Examination of Witnesses (Question 640-651)
MR GERRY
SPINDLER AND
MR CHRIS
MAWE
20 JUNE 2006
Q640 Chairman: You say you have no
alternative but to sell to UK generators. That is because of the
relatively high sulphur content so that your coal is not attractive
to international markets?
Mr Spindler: It is also because
the same rail that will not bring in imports will not take out
exports. The capacity to export coal over rail and through the
ports does not exist either.
Q641 Chairman: Do you think you could
export coal if that capacity was there?
Mr Spindler: The sulphur would
be a real issue.
Q642 Mr Bone: The problem really
is that the market is not working because you have a monopoly
purchaser from you?
Mr Spindler: That is one of the
reasons.
Q643 Mr Bone: The government supports
the coal industry within EU state aid rules. Has that made the
situation worse or better?
Mr Spindler: We have received
coal investment aid. That indeed developed its own perverse motivations
and in our judgment it has not worked. Indeed, now we have to
return some of the investment aid we were given and, as you are
aware, that investment aid was a percentage of the expenses we
actually paid out for development. We are returning that because
the mines where it was spent are now closing and, in view of the
fact that they are now uneconomic and are closing, the money goes
back. Frankly, that returned money makes the investment aid for
us, looking at it from our point of view, a very expensive debt.
Q644 Mr Bone: As usual with any state
aid, it is not really useful to the market or the company. Would
domestic, deep mined coal have had a fairer deal if the government
had not provided it with any aid at all?
Mr Spindler: We would have had
a fairer deal if we had been able to get paid for the advantages
we delivered in terms of rail infrastructure and were recognised
and paid for that, rather than state aid, yes.
Q645 Mr Bone: Moving on to carbon
pricing, when we started this most people said that coal was a
dirty fuel, was not of any interest any more so go away, but it
is obviously still a significant player. As we go through the
evidence, it seems to suggest that if we had some definite policy
on carbon pricing it might be an advantage to your industry. Would
that be a fair comment?
Mr Mawe: It would in one way but
not in another. Firstly, we have to accept that when you burn
a tonne of coal you need two carbon credits. When you burn the
equivalent of gas you need one. Coal has an extra price attached
to it. Because of the extremely high gas prices which are likely
to persist, the profit margins burning coal are still significantly
higher than burning gas. The positive of that is that it will
encourage investment in carbon sequestration and CO2 reduction
and investment in new, clean coal technology. That is a huge positive,
particularly if there were some forward visibility over the price
of carbon going out so that you knew what type of return you were
going to get on your investment. The negative of course is that,
in the shorter term, carbon is a further volatile element within
carbon price moves, which does make the whole picture slightly
more complicated.
Q646 Mr Bone: If I am right, the
German government has issued carbon allowances for up to 18 years
which have stimulated investment because of the certainty. Do
you think that is the way we should be going here?
Mr Mawe: I am not sure. Certainty
over carbon would help the picture and the planning. Because of
the higher carbon intensity of coal it would also help the abatement
technologies and the investment in new coal burning plant. Probably
on balance it would.
Q647 Mr Bone: That would be one of
your daily problems removed. I am interested in something that
was said earlier on about forward pricing. You are a private company
taking risk, so surely you have to take a view on the forward
pricing so that you can make your investment decisions?
Mr Spindler: We can take a view
on international forward pricing. The resultant pricing that either
we deserve, enjoy or will actually get is something that is a
little more difficult to determine.
Q648 Mr Bone: Is that particularly
because you have this sole purchaser?
Mr Spindler: Yes.
Q649 Chairman: I want to conclude
by leading you a little bit because the real reason we had you
in was to explore whether the government was right not to put
a specific question in the review about dependence on coal imports
as well as gas imports. The review document asks a question about
gas imports, not about coal. It is a little known fact that the
city where I live, Worcester, was once the country's busiest port
because some 200 years ago it was a site for trans-shipment of
British produced coal coming by water taken to Colebrook and Ironbridge.
We have been shipping coal around our country to keep our industry
going for a good 200 years or more. Your submission is this: at
precisely the time when the government is thinking there might
be a future for increased coal use in electricity generation in
the UK and when China and India are sucking up the increased exports
from South Africa, Australia and Colombia and America and Russia
will start to look towards China as a more attractive solution,
you close down finally the UK coal industry. That is the essence
of your concern, is it not?
Mr Spindler: That is exactly so.
These mines would be, we believe, profitable in the coming years.
The fact that the margins are not available for current investment
condemns them. They will not be available in future years when
the price would more than warrant their inclusion and you cannot
store it.
Q650 Chairman: Your submission is
that the generators who are, you say, taking a short term view
at present of their approach to UK produced coal will be kicking
themselves in 10 or 15 years' time when they find that world markets
are very tight indeed and that all that coal is still beneath
our feet.
Mr Spindler: It depends upon the
regulations governing how they sell their power. If they continue
to exist as they are now, they probably will not because as imported
coal goes up so will imported gas and the spark spread will continue
to ensure profitability.
Q651 Chairman: If there is UK generating
plant in the UK using coal as its source of power, it will be
able to get coal on world markets as long as coal is being produced
internationally if it is prepared to pay the right price for it?
Mr Spindler: That probably is
true. There is always the risk that coal will not be available,
that transportation discontinuities will enter into the picture
in unforeseen ways that cannot be solved simply by price. Theoretically,
you could pick a price at which the international market should
work.
Chairman: Thank you very much indeed,
gentlemen. We are grateful for the opportunity to have heard your
evidence.
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