Germany told it may have to shut more pits

Date: 28/09/00

By Peter Chapman

THE German government is coming under intense pressure to promise significant cuts in pro-duction costs or close down more pits to win European Commission approval for a massive state handout to its coal industry.

The warning comes as officials investigate subsidies to the troubled sector. They say Berlin is seeking clearance for payments close to last year's €4.2 billion, of which €2.6 billion was 'operating aid' to prop up loss-making pits and the other €1.6 billion helped to pay for shutting other, less economical mines.

But Commission sources stress the institution's decision on operating aid must be in line with last year's ruling by the European Court of Justice. It stated that companies receiving such subsidies must reduce production costs significantly from one year to the next and not just freeze them.

"The ruling clearly states that the German industry must make strong efforts and aid cannot be given only for the management of the mines," said a spokesman for Energy Commissioner Loyola de Palacio. "That clearly means it must go for other aspects...to close mines or make more significant cuts in costs."

However, Karl Starzacher, chairman of German mining and industrial giant RAG Group, said at the company's annual general meeting he was "happy" that the firm had "managed to freeze production costs" during the year.

EU officials say this may mean that Germany has no alternative but to sacrifice more pits if it wants to get the aid approved. "There is a ruling which says there needs to be a significant reduction in production costs. They were saying there is no possibility of that, so where do we go?" asked one.

He added the Commission had approved €4-billion in aid to the French industry last week only because Paris had earmarked the cash for closing mines.

The German government is coming under intense pressure to promise significant cuts in production costs or close down more pits to win European Commission approval for a massive state handout to its coal industry.