(Adds Drax comment, background)
LONDON, April 3 UK Coal, Britain's largest coal
producer, has applied for a 10 million pound government loan to
help fund the closure over the next 18 months of its two deep
mines which employ around 1,300 people.
The coal miner was placed in administration last year after
struggling with rising costs, hefty pension liabilities and
strong competition from cheaper imports.
Its business has deteriorated since due to a flood of U.S.
coal onto the market because of the development of shale gas
there, and the strength of sterling, resulting in the company's
decision earlier this week to close the two mines.
The government is due to decide on Monday whether it will
hand a 10 million pound commercial loan to UK Coal, a source
familiar with the discussions said.
The state loan would complement a combined 10 million pound
loan promised by rival coal producer Hargreaves Services
and regeneration company Harworth Estates, the source
If the parties do not agree on the loan package the mines
are likely to close immediately.
The government also said it was in discussion with the
European Commission regarding support for UK Coal, without
providing further details. The 20 million pound package would
enable the group to pay its customers, suppliers and employees
over an 18 month period.
The Commission can block state aid in European Union
countries when there is a risk it could distort market
Prime Minister David Cameron said his government was willing
to do what it could to help the company.
"If there are things we can do, bridging finance we can make
available, then we will look at that very, very closely," he
told BBC television.
Earlier this week, UK Coal started redundancy consultations
with staff at collieries in Thoresby in Nottinghamshire, which
employs 600 and Kellingley in Yorkshire with 700 employees.
The closure of the two mines will leave Hatfield Colliery in
South Yorkshire as Britain's last remaining open pit mine.
UK power producer Drax, which is UK Coal's biggest customer,
said it had already increased coal imports from countries such
as the United States, Colombia and Russia as UK Coal's output
has been declining.
"If there was a situation in the future (of UK Coal ceasing
operations), we could manage," said a Drax spokesman, adding the
company would be able to import more coal from elsewhere.
Last year 280 UK Coal employees lost their jobs when its
largest coal mine at Daw Mill shut after being crippled by fire.
In 2012, UK Coal produced over a third of Britain's domestic
coal supply but its operations have been increasingly under
pressure from international competition.
Britain's coal-fired power plants were producing around 40
percent of its electricity on Thursday, grid operator data
Britain's coal industry was at the heart of its economic
growth in the early 20th century when it employed around 1.2
million people at nearly 3,000 collieries.
Since then, competition from other coal markets where it can
be produced more cheaply and greener energy alternatives to
polluting hydrocarbons have contributed to Britain's declining
Last year, British coal production fell to the lowest in at
least 15 years at 12.8 million tonnes, less than a third of what
was still being produced in the late 1990s.
(Reporting by Karolin Schaps and Kate Holton; additional
reporting by Guy Faulconbridge, Editing by Belinda Goldsmith and