Generators agree deal to aid coal

THE ELECTRICITY generators are poised to strike a deal with the Government that will allow Britain's embattled coal industry to retain a 25 per cent share of the electricity market.

However, the deal, expected to be announced by the middle of next month, will not be enough to prevent a further round of pit closures. As many as five pits and 3,000 jobs could be at risk.

Further signals that a deal was close came yesterday after PowerGen, which has held out against signing contracts with RJB Mining, Britain's biggest coal producer, said it was important to have a balanced energy policy that did not rely too heavily on gas.

Ed Wallis, chairman of PowerGen, said that security and diversity of supply were both very important and that it would not be right to be as much as 80 per cent dependent on gas in the early years of the next century.

PowerGen executives believe the Government is now fixed on a deal which guarantees a generating market for 25 million to 30 million tonnes of coal a year. This will partly be achieved by a moratorium on the building of further gas-fired plants. But the other details of how the deal will be structured remain sketchy.

Mr Wallis said he had not had any discussions with the Government about a price cap being imposed in the pool - the wholesale electricity trading market.

The PowerGen chairman also re-iterated his interest in taking over a regional electricity company and said that it was continuing to talk to a number of potential companies. But he rejected suggestions that an agreement to buy more coal was linked to getting the green light to take over a REC.

Mr Wallis said the hurdles to a REC acquisition remained price, availability and approval from the competition authorities. "All these hurdles are real but we remain confident that ways will be found of overcoming them."

He was speaking as PowerGen announced flat profits for 1997, plans to sell off its North Sea interests and a big asset write down on two of its oil and coal fired power stations.

Profits before tax and exceptional items were held at pounds 580m as market share fell. The signing of less profitable contracts with the electricity supply companies will reduce profits by pounds 60m this year.

PowerGen expects the sale of its upstream gas interests to raise up to pounds 400m and says it has received several expressions of interest. The division increased operating profits by a half last year to pounds 22m.

The asset write-down relates to the Isle of Grain oil-fired station and units at the Ferrybridge coal-fired station, both of which are now mothballed. PowerGen said the reduction in valuations had nothing to do with possible disposals of the plant - another option that the Government's energy review has been looking at.

Mr Wallis said PowerGen remained interested in acquiring or merging with a big American utility but no deals were imminent. It has talked to several US companies, including the Texas-based Houston Utilities.