British Coal's losing hand: Policies of the industry's big customers may have doomed many pits, writes David Bowen

OVER the past few years Britain has spent millions of pounds on new port facilities to make it easier to import cheap foreign coal. To most outsiders, it looked as though the UK's coal needs would increasingly be supplied from overseas.

Yet in recent months coal imports have slumped, in the process leaving much of this expensive new port capacity to stand idle.

For behind the apparent eagerness of the power generators to import coal was a subtle game of poker, designed to force British Coal to drop the price of UK-mined coal. The success of that strategy is something that may have sealed the fate of many pits.

The drop in coal imports has been dramatic. Government statistics, reported in the UK Coal Review, show that in the first seven months of the year 3.32 million tonnes of steam coal were brought into the country, compared with 7.33 million in the same period last year.

Imports from Colombia have collapsed from 2.28 million tonnes to 693,000, while those from the US have fallen from 2.64 million to 718,000 tonnes.

A spokesman for PowerGen, which imported 3 million tonnes in the last financial year, said the company 'has reduced its imported contract coal to minimum levels'.

National Power is importing 1 million tonnes from Colombia this year, as it is contractually committed to do so, but it has stopped bringing coal in from the US.

Ironically, one of the few companies that is still importing at the same rate as before is British Coal, which uses low-sulphur foreign coal to blend with its own product to make it less polluting.

According to the power companies, one reason imports have been cut is that demand for coal has been much lower than they had expected.

But they also admit that their extensive purchases of foreign coal were partly a negotiating chip in the battle over UK coal prices - a chip they no longer need.

For one of the main reasons for importing coal in the past few years has been to put pressure on British Coal to bring its price down towards world levels.

Both National Power and PowerGen imported heavily until recently, even though the coal was adding to already-swollen stockpiles. They also began to invest in new coal-handling terminals, making it clear that they intended to ensure they had the capacity to increase imports further.

National Power put more than pounds 70m into a 5 million-tonne terminal at Bristol, and backed a 3 million-tonne facility at Hull. PowerGen invested pounds 40m in the Gladstone Dock at Liverpool.

The Bristol and Liverpool terminals are just now coming into operation. They and the other import facilities are, a National Power spokesman conceded, 'very, very under-capacity' as a result of the fall in imports. Bristol has had three test shipments so far but, a spokeswoman said, 'we're not expecting another one this year'.

Yet, as a National Power spokesman explained, the terminals had already fulfilled one of their main purposes because: 'They enabled us to negotiate reductions in British Coal prices.'

When the new contracts were finally signed early this year, British Coal's price was pounds 1.50 a gigajoule, falling to pounds 1.30, compared with the pounds 1.80 it had been receiving previously. But having signed the deal, there was no point in the generators continuing to import just to add to their stockpiles.

Between them they have 35 million tonnes which, when added to British Coal's 15 million tonnes of stocks, is equivalent to a year's consumption: they want to get the 35 million down to a more normal level of 10-12 million tonnes.

The world price for coal, at pounds 1 to pounds 1.20 per gigajoule, is still below the British Coal price, and both generators say they may want to increase imports in the long run.

The issue of imports became one of the main focuses of debate after the Government announced a year ago that it wanted to close 31 pits. Claims that Colombian coal was produced by children working in appalling conditions were made, and John Major was accused of trying to undermine EC efforts to restrict imports of this coal.

It emerged that all coal exported from Colombia came from modern, high-technology pits, but the image of British jobs being destroyed by foreign mining companies continued to be used in the argument. This has coincided with an increasingly competitive marketplace. Coal's share of the generating market in the first three months of the financial year beginning in April was 56 per cent, compared with 67 per cent last year.

Nuclear power has increased its share from 15 per cent to 21 per cent against expectations, while new gas- powered plants have also been undercutting the coal stations.

The giant Enron combined-cycle gas-turbine station on Teesside took 4 per cent of the power market overnight when it started up.

There is no prospect of coal business at Bristol and Liverpool picking up in the short run. The generators' attempts to run down their stocks are being stymied by coal's falling share of the power market, and they will not contemplate new import contracts until these stocks are at least halved.

And in the long run? That depends on British Coal, or its private replacements. If its coal remains more expensive than the world price, imports will once again be in demand and the terminals will eventually come back into life. If not, the ports will have to find other uses for these expensive terminals, and the generators will find they have a sideline importing animal feed.

The Port of Bristol spokeswoman is philosophical: 'I can't say it's not a blow. But it's up to us to market the terminal for other things.'

(Photograph omitted)