Inquiry into British Coal sell-off

National Audit Office to examine tenders and Rothschild's role as government adviser

The £1bn privatisation of British Coal is being investigated by the National Audit Office, the public finance watchdog.

Central to the inquiry is the controversial decision to award pits in England to R J B Mining, a small company run by the entrepreneur, Richard Budge. The NAO will also examine the appointment of N M Rothschild, the merchant bank, as Government adviser on the sale.

The bank was appointed by Lord Wakeham, the then Secretary of State for Energy, in May 1991. He subsequently joined the Rothschild board after leaving the Government.

The Government has admitted in a series of parliamentary answers to Stephen Byers MP that N M Rothschild is still working on coal - it is now dealing with land and equipment, has spent 37,000 hours on the contract and may not have been the lowest tender.

Critics of Mr Budge said he paid too high a price and accused the Government of ignoring more sensibly pitched, but cheaper bids.

Malcolm Edwards, head of defeated rival bidder, Coal Investments, who has complained bitterly about the sale, said yesterday he had been contacted by the NAO. There were two aspects of the sale he would be raising: the Government's granting of a £116m unsecured loan to RJB, and RJB's use of unused capital allowances to bring down its price by £34m. "They gave him an unsecured loan at a time when he could not have got one out of the City," Mr Edwards said. "The capital allowance option was not offered to us."

Earlier this year, Lord Wakeham stirred up the row about ex-ministers taking jobs with companies with which they had direct dealings while in office, by joining the Rothschild board. Such directorships are expected to be heavily criticised by the Nolan inquiry into standards in public life. Next month, Nolan is likely to recommend ex-ministers undergo vetting and be made to wait before taking them up.

Few details on the bank's contract have been disclosed by the Government, which has claimed they are commercially confidential. Asked by Mr Byers if the job went to the lowest bidder, Tim Eggar, the energy minister, said it was "awarded to the tenderer offering the best value for money" - Whitehall code for not the cheapest.

Lord Wakeham has refused to say if N M Rothschild was the lowest bid. "There has long since been a policy in public purchasing that you don't always have to take the cheapest, you take the best value for money."

Pressure for the NAO investigation has come from vociferous critics of the sell-off, including Mr Byers and MP Paddy Tipping. Mr Byers has complained the Government refuses to say whether Rothschild was the lowest bidder. "It is becoming increasingly clear that the privatisation of British Coal was a bad deal not just for the industry but for the taxpayer," he said.

Sir John Bourn, head of the audit office, has written to Mr Byers confirming the investigation of the privatisation of British Coal. "I can confirm that the investigation will include an examination of how advisers were appointed and their costs controlled."

A spokesman for the NAO said the inquiry, expected to be completed towards the end of the year, will be "far broader" than just the appointment of N M Rothschild. On the bank, specifically, he said, "we'll see if it went to tender or not and see if it was clear-cut or not".

Mr Budge said last night: "The Government designed the rules which we complied with . . . We welcome the audit which we believe will show the process was both thorough and fair."

The DTI also welcomed the NAO move. "They have a duty to see that what was done was done properly and we believe it was done properly," a spokeswoman said.

Traumatic privatisation, page 2