Ruling threatens coal sector subsidy system

Date: 22/05/1997

A LANDMARK ruling by the European Commission is expected next month which could undermine the whole system of government subsidies to Europe's struggling coal industry.

Celtic Energy, a company producing high quality anthracite coal in South Wales, has raised questions about the whole structure of support to the industry and competition between producers with a complaint to the Commission about subsidised exports to the UK of equivalent German coal.

German subsidies to buyers of its coal allow it to be competitive on local and export markets even though production costs are well over world market prices. Celtic Energy argues this is unfair since it does not receive any government support.

Thanks to the subsidies, German producer Ibbenbueren has been able to export around 60,000 tonnes of anthracite to the UK, eating into the relatively small niche market for anthracite coal for home heating and anthracite coal dust for power stations. Celtic produces around 2.5 million tonnes of coal a year.

Experts following the dossier say the implications of the case go well beyond the UK and Germany.

Most of Europe's shrinking coal industry (apart from the privatised plants in the UK) receives subsidies, with those in Spain and Germany amongst the highest. However, experts say there have been no previous court rulings establishing whether national aid can be used to support coal exports under the Union's European Coal and Steel Community (ECSC) treaty.

“The picture has changed in the recent past. Until recently, all the companies across Europe were cripples being given aid. Now that has changed, with companies trying to exist without public charity,” said one official.

Germany and the UK are the only significant exporters of coal in the Union. High-quality anthracite makes up the lion's share of Germany's 1 million tonnes a year of exports.

Its main markets are France, Belgium, Italy, and the Netherlands, while the UK mostly exports steam coal to Denmark, France, Germany, Ireland, and Spain.

In spite of the heavy subsidies offered by some countries, cheaper exports from South Africa, Australia, the United States and Poland have eaten into the Union's cross-border trade in coal, cutting the volume of sales from 17.2 million tonnes in 1980 to 2.3 million tonnes in 1994.

The UK's coal industry has also appealed to the Commission to help it fight a rearguard action against the increased use of gas by domestic power stations to generate electricity for the country's national electricity grid.

RJB Mining, the country's biggest mining firm which took over most of the pits formerly operated by the government-owned National Coal Board, has called on the Commission's Directorate-General for energy (DGXVII) to investigate whether unfair competition and 'sweetheart' deals between gas companies and generators are squeezing coal out of the market to supply normal, baseload energy for the grid. RJB says its production prices for coal are lower than gas and it should therefore be chosen as the preferential source of supply to keep power stations ticking over.

The company claims the direct stakes which some generating firms have in new gas-fired power stations and the fact that some gas companies are locked into 'take or pay' contracts - which oblige them to pay for gas whether they can sell it or not - means that the generation market is structurally biased against coal.