HC Deb 29 October 1997 vol 299 cc1000-8

Motion made, and Question proposed, That this House do now adjourn.—[Mr. Betts.]

9.58 pm
Mr. William Cash (Stone)

Several years ago, I refused to support the then Government's policy of pit closures. I was brought up in Sheffield and I have a strong attachment to the mining industry. I had miners in my constituency, and still do, many of whom work, or have worked, at Silverdale and Trentham. Many of them lost their jobs.

The current Government were so concerned about opposition from their Back Benchers that they spun out the debate on the Wireless Telegraphy Bill to prevent their Members from coal mining areas perhaps from even being tempted to come to this debate. Who knows?

One of my main arguments at the time of the pit closure programme was my anger at the extent of the unfair German state aids given to the German coal industry, which amounted to about £6 billion a year and were authorised by the European Commission. I said then that that was destroying, and would continue to destroy, the British coal industry and drive British miners out of work. I argued that that unfair competition, aided and abetted by the Commission, was proof that the European Coal and Steel Community was not designed to provide a level playing field but favoured Germany at our expense. What I predicted then has now happened.

I know from my discussions in my constituency that Silverdale management and miners are deeply—

It being Ten o'clock, the motion for the Adjournment of the House lapsed, without Question put.

Motion made, and Question proposed, That this House do now adjourn.—[Mr. Betts.]

Mr. Cash

The Silverdale management and miners in my constituency are deeply concerned about the situation.

Earlier this year, the European Select Committee, of which I am a member, pursued the issue with the Department of Trade and Industry and the European Commission, and we will, I am sure, continue to do so. Although I regarded the DTI's concern as very late in the day, it made a complaint to the Commission in relation to the 1993 rules under decision 3632/93/ECSC.

The Select Committee reported that the average cost of production in the Community in 1994 was 190 ecu per tonne of coal equivalent, while the price of imported coal scarcely exceeded 43 ecu. Germany and Spain were singled out as the main culprits. Indeed, between 1993 and 1994, the Commission allowed Germany an increase of 71 per cent. in state aids. That massive protection coincided with the pit closure programme in Britain which I opposed.

The state aids were designed to protect German coal intended for electricity generation and its £6 billion state aids compared starkly with the United Kingdom coal aid of a minuscule £15 million this year.

Under pressure from the Select Committee, Commissioner van Miert agreed to look into the unauthorised state aids being given in Germany to subsidise exports of German anthracite to the United kingdom which undermined the market, damaging Celtic Energy, and many in south Wales who work in the industry and whose jobs are threatened.

New Labour has a serious problem and it is in deep trouble with its voters in the traditional old Labour areas and with all those voters with deep emotional attachment to them. The Prime Minister and the Government are on the rack and in a fix. They cannot control the situation. They are betraying their heritage and the mask of new Labour hides the fear in the faces of their traditional supporters.

I understand that the matter has been with Directorate-General XVII since the end of October 1996. The Commission has now acknowledged that there are grounds for a complaint by Celtic Energy and the German Government are obliged to reply to it by 4 November this year. What is new Labour doing about that?

I can tell hon. Members what the Trades Union Congress has to say this year about the dangers facing the coal industry and the prospects of massive unemployment. It said in a recent paper: Congress also notes that globally coal will remain the dominant feed stock for electricity generation with demand set to increase substantially in the third world. Congress notes that in large degree the UK's success in reducing CO2 emissions has largely been at a price of colliery closures…Congress is aware that the existing contracts for the supply of coal to electricity generators will come to an end during 1998. Congress is also aware that the Prime Minister"— no less, who walks on water— has committed the United Kingdom to achieve a 20 per cent. reduction in CO2 emissions over the next 12 years and that the reason why the United Kingdom was able to meet its last set of targets was largely related to the artificially imposed 'dash for gas'. That policy is now being endorsed by new Labour.

The TUC continues: Congress is appalled at the proposal for a Council Directive prepared by the European Commission relating to the emission of acid gases such as sulphur and nitrogen oxides. If implemented, Britain would pay half the total EU costs and it would lead to the premature closure of all remaining pits and remaining coal-fired power stations before the expiration of their design lives, resulting in substantial economic disbenefits to the UK's national interests. So much for the national economic interest pronounced by the Chancellor of the Exchequer in his statement on Monday—new Labour is killing the coal industry. The TUC paper continues: This is of particular concern as it appears that the EU' s proposals have been based on inadequate scientific analysis and will deliver no discernable benefit. The General Council is instructed to press the DTI and the Department of Environment to block this destructive proposal in its present form, and demand that a scientifically rigorous cost benefit analysis be undertaken by the European Commission before any further proposals are promulgated. I ask the Minister to tell me in his reply what new Labour is doing about that. Is it going to block the directive? I want to know in terms.

The problem is not confined to anthracite; it has profound implications for the whole British coal industry and the cost of electricity. If the British coal industry, including developments in clean coal technology, is wiped out by unfair competition, the position will simply worsen. The International Energy Agency reckons that clean coal technology in the global marketplace will be worth £500 billion by 2010—in other words, real investment opportunities—and reduce carbon dioxide emissions massively. The dash for gas electricity is more expensive than the coal electricity it displaces and nuclear power has received a prodigious £8 billion since 1990.

The Government should extend the coal contracts for two years; they should undertake a fundamental review of the energy and electricity markets to assess value for customers; and they should restabilise the coal industry, which still employs 20,000 people directly and 30,000 indirectly. I dare say that it will strike Labour Members who are still present that many of those people are their own voters. The unfair German state aids for anthracite and steam coal put those people in grave danger. Those aids enable German coal producers to match world prices, even though their costs of production are much higher. Thus, British producers with far lower costs cannot break into the German market. That is a disgrace to the European Union and it is typical of the way in which the European rules are blatantly broken. No wonder the Euro-realist cause is so popular, whatever the Confederation of British Industry may say.

Based on figures produced by the Office of Electricity Regulation, it has been calculated that in 1996–97 coal contracts cost 3.92p per kWh, compared with 4.10p per kWh for electricity generated from gas by the independent power producers. Based on current gas generation into the contracted franchise market for domestic use, the dash for gas is costing customers at least £50 million a year and that will treble from next April, when coal price reductions already agreed or on offer take full effect.

There are also massive problems of unfair competition in coal emerging from China. The coal industry is bearing the financial brunt of the pollution targets to which the Prime Minister is personally committed, so it is he who is putting the industry, its management and its workers at risk. The responsibility is his.

What is new Labour doing about all this? Is it prepared to tackle the German Government? Do the Government think that German miners' jobs are more important than British miners' jobs? At Prime Minister's questions today, my hon. Friend the Member for Rayleigh (Dr. Clark) raised the issue of coal, and the Prime Minister in reply spoke of competitive prices. I hope that he will read this debate. He will see that it is a case of unfair competition; and the new Labour Government must now be in the gunsights of the hon. Members—many of them here this evening—who represent mining constituencies.

This evening there was a coal crisis all-party meeting at which I heard an enormous amount of good sense talked by advisers to the TUC, by coal management and by some Labour Members. In a few years' time, we were told, 75 per cent. of electricity will be derived from gas. It should be remembered that coal redundancies will increase public expenditure; how will the Government be able to make good the ridiculous commitment in principle, expressed by the Chancellor of the Exchequer, to economic and monetary union, which includes the Maastricht criteria that will continue to drive people out of work not just in the coal industry but in every sector of British manufacturing and commerce?

The encouragement given by the Minister for Science, Energy and Industry to the new gas generating plant of Saltend near Hull does not suggest that new Labour takes these issues seriously. What is the Minister's policy? Will he conduct a proper energy and electricity review? Will he encourage a two-year extension of coal contracts? Will he tackle the European Commission and the German Government? I await his reply with interest.

10.11 pm
The Minister for Science, Energy and Industry (Mr. John Battle)

I congratulate the hon. Member for Stone (Mr. Cash) on securing this Adjournment debate. He has a reputation for campaigning against anything European, but it is perhaps not so well known that he was one of the very few Conservative Members to oppose the Conservative Government's pit closure programme. He deserves credit for that, even though the opposition in the Conservative party at the time was not particularly effective. Still, the hon. Gentleman did speak out against the closures, and he raised the question of state aids. However, the Government he supported did not take much action, I seem to recall.

I should like to quote a letter sent to me by one of the companies concerned. Dated 29 October, it suggests that in the short time we have been in office we have indeed taken action: As you will be aware, we are very grateful indeed for the support that we have had from you and your Department's officials on this issue"— the issue of unfair subsidies in Europe— as well as from Ministers and officials in the Welsh Office. You have taken a very robust stand in support of our position and that has been a very important factor in helping us make our case. The letter comes from Celtic Energy. Just as I respect what the hon. Gentleman did when the Conservative Government closed the pits, he should respect the fact that we have taken action since entering government.

The United Kingdom coal industry receives no Government aid and has not done so since 1995. In Germany, Spain and, to a lesser extent, France the industry is wholly dependent on state aid. The subsidies are large; they amount in Germany to about £3 billion a year, or £40,000 for each employed miner. In Spain, the subsidy per miner is believed to be even higher.

I ask whether, in the Community outside the United Kingdom, there is a pit or coal mine—there is certainly no deep coal mine—that is viable in its own right without that support. That is important because, in accordance with a 1993 aid decision, operating aid may be given only where the undertaking receiving the aid can show the prospect of economic viability by the year 2002.

Coal production in Europe is governed by the treaty of Paris, which set up the European Coal and Steel Community treaty in 1952. The European Coal and Steel Community has a 50-year life and that framework finally falls away in the year 2002.

The treaty of Paris set out, in article 2, a requirement for the community to progressively bring about the conditions which will of themselves ensure the most rational distribution of production at the highest possible level of productivity". Article 4 prohibits measures or practices which discriminate between producers, between purchasers or between consumers, especially in prices and delivery terms or transport rates and conditions". That article also prohibits subsidies or aids granted by States in any form whatsoever". In the 1960s, an exception was made to that last prohibition, whereby aid could be paid, on an exceptional and strictly temporary basis, to coal mining activities. However, the number of cases dependent on that exceptional provision in the treaty has grown over the years.

The Commission's own 1994 report on the application of the Community rules for state aid noted that

British mines whose production costs were lower than those in other Member States and which were only slightly subsidised have had to be closed for lack of a market while high-cost mines are still being worked elsewhere in Europe—a situation which has helped push up the amount of aid per tonne in the Community very considerably". One can understand the difficulties that the Commission may have had in the past in enforcing that treaty strictly. Once, all coal-producing states were giving significant aid to their industries and there was little trade in coal between the states or even the potential for trade.

I should like to suggest to the hon. Member for Stone, and the many Labour Members who have turned out for tonight's debate, that the shapes of the energy markets have changed radically, indeed massively, in the past 10, five or even two years. Here in Britain, as a result of the privatisation programme—the separation of power generation, transmission and supply, breaking the sector into separate companies, fragmenting the system so that company now competes with company—traditional levers were totally removed from the hands of Government and state.

Last week, I set in train a full review of the pool—the electricity-buying system. Why? To discover whether there is a fair and transparent market. We are also looking transdepartmentally at the point that the hon. Member for Stone raised regarding acid rain sulphur emissions. I recall that under the Conservative Government, last March, a note was sent to all the power stations, informing them of the new sulphur conditions. Yes, I and my right hon. Friend the Minister for the Environment are finding out the situation that we have inherited and what we can do about it to ensure that every power station in Britain, bar Drax and Ratcliffe, is not shut down as a result of the implication of such conditions.

In 1994, following the Conservative Government's coal review, British Coal's five regional coal companies and its seven care and maintenance deep mines were offered for sale. RJB Mining bought 16 deep mines. The Scottish mines were sold to Mining (Scotland) Ltd. The south Wales business was sold to Celtic Energy Ltd. and Tower colliery, a care and maintenance mine in Mid-Glamorgan, was bought out by the former employees. Coal Investments plc, which, sadly, went out of business in 1996, bought six mines, two of which were subsequently sold to Midlands Mining Ltd.; the remainder have closed. At the end of 1996, there were 27 deep mines, employing about 12,500 people in operation, and there were 91 operating opencast sites. That is the context now.

Celtic Energy, the largest producer of anthracite in south Wales, complained to the Department of Trade and Industry about the imports of graded anthracite from two German collieries: Sophia Jakoba and Ibbenburen. The complaint concerned aid that the German Government were giving to those mines for the production of anthracite intended for the German power station market. That aid was leaking out and being applied to German exports of graded anthracite to the UK. The subsidised exports had not received Commission approval for state aid. The graded anthracite was being sold at well below production cost and was being priced aggressively to undercut prevailing market prices.

Celtic pointed out the serious financial damage that was being caused not only to its operations but to small anthracite producers in south Wales, several of which sadly went out of business in 1996. The UK Government conveyed Celtic Energy's complaint to the Commission and, in August this year, the Commission sent a formal notice to the German Government asking them to justify that prima facie abuse. The notice was published in the Official Journal on 23 August. I emphasise that that is an important document, which sets out the Commission's interpretation of the 1993 aid decision. In the notice, the Commission concluded that the complaint lodged by Celtic and the subsequent investigation gave reason to believe that irregularities could have occurred in connection with the coal sales on the Community market by the two German companies.

The irregularities noted were, first, that the normal function of the market and of competition had been disrupted by the infringement of competition rules; secondly, that state aid had been used directly or indirectly for purposes that were distorting competition between Community producers; and, thirdly, that Germany had failed in its obligation to ensure compliance with the Commission's decisions and recommendations.

The Commission then invited other interested parties to comment. In September, my Department responded to that invitation in full. We endorsed the Commission's preliminary conclusion that the aid given in that case undermined the stability of the coal market in the Community. We agreed with the Commission that the two companies' behaviour could be considered to be unfair competitive practice.

In March 1997, Sophia Jakoba colliery closed. Celtic Energy was then able to secure a contract for the supply of Welsh anthracite to meet German markets previously supplied by that company. However, Ibbenburen continues to market its domestic anthracite aggressively, both in Britain and elsewhere in north-west Europe, in direct competition with UK producers.

At the beginning of 1997, Celtic Energy bid to supply the power station at Ibbenburen in Germany at prices that were less than half the production cost of the adjacent Ibbenburen mine. The offer was rejected. In the light of that, the Department of Trade and Industry lodged a further formal complaint to the Commission that state aid to Ibbenburen distorts competition. We drew the Commission's attention to the proposed merger of Ibbenburen with the dominant German producer, Ruhrkohle, and expressed concern that that would increase the possibility of continued abuse of state aid.

In the light of the damage to the south Wales producers caused by Ibbenburen over the past two years, the Department of Trade and Industry then invited the Commission to impose punitive financial penalties on the company. More importantly, we urged the Commission to require repayment of the state aid granted to Ibbenburen last year and the denial of any further state aid in 1997.

The current position on Celtic's complaint is, I understand, that the German Government have now replied to the Commission's formal notice and the Commission is considering its next step. We continue to urge on the Commission the need for quick action in this case because we agree that it is entirely unfair that people are being put out of business by unfair practices supported in Europe.

Ruhrkohle's collieries receive by far the largest share of German state aid. In the annual "Energy Report", which the DTI published just two months ago, I said that we were also preparing a report about the state aid paid to Ruhrkohle. There is evidence that the UK industry tried to sell coal to German power stations supplied by Ruhrkohle, at prices less than half the production costs of German mines, but the offers were rejected.

Our concerns are not just about the way in which state aid for Ruhrkohle appears to distort competition. Aid is also being given on a long-term basis as part of a plan stretching well into the year 2005. That is clearly inconsistent with the exceptional and temporary nature of any state aid allowed under the original treaty.

Perhaps most important of all, state aid for the high-cost mines cuts across the treaty requirement that the Community should be working towards a "rational distribution of production". I am sure that hon. Members would agree that it is not rational for our industries to be denied access to continental markets because of state aid. I hope that the hon. Gentleman would agree that we are taking action to tackle that.

We have recently lodged two complaints against Spain as well. The first complaint relates to the sulphur content. Spanish power stations are allowed to buy Spanish coal with a sulphur content ranging up to 6 per cent. Imported coal, however, including UK coal, is limited to a sulphur content of 1 per cent.

Even on the rules of the game relating to environmental constraints, different rules are being applied, and we will continue to challenge that as a clear case of discrimination. There is some evidence that it has deterred producers from seeking opportunities in European markets. We hope that we can get the Commission to move quickly on these matters.

The second complaint is more fundamental. We have objected, among other things, to the long-term payments of state aid to mines that clearly have no hope of economic viability. The Commission is considering that complaint as well, and we hope that our complaints about Spanish and German companies are being taken seriously.

I hope that Spanish producers and their German counterparts will co-operate with UK producers to identify ways of achieving a more rational distribution of production in the Community, so that one producer does not drive out another by unfair competition. We will continue to press for urgent action.

I shall mention Poland, although it is not yet a member of the European Community. It is looking to join the EC. Its behaviour on state aid is therefore governed to some extent by the treaties of the European Coal and Steel Community treaty. Poland is expected to supply about half a million tonnes to this country in 1997. Some of that is house coal, but some is for power stations and industry.

We are examining carefully the extent to which Polish coal is being sold in our markets at prices below production costs and driving out UK production. The position is not wholly clear, but we will pursue the matter vigorously.

Let me sum up by referring to a written answer that I gave to the right hon. Member for Suffolk, Coastal (Mr. Gummer), in which I stated:

I mean to press for the elimination of all coal subsidies throughout the European coal and steel community by the time the ECSC is wound up in 2002, and I will support the Commission vigorously in ensuring progressive reduction in state aid paid to the European coal industry over this period."—[Official Report, 10 June 1997; Vol. 295, c. 420.] It is not our policy to allow subsidies in Germany, Spain, Poland or elsewhere to adversely affect the UK coal industry. I hope that hon. Members will recognise that within weeks of taking office, our Government took practical action to tackle the unfair competition with which European coal threatens us.

The hon. Gentleman mentioned the coal contracts. I note that the negotiations between one of the companies—RJB Mining—and the generators are continuing. The outcome may not be known for some weeks. I understand that other producers have successfully concluded their contracts. I hope that the contracts that RJB is negotiating for after March next year can be concluded. Tackling unfair competition in Europe is not a substitute for RJB Mining negotiating those post-March contracts with the power generators.

The Government are considering how we can encourage the introduction of competitive clean coal technology. We have done the joined-up thinking between what was going on in energy, science research and environmental technology to see how we can promote that as an option for a viable coal future.

In the utility review we are reviewing the entire gas and electricity market. We are tackling renewable energy as a means of meeting our targets for carbon dioxide. We are working to make our policy diverse, secure and sustainable. It is not easy in a world where the levers were removed by the previous Government. Sadly, despite the hon. Gentleman's honourable efforts on behalf of the coal industry and the people working in it, when the Government of the day made those decisions, he could not win the argument, and we have been left with the legacy of those decisions. Even in the short time that we have had, we have been working hard to tackle that legacy and to try to ensure a viable future.

The motion having been made at Ten o'clock, and the debate having continued for half an hour, MR. DEPUTY SPEAKER adjourned the House without Question put, pursuant to the Standing Order.

Adjourned at half-past Ten o'clock.