Ministers confirm mines closure
Published 10/04/2014 | 00:27
Britain's historic deep-pit coal mining industry is on the brink of extinction after the Government decided there was no case for investment to keep two of the last three sites open in the long term.
Ministers have agreed to a £10 million loan, alongside £10 million from the private sector, to support the "managed closure" of the mines at Kellingley in North Yorkshire and Thoresby in Nottinghamshire.
Together the sites, operated by Britain's largest coal producer, UK Coal, employ 1,300 people. They are to be wound down by autumn 2015.
The Government backing spares the company the prospect of immediate insolvency which would have cost the Treasury "significant losses and liabilities" from redundancies and unpaid taxes.
In a written statement to MPs, energy minister Michael Fallon said: "The taxpayer is better served by supporting a managed closure of the mines.
"However, deep coal mining remains an inherently risky business. There is no value for money case for a level of investment that would keep the deep mines open beyond this managed wind-down period to autumn 2015.
"Private sector investors who wish to put in the substantial investment that would be needed to maintain the mines beyond autumn 2015 without government support remain free to do so."
Mr Fallon said the Government intended to participate in a private sector-led consortium "to avoid the immediate insolvency of UK Coal".
The proposal, which ministers have been considering since March 21, would see the deep pits face a phased shutdown and UK Coal's six surface mines sold off.
Mr Fallon told MPs that the Government's agreement to participate was subject to final terms "that provide adequate protection to taxpayers" as well as assurance of backing from all parties including trade unions.
He said a "rapid response service" would be available to help employees try to find new work and retraining.
Mr Fallon said directors of UK Coal had approached the Government at the end of January to report that a falling coal price, exchange rates and other factors meant that "the viability of the business was potentially in doubt".
It is understood that private sector investment will come from rival mining group Hargreaves Services and Harworth Estates, landlord of the two mines.
Mr Fallon said in a separate statement: "We are doing everything we can to help in this unique situation.
"Our commercial loan, as part of this private sector-led initiative, can support a managed closure that is in the best interests of the taxpayer and employees. The only alternative was immediate insolvency.
"It has been a real collective effort to get to this point, but this remains a challenging situation and all parties need to continue working closely together."
UK Coal supplies fuel to power stations providing 4% of the UK's electricity needs. Coal accounted for 36% of electricity generation last year.
But Government officials believe the closure of the deep pits poses a low risk of impact on security of energy supply. They argue that UK Coal's surface mines should enable its production to continue at 40% of its current rate.
However, the reliance of Britain on imports from Russia was spelled out in a written answer from Mr Fallon last night, which showed imports from the country represented about a third of the coal needed for electricity generation.
It showed that out of 39.6 million tonnes of steam coal imported into the UK, which represents 72% of the 54.9 million tonnes of coal used for electricity generation, 17.5 million tonnes came from Russia in 2012 - 32% of the total.
UK Coal has already begun consulting on plans to shut Kellingley, which employs 700 people, and Thoresby, which employs 600. Jobs are also likely to go at its head office in Doncaster. The company currently employs about 2,000 people.
It will leave employee-owned Hatfield colliery in South Yorkshire as Britain's last remaining deep-pit mine - leaving a once-mighty industry on the edge of extinction.
UK Coal has been hit by a strong pound and the increasing availability of cheap coal imports - especially from the US, where the shale gas boom has forced producers to find new international markets.
Prime Minister David Cameron has previously said the Government is doing all it can to help preserve jobs, but warned: "There are obviously limits. This is taxpayers' money that is involved. But we will work with them as closely as we can."
Labour has accused the Government of adopting an "inflexible attitude" over rules on potential support for UK Coal.
The TUC says £10 million is likely to be provided by the Government towards the closure of the deep pits and that the taxpayer will also lose out on tax and national insurance contributions of £30 million a year.
It says it has devised an alternative rescue plan that will cost £50 million to £60 million.
UK Coal's surface mines are at Butterwell, near Morpeth in Northumberland; Huntington Lane, near Telford in Shropshire; Park Wall North, near Crook, County Durham; Potland Burn, near Ashington, Northumberland; Lodge House, near Ilkeston, Derbyshire; and Minorca, near Measham, Leicestershire.
The firm went into administration in July following a fire that closed its Daw Mill pit in Warwickshire a year ago, resulting in 350 job losses.
But it was saved in a restructuring that saw it taken over with the backing of Britain's pension rescue scheme, the Pension Protection Fund (PPF), in a deal that was hailed as helping to keep the lights on in the UK.
The TUC said 340 jobs would be axed next month though the company could not immediately be contacted to confirm this.
It said the Government's refusal to fund a long-term rescue plan would leave UK businesses and householders at the mercy of overseas energy suppliers.
TUC general secretary Frances O'Grady said: "Faced with the choice between closing two of the UK's three remaining coal mines next year or of fighting for their future, the Government has gone for the short-term option and taken the easy way out.
"UK Coal is clearly in trouble. Miners and their families will be relieved to learn that ministers have avoided UK Coal's impending insolvency by agreeing the terms of a repayable, fixed term, commercial loan.
"But that will come as small comfort to the 340 workers whose jobs disappear next month."
She said unions had presented the Government with a "sensible rescue plan" to protect jobs, support the development of clean coal technology and "strengthen our energy security, rather than increase our dependency on Russian coal imports".
"Unions will continue to make the case for coal - a UK energy supply that is secure, cheap and one which means our energy bills are less susceptible to price fluctuations in the international energy market."
Today's announcement sparked anger in the House of Commons, where veteran Labour MP Dennis Skinner branded the Government proposals "a load of crap".
UK Coal said "various parties" had expressed an interest in its surface mines although as of today no offers had been made.
Immediate job losses - of at least 340 - at the company are likely to begin next month, with workers involved in preparing new panels in pits for future mining expected to be among the first to go.
Chief executive Kevin McCullough said: "We are pleased that the Government has indicated a commitment to this deal which will give other parties the confidence to conclude their own positions.
"This proposal offers the best opportunities for our workforce, our customers and our suppliers. Without the support to close the business on a phased basis to 2015, we would have been announcing an immediate insolvency and 2,000 job losses.
"We will work with government departments and agencies to find alternative work, or support, for employees as they leave the business over the next 18 months.
"Regrettably, the historically low international coal price and a strong pound, mean our costs are too high to sustain an ongoing business and this is the only option available to the business."
UK Coal confirmed there would be £5 million investment each from Hargreaves Services and Harworth Estates.
Hargreaves chief executive Gordon Banham said: "The planned closure of UK Coal marks a sombre day for the UK's coal industry.
"We, alongside Government and other stakeholders, feel a responsibility to support a well-managed and respectful wind-down of UK Coal's operations, which employ around 2,000 people.
"In addition to the proposed £5m loan, we would assist in the marketing of UK Coal stocks and provide a range of support services."