Orders of the Day — Coal Industry

Part of the debate – in the House of Commons at 9:10 pm on 29th March 1993.

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Photo of Mr Keith Hampson Mr Keith Hampson , Leeds North West 9:10 pm, 29th March 1993

The hon. Member for Doncaster, North (Mr. Hughes) mentioned the Hatfield colliery. That leads me directly to one of the two aspects of the White Paper that has disappointed me; I endorse all its other aspects, in the context of the Select Committee's suggestions.

First, I understand that the Hatfield colliery no longer produces coal for the electricity generation market. In my view, the White Paper dismisses the potential of the industrial market in too cavalier a manner. There are huge difficulties, especially in terms of the sulphur control limits on British industry; however, it is clear from the ICI plant in Huddersfield, which uses low-cost technology to clean sulphur, that a breathing space is needed to assist the non-electricity market, just as much as a breathing space is needed in the electricity market, as we have argued both in the White Paper and in the Select Committee.

It is possible that not much tonnage will be involved, but even so a couple of million extra tonnes are important. I suggest to my right hon. Friend that it is worth extending the subsidy provisions beyond the electricity market and into the industrial market, to allow the new technology to come in and to help British Steel to use our coal—poor as it is—not coking, but for a direct injection into blast furnaces, which involves new technology.

My second disappointment relates to a matter that some of my hon. Friends have mentioned. I am disappointed by the nature of the electricity privatisation with respect to the regulator's inability to do other than moan about the profit margins of the two main generators. The Select Committee recommended that the regulator be given powers not to control profit—which is discussed in the White Paper—but to control prices. If we could use the same approach to generators' prices as we have used in other cases, the position would be very different. As the price of coal has significantly fallen, the price of electricity has not begun to match it, but the generators' profits have shot through the roof. Something must be done about that.

It is simply not true that—as the hon. Member for Barnsley, West and Penistone (Mr. Clapham) suggested —the Government have ignored the main recommendations of the Select Committee. It is also not true that, if the Committee's proposals had been adopted, there would be a huge extra tonnage. He talked of another 36 million tonnes on top of the 40 million, but our report's main table makes it clear that by 1996 the present figure of 65 million will be down to 46 million.

The Government are reducing orimulsion levels and are reducing opencast mining to almost exactly the levels that we recommended in our report. We also need to make different assumptions from those made by the Committee on the French connector and the fact that, for no particular reason, we threw an extra 5 million tonnes into the second year. If those assumptions—for which there was no evidence—are changed, the figures for extra tonnage in the electricity market, which the Select Committee was discussing, if we are realistic, are about 10 to 12 million.

We decided collectively to go for the maximum. We decided that, if everything was stretched, a figure of 16 million tonnes was possible. Opposition Members—including the right hon. Member for Salford, East (Mr. Orme), a previous chairman of the Labour party, and the hon. Member for Barnsley, West and Penistone—signed up to the basic truism that there is a severe limit to how much extra coal could be taken into the electricity market.

Clearly, the major short-term problem has been imports. We cannot duck the fact that, if British Coal had achieved earlier the levels of productivity improvement that it has had in the past five years, and if it had not had the history of militancy of the 1970s and 1980s, two things would have happened. First, the price would already be lower than that on offer. Therefore, the generators would be more ready to buy coal. Secondly, the generating companies and the regional companies would have been less willing to go for gas had there not been disruption on account of the over-domination of coal in the electricity market. Militancy encouraged the dash for gas, as well as the new turbine technology.

Opposition Members cannot duck two harsh facts. First, the price of gas-generated electricity is cheaper than the price of coal-generated power. That is what the Select Committee says. Secondly, there is a world glut of coal. The oil crisis led to the opening of opencast pits all over the world. They will continue to be opened all over the world, particularly in the southern hemisphere.

The market has always been rigged on behalf of coal. When we privatised the electricity industry, coal was protected for three years. The electricity industry took high tonnages of coal—70 million tonnes to 65 million tonnes—at very high prices: 1·86p per gigajoule. Three years later, it is 1·51p—a tremendous improvement. If that had been the price earlier, there would have been less of an incentive to go for coal imports and for gas.

The price will come down even further. The price of coal imports from all these vast, opencast pits and from eastern Europe—not subsidised and not mined with slave labour, as the Opposition claim, and mostly from the United States of America—is between 1·15p and 1·30p at the power stations. That is the harsh reality which British Coal has to face.

What the Select Committee tried to do, and what the Government have tried to do in the White Paper, was to offer subsidies. The Government are offering huge subsidies so that there will be cheap power. There is headroom in the market. I suggest that the regional electricity companies probably need about 10 per cent. more than they have already signed up for. There is the prospect that during the transitional period, with the subsidies providing a breathing space, British Coal will be able to improve productivity, through improved working practices, to the point at which costs will come down. It will then have a chance to sink or to swim in the open market. Most of the 12 pits will, I believe, swim. Most of them will improve their productivity. There is a market for coal, but we have to be realistic about the scale of that market.

I come from the heart of the south-west Durham coalfields. Too many Opposition Members are disparaging of the Government's efforts to bring new types of jobs to coalfield areas. When five pits closed around my town after the war, Hugh Dalton created new trading estates. When the railway wagon works closed down, new, diversified industries came to the area. A huge responsibility will fall on Lord Walker and the Government to ensure that those mining areas which face pit closures get all the help that they need to create new jobs in the years to come.