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Coal Industry: Nottinghamshire

Volume 455: debated on Tuesday 9 January 2007

I have no doubt that 2007 will be a challenging and perhaps critical year for the coal industry in Nottinghamshire, and I am delighted to have secured this debate so early in the new year.

There are just three collieries left in Nottinghamshire: Harworth, Welbeck and Thoresby. All of them are owned by UK Coal and all need substantial investment either now or fairly shortly, but UK Coal says that it does not have the resources to make that investment. Given that, it is not an over-exaggeration to say that all three collieries face closure in the relatively near future.

To explore the situation in a little more detail, Harworth is currently mothballed. There is a small maintenance team, and the pit is stopped off near the pit bottom because of spontaneous combustion. Moreover, £80 million is needed to access the top hard seams, which hold the third biggest coal reserves in the country. It is clear to me that without new investment, Harworth will close in the relatively near future. At Welbeck, the men are working hard: they have done everything asked of them and more. They have met all the targets but there is a face gap—a production gap—in February, and there has been long-term speculation that the pit is earmarked for closure by UK Coal. I know that the company intends to make an announcement later this year.

That leaves us with Thoresby, which also has a face gap coming, but has workable reserves until 2009. However, for a longer production period, £25 million of new investment is needed to secure its future.

My hon. Friend will know that the Mines Rescue Service has a statutory responsibility to respond very quickly to calls for support. Its headquarters is in north Nottinghamshire in Mansfield, and it is having great difficulty at the moment. Does he hope, as I do, that the Minister will refer to the Mines Rescue Service and how its continued role might underpin the future of coal mining in north Nottinghamshire and elsewhere in the country?

The Minister will understand the situation well because I, my hon. Friend and people from the Mines Rescue Service have been to see him, and I know he was impressed by the efforts that they have made to expand their income outside the traditional setting. However, my hon. Friend is right: there is an awful lot more to be done to secure the future of the Mines Rescue Service.

To return to the three pits, I cannot overestimate the seriousness of the situation. Unless there is new investment, there is no future for the Nottinghamshire collieries. The situation is perfectly clear. UK Coal says that it cannot make that investment because it is tied into long-term contracts with electricity generators, such as Drax, EDF Energy and E.ON. Those contracts were signed when the price of world coal was low. World prices have now risen, but that has not been reflected in contract prices. The solution is simple: the contracts must be renegotiated. The generators tell me that they are prepared to talk, and some preliminary discussions have taken place. It is clear to me that we need better prices and long-term contracts so that UK Coal has an asset so that it can discuss investment for the future. I note that Drax, in its prospectus to the stock exchange, said:

“Drax’s current procurement strategy is to purchase domestic coal at below the international market price”.

Drax also says that if UK Coal fails, it may

“find other suppliers to make up the shortfall, who may charge prices for coal supply that are higher than the prices under the UK Coal Contract”.

That shows the significance of the problem: those negotiations will be difficult.

My view is that both parties, producers and generators, ought to get round the table to have structured, meaningful talks and put forward solutions. I do not think that that will be easy, but it is in all of our interests if a solution is found that meets the need to maintain domestic coal in this country. What is more, there needs to be a discussion about how much the generators are prepared to pay for security of supply so that domestic coal is readily available and we are not dependent on the vagaries of the international market. If all else fails, I call on the two parties to find an independent arbitrator, a mediator, to find a solution.

At the end of the day, we want better long-term contracts. Coal mining is capital intensive. There are long planning periods, and unless UK Coal can talk to its financial advisors about new, better, long-term contracts, within two to three years all the Nottinghamshire pits will close. What should the Government do? They have already accepted in their energy review that

“it is right to make best use of UK energy resources, including coal reserves, where it is economically viable and environmentally acceptable to do so.”

Perversely, on the environmental side, things look better than they have for some years. New clean-coal technology is coming on and there is a focus on carbon capture and storage—moves which are strengthened by the Stern report. The pre-Budget report talked about the next steps, but the Minister knows that people are disappointed that the Government have not made money available for a demonstration plant. When new coal plant is being built in India and China at the rate of one a week, there are tremendous opportunities for UK environmental industry companies to develop that new technology.

I would like to say happy new year to everyone in the room.

Does my hon. Friend agree that it is nonsensical that pits such as Harworth and the linked-up pit at Rossington in South Yorkshire are mothballed with millions of tonnes of reserves, while in my constituency contractors are falling over themselves to dig up the land? They propose to spend three years destroying natural and historic environment for half a million tonnes of coal, while tens of millions of tonnes of coal lie there and may well be sterilised.

I share my hon. Friend’s scepticism on open-cast coal and I hope that the Government will not change planning regulations to make it easier for open-casters to develop.

I say to the Minister that I have been impressed with the setting up of the coal forum, which is an important strategic body. I accept that the Government cannot enter into direct negotiations and new contracts. As the Secretary of State told me in October:

“The Government are not going to stand in the shoes of either party to the contract.”

He went on to say that he wanted to encourage people to talk

“because it is in all our interests that we maintain the ability to mine and supply coal in this country.”—[Official Report, 30 October 2006; Vol. 451, c. 70.]

I hope that the Minister will reaffirm that message today and call for open talks. I hope that he will also encourage the coal forum to be ambitious and aspirational. There is no doubt in my mind that there will be a demand in the coal forum to set an aspirational target for domestic coal, which I hope will be in excess of 20 million tonnes a year. I know that there is scepticism about setting targets, but the Minister knows that there is an aspirational target of 20 per cent. for renewables by 2020. If it is good enough for renewables, why can it not be good enough for coal?

I hope that the Minister will ask the coal forum to consider some important issues. I hope that it will review the price assumptions and forecasts made by the generators on domestic and imported coal, and review the trading models of generators and producers to find a solution to the problem of market conditions that prevent investment in deep mines. The coal forum should quickly make recommendations to the Government on the action that can be taken to secure a workable, market-led approach that satisfies UK energy policy needs. There is an urgent need to address those questions and I hope that the coal forum will consider them and put proposals to the Minister before the White Paper, scheduled for late spring, is published.

I say bluntly to the Minister that I am pessimistic about the coal industry in Nottinghamshire. Unless there are ways of securing new contracts, the industry there will be finished. That will be followed closely by the closure of the deep coal industry in this country. It would be most difficult for him—it would be an indignity to him—if he had to rename his coal forum as the “imported coal forum” because that is all that it will have left to discuss. What is he going to say to the hard-working miners in Nottinghamshire who have done everything asked of them and more? They have responded flexibly to the demands of their employer, UK Coal. They are the most efficient miners in Europe and we should be bringing forward proposals to back them, not to sack them.

I congratulate my hon. Friend the Member for Sherwood (Paddy Tipping) on securing the debate and on the breadth of knowledge that he brings to the debate. I endorse and shall not repeat his points, but add some of my own because Harworth and Welbeck collieries are in my constituency.

Men have come to me to say goodbye before emigrating to Australia having been given well-paid jobs by a country that recognises that the coal industry still has a future. It is absurd that men with great skills are moving to a high-paying economy such as Australia’s—the other side of the world—to dig coal, when there is coal beneath the very houses in which they were living in this country and in my constituency.

There seems to be a shortage of Tories and Liberals here—we are used to the latter never turning up, but the Conservative party ought to be represented because it is responsible for the current problem. It gave away the coal industry to Budge and then it was sold on to various other people who got the land assets. As for UK Coal’s share price—apparently they are among the shares to buy. The reason is that when it exits coal it is left with land stock worth a lot of money. That is a national scandal. It has failed to invest in its own and British industry. It has sat on a land bank and no doubt it will be approaching local and national Government in various guises suggesting that it should have help bringing the land into industrial use. I do not think that anyone here would have a problem with land being used effectively for industry, but it must be based on continued deep-coal mining and on keeping open existing collieries and reopening Harworth colliery where there are 30 years of good coal reserves.

I shall raise some further crucial points. I cannot envisage the Minister or future Ministers, or this Prime Minister or future Prime Ministers, wanting a situation like the one in California where the lights go off because there is no power. That is one of the possibilities if we rely on imported coal for our energy needs for the foreseeable future, in which it is recognised that coal will continue to play a key role. There is already a problem with peak capacity. Why shift coal five miles from Harworth to West Burton and Cottam power stations by train? Bringing it in from such large distances is nonsense.

I shall finish on two critical environmental points. First, future technology dictates that, at some stage, oil-based cars will go—the sooner the better—and that hydrogen cars are potentially the solution. That will require coal and mining skills in order to create the hydrogen cells needed to run those cars. That will be the car of the future—be it in five, 10 or 15 years. We will not be in the race for that mass-production vehicle if we exit coal at this stage.

Finally, China and India are burning coal, and Africa, which has the largest reserves off all, will also burn it. So who will provide the clean-coal technology? The emissions from the vast number of outdated and cheap power stations those countries are building will affect the environment worldwide. We could take the lead in that clean-coal technology, but will not if mining does not continue in this country. We need to keep those collieries open for our industrial future and I hope that the Minister has some good news on how he intends to intervene to ensure that that happens.

I congratulate my hon. Friend the Member for Sherwood (Paddy Tipping) on securing the debate today. He is an authoritative and committed supporter of this important industry, as are my other colleagues who have spoken.

The Government believe firmly that access to a range of energy sources is essential to the security of energy supplies and that coal will play a continuing role in meeting this country’s energy needs for many years to come. That is provided, of course, that its environmental impact can be managed satisfactorily. Reference has been made already to emerging technologies such as clean-coal technology, carbon capture and storage. Perhaps I should add that no one needs reminding of the importance of a nation’s energy security to its wider national security.

The Government believe also that UK-produced coal should play a role in meeting our total requirements. Again, reference has been made to our statement on that in the recently published energy review. This country still has substantial coal resources, which represent an important national asset. We need to put those resources to optimum use, provided that they can be worked at acceptable economic and, as I have mentioned, environmental cost.

I believe that the Government have demonstrated their support for the coal industry by making more than £200 million available in coal state aid since 2000. Of that, some £33.8 million has been paid to mines in Nottinghamshire, including £18.9 million to Harworth colliery. Welbeck and Thoresby collieries have also received coal investment aid. Welbeck was awarded some £7.78 million, of which £5.7 million has been drawn down, and Thoresby £4.97 million, of which £1 million remains to be claimed.

Despite this support, UK output has continued to fall. Production in 2005 was 20 million tonnes—down some 18 per cent. on 2004. That was made up of deep mine production of 9.5 million tonnes, including 9 million tonnes from English mines, and surface mine production of 10.4 million tonnes, of which just 1.5 million tonnes was produced in England.

Nottinghamshire's contribution to those totals was almost 3.2 million tonnes of deep-mined coal—up from 2 million in 2004—from three mines: Harworth, which stopped production owing to geological problems in August 2006, and Thoresby and Welbeck, which between them employed almost 1,500 people at the end of 2005. The long-term pattern for coal production, as has been acknowledged in Nottinghamshire, is one of decline. Although since 1996 the county has produced a total of 51.6 million tonnes of deep mined coal, three mines have closed due to stock exhaustion.

The situation is different at Harworth, in that it might have further reserves in an unworked area of the top hard seam. However, UK Coal judged that it would cost more to access those reserves than the coal would earn, which means that it is not economically recoverable at the moment. Nevertheless, UK Coal is taking steps to maintain the possibility of re-entering the mine if circumstances change, rather than closing it.

So what could change? I think that that is the question posed by my hon. Friend the Member for Sherwood. Harworth's main customer, as for most UK coal producers, has been the electricity-generating industry. Coal-fired generation supplies about one third of UK electricity needs across the average year, which can rise to more than 50 per cent., often at very short notice, to meet winter peaks in demand, as it did last winter. Coal is therefore a flexible fuel. The generators know how important their coal-fired plants are in meeting UK electricity needs. Many have already invested to keep their existing plants in operation to at least 2015, and some are planning the next generation of cleaner coal-fired stations.

Generators have shown their commitment to coal in the generating mix, but what about their commitment to UK-produced coal as part of their feedstock? I understand that in contract negotiations the generators attach considerable importance to reliability of supplies, but deep mining is inherently high-risk. Geological problems, or a longer-than-forecast or unplanned break in production can easily put a producer in breach of a contract to supply.

The Minister refers to risks. Not least among those is the risk to life and limb for the men who work the coal. Does he recognise the perilous position of the mines rescue service, based in north Nottinghamshire, and if so, does he endorse a role for the MRS in future, which is equally crucial?

With respect, my hon. Friend repeats a point that he made earlier, to which I of course intend to respond a little later.

To continue my analysis, added to those problems, the recent decline in production from surface mines has reduced UK suppliers’ ability to switch to that source to make good shortfalls resulting from problems at deep mines. As a consequence, producers have found it increasingly difficult to give generators the reliable deliveries that they need. The generators’ response has been to turn to imported coal, even though the costs of shipping it to the UK and transporting it from port to plant can make it more expensive than UK-produced coal could be. The generators see the world market, which draws supplies from a number of countries, as a more reliable source of coal than the UK, with its declining number of deep and surface mines, and steadily falling output.

However, the world market is not risk free. Competition for cargos and shortages of suitable vessels can drive up international prices, just as pressure on rail and port facilities at each end of the supply chain can mean missed deliveries. It should therefore make sense for major UK coal users to work with the producers to find a way forward in which UK output, which is less vulnerable to international market volatility, plays a continuing role in meeting UK demand.

Those are the issues that the coal forum should help to solve. Like my hon. Friend the Member for Sherwood, I believe that such discussions are a major step forward. The coal forum first met on 14 November 2006 and is due to meet again on 23 January. In addition to representatives of the coal producers and coal-fired generators, it includes trade union representatives and officials from relevant Departments. As was suggested at the forum’s first meeting, there has also been a private meeting between the producers and the generators outside the scope of the forum. That discussion will continue. The forum’s objective is to promote dialogue and so help all the interested groups better to understand each other’s perspectives on the problems that they must solve together if we are to have an ongoing coal industry in Britain. The forum has formed sub-groups to look at three issues of interest—planning, infrastructure and cleaner generation—and report back to the main forum with analysis and advice.

But we must face facts: the geological map of Britain may make it look like “an island built on coal”, to use the familiar phrase, but none of that coal has real economic value unless it can be recovered at an acceptable cost. There are two aspects to acceptable cost. The first is the cost to the mine operator of winning the coal—of opening a mine and keeping it open to recover its reserves. As I have already signalled, operators will do that only while they can sell at a price that gives them a commercial return on their investment. The second aspect is the cost to the locality and the nation of working or not working the coal. Like any other mineral, coal can be exploited only where it is found. For that reason, we must strike the right balance among the legitimate interests of the coal producers, the potential environmental impacts of development and the needs of the community, both in the immediate area and at the wider national level.

My hon. Friend the Member for North-West Leicestershire (David Taylor) also raised concerns about the future of the mines rescue service. Colleagues will know that we had one or two discussions about that important service when I was Minister for Energy. The statutory scheme is provided by Mines Rescue Services Ltd, which is a not-for-profit private company based in Mansfield. It has made great strides in generating income from third parties to cross-subsidise the core rescue function. The financial pressures on my Department mean that we are unable to help meet any shortfall that the company might face this year. I wish Mines Rescue Services Ltd every success in generating more income, and I understand that, although it would be unpalatable to the deep mine sector, the funding framework provides for an increase in the tonnage levy to ensure that the statutory scheme costs are met.

Before closing, I reiterate the Government’s belief that there will be a continuing role for coal in meeting our energy needs, particularly as cleaner generating technologies come on stream. We are all encouraged by recent announcements to that effect. UK-produced coal, deep and surface mined, can continue to play a part in meeting national coal demand, provided that there are reliable supplies at competitive prices. I should also like to take this opportunity to commend the work force at Harworth colliery for the drive and determination that they showed in trying to find a way forward for the mine, only to be defeated by adverse conditions in the working seam.

Is the Minister prepared to talk again to Mr. Spindler, the head of UK Coal, about the possibilities of maintaining coal production in the foreseeable future by reopening Harworth colliery?

We discuss wider issues with Mr. Spindler through the coal forum; we also have regular meetings with him, not least at official level, and I am sure that the issue will be discussed in the future.

I should like to thank my hon. Friends for their contributions to the debate. The issue is difficult, and I note my colleagues’ pessimism about the future, but I know that my hon. Friend the Member for Sherwood feels that the establishment of the coal forum is a step in the right direction, as I do. I also feel that the private talks that are now taking place between the generators and the coal companies—talks that various colleagues urged on me when I was Minister for Energy—are a further step in the right direction.

As always, I am grateful for the Minister’s comments. Towards the end of my speech, I discussed a target that was agreed at the coal forum and raised some questions that I should like the forum to address. Will the Minister and his officials refer those remarks to the coal forum?

Of course we shall refer them to the coal forum. As my hon. Friend knows, I am no longer Minister for Energy, although I moonlight in the House of Commons on that subject rather a lot, but I shall also draw the matter to the attention of the two Ministers with the relevant responsibilities. This has been an important debate and it has been a pleasure to serve under your chairmanship, Mr. Pope.

Question put and agreed to.

Adjourned accordingly at two minutes to One o’clock.