Coalition breaks green pledge with Siberian coal deal

Taxpayers' money is used to back expansion project despite promise not to support investment in 'dirty' fossil fuels

The Government's green credentials were thrown into further doubt last night after it emerged that taxpayers' money was being used to back the development of Russian coalmines. The British export credit agency is underwriting a multimillion-pound project to refurbish and expand two mines in Siberia to increase their production.

Campaigners claimed the move ran counter to a promise by the Coalition Government not to support investment overseas in "dirty fossil-fuel energy production". The Export Credits Guarantee Department (ECGD) is underwriting a $11.6m (£7.2m) five-year loan by a French bank to the Southern Kuzbass Coal Company to develop its Sibirginskaya and Olzeraskaya mines. The firm is aiming to increase its production of coal by more than 60 per cent over the next four years.

The ECGD, which reports to Vince Cable's Business Department, has become involved because the expansion is due to result in orders in Britain for mining machinery. It is understood to be underwriting about £10m (£6.2m) of the loan, cash that will be lost if the Russian company defaults on its repayments.

Campaign groups pressing for an end to the debts owed by the developing world to industrialised nations accused the Government of double standards by allowing the ECGD to sanction the investment.

Tim Jones, the policy officer at the Jubilee Debt Campaign, said: "Backing a loan to a Siberian coalmine is a clear contradiction of the Coalition's commitment to stop investing in dirty fossil fuels. British taxpayers, and citizens of countries receiving loans, need to know the money is being spent on useful projects, not damaging the environment."

Margaret Ounsley of the conservation campaign organisation WWF, said: "This is an odd decision for a Government that made a clear commitment last year to move support away from dirty fossil fuels." She pointed to the contrast between leaders of the G20 economies discussing ending fossil fuel subsidies and Britain announcing extra support for coal extraction.

Details of the investment emerged as an audit by The Independent this week of the Coalition's environmental record suggested David Cameron's claim of running the "greenest government ever" was unsustainable.

A spokesman for the ECGD declined to discuss the deal in detail, but denied it would encourage the use of dirty fossil fuels. He stressed the department was supporting a mine, not a power station, and added: "You cannot turn round to the mine-owners, who are not a British company, and tell them, 'By the way, you have to tell us everything you use the coal for'."

Last year's Coalition agreement commits the Government to ensuring the ECGD becomes a champion, "for British companies that develop and export innovative green technologies around the world, instead of supporting investment in dirty fossil-fuel energy production".

The shadow Business minister, Lord Stevenson of Balmacara, said: "It would be good if the ECGD had more of a sensibility of good practice and ethics. There is no real guidance on what it can do."