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Mr. Bill O'Brien (Normanton): May I draw my right hon. Friend's attention the promise made in May by the Prime Minister in response to my question to him--that aid from the coal operating scheme could be used for cleaner coal technology? Will my right hon. Friend include such technology in her programme, so that we can have some assurances about the continuation of mining?
Mrs. Liddell: As I progress through my opening remarks, my hon. Friend will learn that our ability to pay aid is constrained by fairly concrete rules and that cleaner coal technology is not included. However, my Department funds research into cleaner coal technology and is anxious to see the maximum uptake of schemes that promote it.
Last week, we were pleased to announce that the European Commission had approved the coal operating aid scheme.
Hon. Members are aware that the history of the coal industry has not been a happy one. From 1985 to the early 1990s, the coal industry suffered serious decline, with employment falling from 270,000 people to fewer than 20,000. That had a devastating impact on workers, their families and the communities in which they lived. The Government put in place a major regeneration programme for the coalfield areas. In December 1998, my right hon. Friend the Deputy Prime Minister announced that, over three years, about £354 million would be invested in
coalfield regeneration. That was in addition to the amount of more than £1 billion devoted each year to the regeneration of local authority areas containing coalfields.However, the recent history of the coal industry is by no means all gloom. The industry has made great strides in improving efficiency and raising productivity. Between 1990 and 1998, output per head increased by an average of 33 per cent. a year--more than for any other energy industry, and far more than the 5 per cent. average for industry as a whole.
The Government's general policy remains that it is for the coal industry to find its own place in a competitive energy market, and it is in a very good position to do so. Our coal industry is by far the most efficient in Europe. Germany, which has the largest coal industry in the EC, produces about 20 per cent. more coal than we do, but with a labour force that is nearly 10 times greater. The German industry benefits from massive Government subsidies; the French and Spanish coal industries are also subsidised.
Mr. Ian Bruce (South Dorset): I have a question on precisely that point. We understand that the subsidy to other coal industries in the EU is more than £3 billion; that forces our coal industry, which is so efficient, to be uncompetitive. What have the Government done to refer that unfair subsidy to Germany, France and other countries, so that the British industry can survive?
Mrs. Liddell: One of the reasons why we are introducing the motion is to address that unfairness to the UK coal industry. Indeed, we have raised the unfair subsidies with the Commission. As I shall point out, we are opposed to the continuation of the EU coal subsidy beyond the end of July 2002, when the European coal and steel community treaty comes to an end.
Mrs. Liddell: I shall not take many interventions, as several hon. Members want to speak. As a courtesy to them, I shall try to complete my remarks as quickly as possible.
The Government believe that the UK coal industry has a long-term, viable future, but we recognise that it faces exceptional short-term difficulties at present. Coal prices have been very low; the stricter gas consents policy has been lifted; and the new electricity trading arrangements are due to be implemented. We thus propose to pay aid temporarily, to enable the industry to overcome its temporary difficulties in the transitional period following the lifting of the stricter gas consents policy.
As the House is aware, the time scale for full implementation of NETA is likely to be spring 2001. Work on preparing the market is far advanced. As my right hon. Friend the Secretary of State for Trade and Industry announced last week, he is satisfied that the programme of reforms in the 1998 White Paper is substantially complete; he has therefore lifted the stricter gas consents policy. Thus it remains true that the coal industry needs to adapt to those changes in the market, even though the timing is not quite as the industry anticipated in the spring.
There has been a significant recovery in coal prices since April, although it is not clear how long that trend can be sustained. However, owing to the advance nature
of coal contracting, much of the current UK coal production will be sold under contracts whose terms were drawn up some time ago. Many coal producers will thus not benefit from any upturn in coal prices for some time to come, so despite the significant changes that have taken place in the coal market, the subsidy scheme is still necessary.The scheme is designed to allow those elements of the industry with a viable future without aid to overcome short-term market problems; to prevent a sudden and sharp decline in the size of the coal industry; and to ensure that mines with a long-term future do not close because of short-term problems.
It may assist hon. Members if I explain the working of the scheme. Aid may be paid to producers of coal who meet all the criteria laid down in the formal notification to the Commission, as set out in the UK coal operating scheme dated 26 July 2000. Among the criteria are that sales of coal to UK customers must genuinely need help to meet losses; that subsidy must not cause a price that would undercut third-country coal of equivalent quality; that significant progress towards degression of both production cost and operating aid must be demonstrated; and that there must be a realistic prospect of medium-term viability once the aid scheme finishes.
The aid will be considered in three tranches covering the period from 17 April 2000 to 23 July 2002: tranche 1 will cover this year from 17 April; tranche 2 will cover the whole of next year; and tranche 3 will cover 2002 until 23 July. Payments will be subject to the production unit continuing to meet the cost improvement plans agreed. At the end of each tranche period there will be a reconciliation process, to ensure that units receive what they are entitled to, but not more.
The scheme will assist only those parts of the industry with a viable future once the subsidy scheme has ended.
Mr. Joe Ashton (Bassetlaw): Will my right hon. Friend give way?
Mrs. Liddell: Will my hon. Friend allow me to proceed? I am anxious that Back Benchers should have an opportunity to contribute.
I reiterate that this is a temporary measure for temporary difficulties and that my right hon. Friend the Secretary of State has made it clear that it will end in July 2002. In order to obtain aid, a production unit will have to demonstrate a viable plan not only up to the end of the subsidy scheme in July 2002, but for the period beyond 2002 until at least mid-2004. This is not an attempt to prop up a lame-duck industry. Through this measure, we are ensuring the long-term future of competitive mines.
The scheme will treat all mines in a fair and non-discriminatory way. We will ensure that subsidies paid will not cause the delivered price to undercut third-country coal of equivalent quality. That means that the subsidy cannot be used to undermine the competitiveness of non-subsidised firms. The Government are appointing a specialist panel, the import parity price panel, to ensure that that criterion is satisfied, so there is no question of mines that do not receive subsidy suffering because aid is paid to other mines.
Any mine that satisfies the criteria will be eligible for aid. This is not just for the big players. No mine is too small to qualify. Opencast and deep mines can apply. The scheme is not discriminatory.
The scheme as notified to the European Commission had an estimated total cost of £110 million, although the final amount paid will depend on what applications are received, the price of coal and the progress made in decreasing costs. The level of subsidy paid to individual production units will be designed to cover the losses incurred by the production of coal in the subsidy period. It will not cause prices unfairly to undercut those of non-subsidised firms, and no undertaking will receive more than £75 million over the entire lifetime of the subsidy scheme.
I assure the House that the funds will not be wasted. Funds will be available only to cover losses made in the production of qualifying coal. We have employed expert consultants IMC Consulting to help us to ensure that costs identified are appropriate, reasonable and calculated in accordance with the scheme. They will also advise as to whether the cost reduction plans submitted are realistic, and whether the units are viable beyond the operation of the scheme. What is more, the reconciliation process at the end of each subsidy period will ensure that if actual costs and receipts differ from those that were estimated, balancing payments or repayments will be made. Money will not be wasted.
We have already received several applications for aid under the first tranche, and further applications will be considered, as long as they are received by the end of this year. Once we are satisfied that the applications satisfy the scheme's criteria--and of course we shall have the advice of our mining consultants and the import parity price panel to help us make that assessment--we shall submit them to the European Commission. We have already done so for Longannet. The Commission then initially has three months to approve the aid, although we are very hopeful of much swifter responses.
This aid scheme will ensure the long-term future of a profitable mining industry in the United Kingdom. The criteria for aid are such that the money will not be wasted, competition will not be distorted, and unnecessary closures will be avoided. Yes, £110 million is a considerable sum, but I, for one, am in no doubt that this aid is well worth paying to secure the long-term--
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