UK coal producer fights Spanish and German subsidies

Date: 16/07/1998

By Peter Chapman

BRITISH coal company RJB Mining will take the European Commission to court later this month over the institution's controversial decision to approve massive subsidies to Spanish and German competitors.

The decision to challenge the 8-billion-ecu hand-outs comes in the wake of a simmering political row between London and Bonn over the alleged diversion of state aid by German coal giant Ruhrkohle.

RJB Mining, which took over most of the former state-owned British Coal pits three years ago and runs them without direct subsidies, has decided to file a complaint at the European Court of First Instance (CFI) against last month's aid ruling by the Commission.

Commissioners declared the 5.2-billion-ecu subsidy for four German mines to be legal under the rules of the European Coal and Steel Community (ECSC) because it “helped to solve the social and regional problems affecting the future of the German coal industry”.

At the same time, they decided that Madrid had not fallen foul of ECSC rules when it paid out 2.6 billion ecu between 1994 and 1998 to offset the social and regional effects of restructuring Spain's coal industry.

But RJB, which recently warned that sales revenues in 1998 would be down on last year's 1.6 billion ecu, complains that the Commission should not have allowed the aid to get through.

“We have lodged a complaint with the Commission and we are now preparing a formal legal submission. This will probably be made by the end of this month,” said a spokesman for the company.

“It will support the claim that heavy subsidies by the Spanish and German governments are distorting the market in the UK and are having an impact on the industry.”

Under the terms of the ECSC's founding Treaty of Paris, an undertaking which feels it has been harmed materially by the “misuse” of regulatory powers can go straight to the CFI without having its case referred by the national courts.

The spokesman said that although RJB's costs were one third of those of its rivals in Germany and one quarter of those in Spain, subsidies were locking it out of potentially lucrative markets.

At the same time, he said, the aid allowed these less efficient firms to make inroads into a UK market where RJB was already under threat because its biggest customers, the power generators, were switching to gas and nuclear energy for their raw materials.

Until this year, PowerGen and National Power were obliged to take out long-term contracts for the supply of coal from RJB. Now the company has to compete against gas-fired stations built by the generators and coal from the world market.

“Coal production in Britain is the cheapest in Europe, but there is still a substantial tonnage that is imported into the UK,” said RJB's spokesman.

The UK Labour government has been placed in a difficult position by the two coal disputes with Germany. While Prime Minister Tony Blair is trying to build diplomatic bridges with Bonn, he has to fulfil a pre-election pledge to defend the domestic coal industry from 'unfair' competition from continental Europe.