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European Standing Committee C Debates

State Aid to the Coal Industry (1996 and 1997)

European Standing Committee C

Wednesday 9 February 2000

[Mr. John McWilliam in the Chair]

State Aid to the Coal Industry

[Relevant Documents: European Community Document No. 10948/99, Commission report on the appreciation of the Community rules for state aid to the coal industry in 1996 and 1997]

10.30 am

The Minister for Energy and Competitiveness in Europe (Mrs. Helen Liddell): I am glad to appear before the Committee on an important subject that is particularly relevant, given the difficulties being experienced by the British coal industry. I shall go through the questions asked by the European Scrutiny Committee in order to provide greater detail than was included in the explanatory memorandum that was submitted to it last autumn.

To put the matter in context, since 1964 the European Coal and Steel Community has defined successive aid codes to ensure that member states' aid to the coal and steel industries is compatible with the rules on aid and subsidies in the ECSC treaty. Aid to the coal and steel industry can be granted only through that treaty; it cannot come from other sources such as regional development assistance. The treaty was designed for the coal and steel industries when they were high-growth strategic industries, but as everyone knows, since the 1960s the prospects for and the nature of those industries have changed considerably. Regrettably, since that time the state aid rules have had to be tailored to the management of an industry in decline. Coal state aid is currently governed by the ECSC coal state aid code, as set out in decision 3632 of 1993. That code is the subject of the report from the Commission on the application of coal state aid rules for the years 1996 and 1997, which was considered by the European Scrutiny Committee. The decision, which can be amended only by unanimous agreement, expires in 2002, along with the ECSC treaty.

In considering the current coal state aid rules, it was decided that some of the objectives contained in previous coal state aid decisions were no longer valid arguments for paying state aid. As the world coal market was stable, with abundant supplies from a wide variety of geographical sources, it was agreed that the security of supply argument that had previously applied to ECSC aid was no longer sufficient justification for maintaining unprofitable indigenous capacity. In addition, the unfavourable geological conditions in European coalfields virtually precluded the creation of new economically viable capacity. Consequently, decision 3632 of 1993 provides only for residual operating aid, conditional on further progress being made towards economic viability, in the light of coal prices on international markets and with the aim of reducing aid.

The Government have always believed that that should imply that the mines or undertakings receiving the aid must have a hope of achieving a degree of competitiveness against imported coal in the long term, although a recent judgment of the European Court of Justice indicated that the critical issue was not whether viability was possible, but whether significant cuts in production costs were being made. That is a vital distinction. It was not about whether viability was possible, but whether there had been significant cuts in production costs.

The European Commission has recognised that the United Kingdom is the only country in the European Union that is now close to operating a competitive coal industry. United Kingdom coal is produced at costs that are roughly a third of German production costs and a quarter or less of Spanish costs. It receives no operating aid and that, along with the fact that it is wholly privatised, distinguishes it from the majority of coal that is produced elsewhere in Europe. That is a particularly impressive record, but it is to the credit of British miners that they have achieved levels of competitiveness that are so far beyond anything that has been achieved elsewhere in Europe.

Although it is up to the industry to introduce the cost savings that are necessary to remain competitive, the Government works closely with the Commission to address the issues of aid to the coal industry in the longer term when it distorts competition. That is consistent with the liberalised energy market that we wish to develop in the United Kingdom and elsewhere in the European Union. The Government are particularly concerned to avoid situations in other member states in which operating aid is paid to undertakings that have no prospect of being competitive internationally.

The report from the Commission makes clear that, with the exception of the United Kingdom, there is no prospect of the coal industry in the rest of the Community competing on the international market. It concludes that the state aid given to coal production has not provided an answer to the structural crisis that faces the industry. That is because the seams have become less productive, but it is also due to the absence of competitive pressure. The European Scrutiny Committee has rightly asked me whether I agree with those conclusions and, if so, whether I am satisfied that the Community's policy of phasing out state aid to the industry is being correctly implemented at a satisfactory pace.

I fully agree with the Commission's conclusions. it is unsatisfactory that, in certain countries, unprofitable capacity, which, in some cases, has production costs that are five times world market rates, has been kept in operation while, in the United Kingdom, the industry has managed to achieve levels of competitiveness that are so far beyond anything achieved elsewhere in Europe. That cannot be fair and that unsatisfactory outcome is due to the lack of a genuine Community approach to restructuring.

As shown in the Commission's report, operating aid in member states has risen from 28.1 ecu per tonne in 1992 to 48.4 ecu per tonne in 1997. I share the industry's frustration when it looks across the channel and sees huge subsidies going into German, Spanish and French coal industries. It must be recognised, however, that the United Kingdom coal industry is not competing directly with ECSC-subsidised coal. The main losers in that area are the German, Spanish and French taxpayers, who have to subsidise industries that have no realistic chance of being competitive.

Since we came to office in 1997, we have had some success in pressing the Commission to apply the coal state aid rules strictly. Following a complaint by Celtic Energy in Wales, the Government complained to the Commission in 1997 about the unfair practices of two subsidised German anthracite producers. On 29 July 1998, after a prolonged investigation, the Commission requested repayment of aid by the German companies involved. The companies have since withdrawn from the Untied Kingdom market and the Commission's decision should provide United Kingdom producers with an assurance that unfair practices will not occur in future.

The European Scrutiny Committee also asked me whether the Government support only the complaints of individual companies. That is not the case. We have been pro-active in taking up several issues that could affect the competitiveness of the United Kingdom industry. In the case of Spain, we complained formally to the European Commission about the discriminatory application of limits on the sulphur content of coal from different ECSC resources and we have received assurances that Untied Kingdom coal will be treated on the same basis as Spanish coal. We have also laid a formal complaint against Spanish state aid for coal, questioning whether the criteria have been fulfilled for all producers receiving operating aid under the ECSC.

Mr. Michael Jack (Fylde): On a point of order, Mr. McWilliam. I am sorry to interrupt the Minister's smooth flow of information, but could you give me some guidance? My understanding was that questions in this Committee were normally prefaced by a short ministerial statement. What does "short" mean?

The Chairman: The word "short" means about 10 minutes in this instance, and we are not there yet.

Mrs. Liddell: Thank you, Mr. McWilliam. I am aware of the pressures on the Committee, which is why I sought clarification before making my opening remarks.

In reply to points made in the European Scrutiny Committee, we made representations in March 1998 about the proposed merger of the three remaining hard coal producers, in which we set out our view that their privatisation at DM1 represented significant unauthorised aid for German production. That example and others show that we take on specific issues, as well as supporting our coal industry in its criticisms.

We have also watched closely the progress of RJB Mining's challenge to the Commission's decision on German state aid. In our meetings with the Commission, we have put many of the same arguments as RJB. The recent interim judgement by the European Court of First Instance was not in RJB's favour, but it was not a total disappointment, because it dismissed many of the arguments made by the Commission's lawyers to justify the authorisation of operating aid to pits that have never been economically viable.

The Chairman: Order. We now have until 11.30 am for questions. I remind hon. Members that questions should be brief and asked one at a time.

Mr. Jack: One thing in the Minister's statement intrigued me. Can she throw any light on the reason why we are only now, in this Parliament--in the second month of 2000--discussing matters that arose in 1996 and 1997? Has the Minister probed the Commission on why it has taken so long to produce the documents before us?

Mrs. Liddell: I am rather more interested in the content of the report than in the date of publication. However, the fact that such reports come to our attention much too slowly creates a difficulty. That is one reason why we support the Vice-President of the Commission, Neil Kinnock, in his proposals for reform of European Community administration and structures.


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