Select Committee on European Scrutiny Second Report


COM(00) 380

Commission Report on the application of the Community rules for state aid to the coal industry in 1998 and 1999.

Department: Trade and Industry
Basis of consideration: Minister's Letter of 6 December 2000
Previous Committee Report: HC 23-xxvii (1999-2000), paragraph 8 (25 October 2000)
To be discussed in Council: No date known
Committee's assessment: Politically important
Committee's decision: Cleared; but further information requested


  6.1  On 25 October 2000, we reported on the Commission's report on the application of the Community rules for state aid to the coal industry in 1998 and 1999. It is an annual report. The previous report, made in 1999, we recommended for debate in European Standing Committee C, and this took place on 9 February 2000. This year's report reached the same main conclusion as the previous year's — that the aid regime is not working as intended, at least in respect of operating cost. The Minister told us that the Government would continue to press the Commission to ensure that operating aid is paid only to those undertakings which can demonstrate that they can become competitive within a reasonable period of time, and that undertakings which cannot demonstrate this should be given closure aid only. We asked the Minister a number of questions relating to aid given to German and French undertakings. State aid to coal undertakings is given under the provisions of the European Coal and Steel Community (ECSC) Treaty, which expires in 2002. We asked the Minister whether commitments could be made under that Treaty for aid in subsequent years and whether consideration had yet begun about any successor arrangements specific to this industry. We also asked about the Government's proposals to provide state aid to the UK industry.

Minister's letter

  6.2  In her letter of 6 December, the Minister of State for Energy and Competitiveness in Europe (the Rt. Hon. Helen Liddell) has replied to our questions as follows.

"German operating aid

"The Committee asked whether I was satisfied that the Commission is properly applying the criteria for operating aid in respect of Germany; and, if not, what action the Government is taking.

"The Government has made it clear that we would like to see the rules for state aid, including the requirements for degressivity[20], properly applied to German coal state aid. We understand that this is the Commission's policy too. There have been recent discussions between the Commission and the German Government, and we will be interested to see the outcome. We have made it clear to the Commission that we expect to see the state aid rules properly applied to all coal state aids.

"The UK proposals for operating aid

[The Committee asked about the Government's proposal to give aid to the UK industry.]

"The UK Coal Operating Aid Scheme, as submitted to the European Commission on 26 July, was approved by the Commission on 15 November. Individual subsidy payments now need approval and the Commission initially has 3 months to consider applications once we submit them. Four applications (for Longannet, Maltby, Harworth and Rossington collieries) have already been submitted and we hope to submit further applications in the near future.

"Following a debate on the floor of the House, on 22 November the Commons authorised the Secretary of State to pay, or undertake to pay, by way of financial assistance under section 8 of the Industrial Development Act 1982, and in respect of coal mining qualifying for aid under the UK Coal Operating Aid Scheme, sums exceeding £10 million for each of Hatfield Coal Company Ltd, Mining (Scotland) Limited and RJB Mining Plc. In the debate, I also explained that the Government anticipated paying sums of less than £10 million to a number of other applicants for aid.

"French aid

"The Committee noted that the Commission is still questioning unapproved French aid in 1997-99, and is reconsidering aid approved earlier from 1994 onwards. It asked what comments I had on this, and on what can be done to speed up the Commission's process.

"The Commission is examining this issue and we fully support efforts to ensure that all aid paid is compliant with ECSC criteria. However, enforcement of the coal code is a matter for the European Commission, and we intervene only when the interests of UK producers or consumers are directly affected.

"The Committee also asked what aid was paid to the French industry in the years 1997-99. The most up to date figures that we have are for the 1996-1998 period. In this time, the French industry received an average of 28.98 million euros per year subsidy for current production of coal, and a further 195.92 million euros per year for subsidy not related to current coal production.

"UK and German coal exports

"The Committee asked what proportion of UK produced coal is exported, and of that how much goes to other EU countries.

"Our most up to date figures show that, out of approximately 33 million tonnes of coal production, the UK exported around 700,000 tonnes (ie about 2%) in the last 4 quarters. Approximately 500,000 tonnes (ie about 1.6% of total production) of this went to the EU.

"Comparable figures for Germany were also requested. 1999 estimates for Germany are that out of approximately 205 million tonnes of coal production, exports were around 200,000 tonnes (ie 0.1%). Approximately 194,000 tonnes (ie about 0.1% of total production) of these exports went to the EU.

"Aid after 2003

"The Committee asked whether I thought that aid payments made under the present ECSC arrangements could include commitments beyond 2003; and whether consideration had yet begun on any successor arrangements.

"The ECSC comes to an end in July 2002, and with it the existing Coal State Aids Decision. Any aid paid after that date will have to be on a different legal basis, yet to be negotiated. Work by the Commission and Member States on a successor regime is expected to start in earnest next year, informed by the debate to be initiated by the planned Green Paper on Security of Supply. As I said in the coal debate in the Commons on 22 November, the Government is opposed to the continuation of the EU coal subsidy beyond the end of July 2002; we would like to see an end to operating aid to the coal industry in the EU after this date. We do not intend to pay such aid to the UK coal industry beyond this date and we believe that we should move toward a single market without aid."


  6.3  We are grateful to the Minister for her detailed and helpful reply. We would be glad if the Minister would inform us in due course about the outcome of the discussions to which she refers between the Commission and the German Government about the proper application of state aid rules to German coal undertakings. We note that virtually all the German coal production is for the home market. We note also that, although only a small proportion (2%) of UK production is exported, the vast bulk of that goes to other EU countries where it has to compete with state-aided industries, at least in France, Germany and Spain. We were interested to see the figures for state aid in France for the period 1997-99 (these figures were not in the Commission's report). They are relatively small by comparison with aid in Germany and Spain. We note that state aid to the UK industry is intended to be temporary and that the Government does not wish to see Community provisions for state aid to the coal industry after 2002, when the ECSC Treaty expires.

  6.4  We clear this document.

20  Degressivity requires that any approved state aid must decrease over time. Back

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