Commission Decision of 15 November 2000 on the modernisation, rationalisation and restructuring plan for the United Kingdom coal industry, covering the period from 17 April 2000 to 23 July 2002 (Text with EEA relevance) (notified under document number C(2000) 3709)
Date: 2000-11-15
Institutions: European Commission
Subjects: State aid, United Kingdom, coal industry, exchange of information, industrial restructuring, modernisation of industry

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Official Journal of the European Communities

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COMMISSION

COMMISSION DECISION

of 15 November 2000

on the modernisation, rationalisation and restructuring plan for the United Kingdom coal industry,
covering the period from 17 April 2000 to 23 July 2002

(notified under document number C(2000) 3709)

(Only the English text is authentic)

(Text with EEA relevance)

(2001/114/ECSC)

tonne in 1992 to under GBP 32 per tonne in 1999, a
reduction of 35 % over the period as a whole. In the
case of opencast mines, which produced 15 million
tonnes of coal in 1999 out of a total production of 36
million tonnes, production costs at constant prices have
likewise been reduced by some 35 %, to GBP 26 per
tonne in 1999.

(4)

Despite these efforts, a series of factors could make mine
closures inevitable in the very near future, in particular
the sharp fall in world market coal prices in 1999 and
the lifting of the moratorium imposed by the United
Kingdom authorities on the construction of gas-fired
generating stations. The conclusion at the end of 2000
of new contracts to supply power stations with coal,
which will replace existing contracts, could also put coal
producers in difficulty. In fact, the trend in the price of
electricity may in future oblige them to make coal deliv-
eries at less advantageous prices. The value of the pound
sterling has also contributed to making the price of coal
imported into the United Kingdom more attractive and
exports of coal mined in the United Kingdom less
competitive.

THE COMMISSION OF THE EUROPEAN COMMUNITIES,

Having regard to the Treaty establishing the European Coal and
Steel Community,

Having regard to Commission Decision No 3632/93/ECSC of
28 December 1993 establishing Community rules for State aid
industry (1), and in particular Article 2(1) and
to the coal
Article 8 thereof,

Whereas:

I

By letter of 26 July 2000 the United Kingdom sent
rationalisation and
notification of a modernisation,
restructuring plan for the United Kingdom coal industry,
together with the ‘UK Coal Operating Aid Scheme’,
covering the period from 17 April 2000 to 23 July
2002 (hereinafter referred to as ‘the restructuring plan’).

In accordance with Article 8(3) of Decision No 3632/
93/ECSC, the Commission must give an opinion on
whether the abovementioned plan is in conformity with
the Decision,
the general and specific objectives of
without prejudging the ability of the measures planned
to attain these objectives.

(1)

(2)

(3)

II

(5)

The restructuring of the coal industry, which has been
under way in the United Kingdom since 1994, has
achieved tangible progress in reducing production costs
for mining coal. Production costs for deep-mined coal,
at constant 1999 prices, have fallen from GBP 49 per

(1) OJ L 329, 30.12.1993, p. 12.

Consequently, coal mining in the United Kingdom is
now in a serious crisis which should, however, be
temporary. In particular, the United Kingdom authorities
consider that on the one hand world market coal prices
have already begun to move upwards noticeably while,
on the other hand,
the uncertainties created by the
conclusion of new supply contracts with power stations
and the lifting of the moratorium on the construction of
gas-fired
progressively
stations
disappear.

generating

should

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Although these problems are temporary, the danger is,
however, that in the very near future they could spell the
end for several production units which, although viable
in the long term, will not be able to survive the current
problems without the introduction of proper restruc-
turing measures.

therefore have to be capable of
received aid will
continuing their activities without any financial support
from the public authorities. To reach this level of
competitiveness,
the United Kingdom considers that
production costs should normally be between GBP 25
and GBP 28,75 per tonne.

III

(6)

(7)

spread over

The restructuring plan notified to the Commission
proposes granting aid,
three tranches,
limited to the period from 17 April 2000 to 23 July
2002, that is until the ECSC Treaty expires. More specifi-
cally, aid may be granted only to cover operating losses
on coal mined during the abovementioned period. The
total amount which may be granted by the United
Kingdom over
exceed
GBP 110 million.

entire period will not

the

The objective of the restructuring plan proposed by the
United Kingdom is that the production units which can
demonstrate that in the years preceding the application
for aid they were capable of improving their economic
viability by cutting their production costs, should further
significantly reduce such costs by 2002. Moreover, the
plan which they submit to the United Kingdom authori-
ties must include data on operating conditions until at
least mid-2004. During this period of restructuring, the
aid proposed by the British authorities should be used to
support production units which are economically and
financially viable in the long term. The aid granted shall
therefore allow these production units to improve their
economic viability in order to attain a situation where
they can compete with imported coal. It does not, there-
fore, apply to production units where mining is not
economically viable and which will continue to make a
loss even after the problems mentioned in recital 4 have
been relieved.

(8)

In the light of the foregoing, only operating aid satis-
fying the conditions laid down in Article 3 of Decision
No 3632/93/ECSC in particular may be granted under
the restructuring plan.

(9)

(10)

(11)

The scale of the reduction in production costs demanded
before aid will be granted will depend on the current
production cost levels, specifically on the gap between
current production costs and the target set, of between
GBP 25 and GBP 28,75 per tonne. In other words, the
further the production unit concerned is from being
fully competitive on the world coal market, the bigger
the reductions in production costs will have to be.

The amount of aid is limited to the difference between
the cost of producing the coal and the revenue from
selling it, without, however, exceeding GBP 75 million
per undertaking over the period from 17 April 2000 to
23 July 2002. The restructuring plan notified by the
United Kingdom also specifies the methods of calcula-
tion to be applied, notably to limit the State aid to the
categories of coal eligible. In particular, the aid will be
reserved for sales of coal intended exclusively for elec-
tricity generation or industrial purposes.

The subsidies will be available for deliveries of coal
under existing or new contracts. An independent panel
of experts will be set up to examine contracts entered
into after 1 January 2000 and eligible for aid from the
public authorities. In particular, it will be responsible for
calculating the price which would have been paid had
the purchaser imported coal instead of taking supplies
mined in the United Kingdom, under the terms of the
contract examined (import parity price). To perform this
task, the experts will take account of the quality of the
coal, transport costs, market conditions at the time of
conclusion of the contract, and any other factor which
they consider necessary in order to render the reference
price which they calculate (import parity price) compar-
able with the price stated in the contract.

In particular, the United Kingdom wishes to reserve the
aid for production units which will be competitive at
world market coal prices when the aid scheme provided
for by Decision No 3632/93/ECSC expires on 23 July
2002. After that date, any production units which have

Under the restructuring plan notified by the United
Kingdom, if the reference price calculated by the panel
of experts for imported coal
is higher than the price
stated in the supply contract, the amount of aid will be
limited to the difference between the production costs
and the reference price calculated by the experts.

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IV

(12)

In accordance with Article 3 of Decision No 3632/93/
ECSC, Member States which intend to grant operating
aid to coal undertakings must submit to the Commis-
sion,
in advance, a modernisation, rationalisation and
restructuring plan designed to improve the economic
the undertakings concerned by reducing
viability of
production costs.

The restructuring plan proposed by the United Kingdom
fulfils this condition. As was explained in recitals 7 to 9,
the aid is reserved for production units which, in prin-
ciple, should be viable but, for reasons unconnected
with their management or operating conditions, are
temporarily
competitive with
imported coal. Production units which wish to receive
such aid will be required to make efforts to reduce their
production costs, by July 2002, to a level which would
enable them to continue their activities with no further
intervention by the public authorities.

incapable of being

the reduction of production costs. Decision No 3632/
93/ECSC cannot be interpreted in such a way as,
in
effect, to penalise States which have made every effort to
restructure their coal
industry without State aid but
which face an economic situation that they could not
have predicted and that endangers their industry, albeit
temporarily.

(15)

The restructuring plan sets out very precisely the criteria
to be taken into account when examining applications
for aid. These criteria, the definitions thereof and the
procedures for examining applications and monitoring
the aid after it is granted confirm the conclusions drawn
from examination of the objectives of the plan, namely
that the aid planned by the United Kingdom meets all
the requirements laid down by Decision No 3632/93/
ECSC for granting operating aid. The information
required from the undertakings
the
requirements of Commission Decision No 341/94/ECSC
of 8 February 1994 implementing Decision No 3632/
93/ECSC (2).

in turn meets

The objectives of the restructuring plan notitied to the
Commission — a coal industry fully competitive with
imported coal — go beyond the conditions laid down in
Decision No 3632/93/ECSC, which requires only an
improvement in economic viability if operating aid is
granted (1).

(16)

In accordance with Article 3(1) of Decision No 3632/
93/ECSC, operating aid is intended to cover the differ-
ence between production costs and the selling price
freely agreed between the contracting parties in the light
of the conditions prevailing on the world market.

(13)

In accordance with the first indent of Article 2(1) of
Decision No 3632/93/ECSC, the operating aid must help
to achieve further progress towards economic viability
with the aim of achieving degression of aids.

The third indent of Article 3(1) also states that the
amount of operating aid per tonne may not cause deliv-
ered prices for Community coal to be lower than those
of coal of a similar quality from third countries.

The objective of the restructuring plan notified by the
United Kingdom, which must remain temporary, is to
restore a coal industry which is fully competitive with
imported coal and, therefore, free of all State aid, by the
end of the aid scheme provided for by Decision No
3632/93/ECSC; this, therefore, meets the condition laid
down in the first indent of Article 2(1).

(14)

The introduction of a new aid scheme by the United
Kingdom, moreover, in no way conflicts with the objec-
tive of degression of aid, which is the cornerstone of the
scheme defined in Decision No 3632/93/ECSC. The
condition as to degression must be examined in the light
of the criteria for deciding the grant of operating aid
restructuring plan
which are
proposed by the United Kingdom, namely, improvement
of the economic viability of the coal industry through

indeed met by the

The system proposed in the restructuring plan notified
by the United Kingdom,
in the form of a panel of
experts to examine coal supply contracts, particularly
the price agreed in such contracts, constitutes an
arrangement which should help to ensure compliance
with the abovementioned provisions (see recital 11).
However, use of the panel of experts does not preclude
the adoption of any other measures which the United
Kingdom might need to enact
in the interests of
bringing future aid allocations fully into line with those
provisions.

The restructuring plan states that this panel must work
openly and transparently, in so far as that is consistent
with observance of the commercial confidentiality of
parties not applying for aid under the current restruc-
in
turing plan. The recommendations of

the panel

(1) See also the judgment of the Court of First Instance in Case T-110/
98, RJB Mining v Commission, ECR II-2585, at paragraph 103.

(2) OJ L 49, 19.2.1994, p. 1.

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(17)

(18)

(19)

particular will have to be made public. The Commission
considers that the application of those principles guiding
the work of the panel of experts is fundamental, notably
to avoid risks of distortion of competition both between
producers and between coal users.

The United Kingdom will therefore ensure that all inter-
ested parties have an opportunity to make comments
and observations on the work of the panel. The panel
will take account of any observations submitted to it.

In accordance with Article 2(2) of Decision No 3632/
93/ECSC, the aid will have to be entered in Member
States' national, regional or local public budgets of the
United Kingdom or channelled through strictly equiva-
lent mechanisms.

The Commission stresses one of the fundamental aims
of the scheme set up by Decision No 3632/93/ECSC,
namely that State aid must cause no distortion of
competition and must not discriminate between coal
producers, purchasers or consumers in the Community.

V

In accordance with Article 9 of Decision No 3632/93/
ECSC, the United Kingdom will send notification of all
the financial support which it intends to grant to the
industry in a given year. All the data on these
coal
measures, the reasons for them and the extent thereof
and their connection with the restructuring plan notified
to the Commission on 26 July 2000 will be notified
together. In particular, the information submitted will
meet all the requirements laid down by Decision No
341/94/ECSC, particularly in form B in Annex 3 to that
Decision.

Authorisation of the aid by the Commission, as provided
for in Article 9 of Decision No 3632/93/ECSC, therefore
means that the coal undertakings submit an application
for aid to the competent United Kingdom authorities by
a set time so that all the measures proposed over a given
period can be notified to the Commission together.

(20)

(21)

In accordance with Article 9(5) of Decision No 3632/
93/ECSC, in the event of refusal any payment made in
anticipation of authorisation from the Commission will
have to be repaid in full by the undertaking that received
it and will invariably be considered an unfair advantage
in the form of an unjustified cash advance and, as such,
will be liable to charges at the market rate payable by
the recipient.

By 30 September of each year at the latest, the United
Kingdom must also send notification of the amount of
aid actually paid in the preceding coal production year
and must declare any corrections made to the amounts
originally notified,

HAS ADOPTED THIS DECISION:

Article 1

The modernisation, rationalisation and restructuring plan, as
well as the ‘UK Coal Operating Aid Scheme’, notified to the
Commission by the United Kingdom on 26 July 2000, are in
conformity with the objectives and criteria laid down in
Decision No 3632/93/ECSC.

Article 2

The United Kingdom shall notify to the Commission,
in
accordance with the provisions of Article 9 of Decision No
3632/93/ECSC, all the financial support which it intends to
industry in a given year.
grant to the coal

Article 3

This Decision is addressed to the United Kingdom of Great
Britain and Northern Ireland.

Done at Brussels, 15 November 2000.

For the Commission

Loyola DE PALACIO

Vice-President