as alternative fuel use will be limited by port and gas-fired plant capacities. British Coal's Malcolm Edwards insists gruffly that he is "not interested in arm twisting", but he obviously resents the role now cast for the group: ie. that British Coal ties its own noose by keeping the generators in power until alternatives are ready.

"The biggest risk is that we end up as a sort of residuary legatee of supply to the generators," the normally jovial Edwards says, wincing as he does so. "You've got 'must run' nuclear, 'must run' hydro and 'must run' gas. We're the only mugs left behind in a free market."

The upcoming negotiations with the generators will include hot debate over the future prices of gas and imported coal. The shocking announcement by British Gas in March of a price jump of 35% is one point in the coal industry's favour. Also, in testimony to the House of Commons' Energy Select Committee, Shell predicted that not much more gas plant could be built after 1998 without pushing gas to uncompetitive prices. The global oil group warned that the generators would be "facing a cliff face" by the end of the 1990s unless they started to build "clean" (less polluting) coal plants soon.

Internationally traded dollar-quoted coal prices too are expected to rise slowly, as dumping practices are cracked down on. But there is a joker in the pack: the dollar/pound exchange rate. Professor John Surrey of the Science Policy Research Unit at Sussex University says that British Coal is totally at the mercy of exchange rates. "Depending on the dollar to pound rate, the whole of the British coal industry can be highly profitable or not." With a strong dollar a privatised British Coal could ride upward movements in dollar-priced international coal and charge more for its own coal locally, or, if the dollar fell, suffer punishing losses of sales against cheap foreign imports.

Of course, these dangerous fluctuations are exactly what British Coal would like to avoid by means of long-term contracts, and the attraction to the generators too is probably more than they admit - a trade-off of cheap prices in the short term for longer-term price stability. But for British coal to be truly attractive, Malcolm Edwards would have to be right that it will be competitive with imports in five years' time at £35 a tonne (present costs are about £40 a tonne).

The generators do not appear keen to take his word for it. As mentioned earlier, they have little to lose by opening new port facilities. The horror of this for British Coal is that the generators may well have to commit themselves to sustained usage of the ports before anyone will build them. That shuts out so many more million tonnes for local coal - even should it become competitive.

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