13 DECEMBER 1975, Page 7

The rediscovery of coal

Sir Derek Ezra

All too often these days what is written about industry tends to be discouraging. I hope this may be seen as an exception.

The story I would like to unfold is in many ways a dramatic one. Who, a few years ago, would have said that the Briish coal industry had a future? A past, yes, because Britain's industrial might in the nineteenth and early twentieth centuries was based on coal; but the future for the industry looked dim indeed. The fuel appeared outdated, losses were being incurred and, from the industrial relations aspect, the two strikes of recent years were the most serious that had occurred in any industry since the war.

I would like to examine each of these three aspects in turn — the prospects for coal, its financial position and industrial relations — and show where we stand today.

It is no exaggeration to say that coal has now been rediscovered throughout the world. This has come about because of the massive increase in oil prices on the one hand and because of the recognition that the expansion of nuclear energy is going to take longer than previously thought on the other.

The advantages that coal has over oil are that the coal reserves are vastly greater — enough for several hundred years at present rates of consumption; and that it is in many parts of the world more competitively priced. The disadvantages are that it is generally more difficult to exploit and less convenient to use. Overcoming these disadvantages is the technological challenge facing coal producers.

A major world effort is now being made to expand coal output. The largest reserves are in the United States, Russia and China, and all three countries have allocated resources for a big coal expansion. The plans in the United States are particularly striking. The objective is to double the present annual rate of 600 million tons within ten years. It is also intended that by then coal will become a major feedstock for conversion to natural gas and oil to replace the depleted reserves of these fuels.

There are also substantial reserves of coal in Poland, Britain, Germany, Australia, Canada, South Africa and India among others. In all these countries, where there are already major existing coal industries, there are plans for futher exploitation of the reserves. And in many other countries in Asia, Africa and Latin America, where there are known reserves but as yet no substantial production, plans are in hand for new exploitation.

The plan for coal expansion in Britain is in some ways unique. While in most other coal-producing countries production had been maintained_during the 'sixties, in Britain the policy was deliberately to reduce the size of the industry. Many warned against this policy, including Lord Robens and the union leaders, but to no avail. Large numbers of pit closures took place, employment in the industry was virtually halved and there was practically no 'investment in new capacity. Without such investment, the size of an extractive industry is bound to decline.

Thus when a more positive plan for the industry was being discussed last year, in the new energy situation, the whole momentum had to be reversed. This is, of course, far more difficult than injecting a measure of expansion into an ongoing concern. The coal industry was not going on: it was going down. Twice the effort was therefore required to move into expansion.

The second special feature of the expansion plan was that it was fully discussed and agreed between government, management and unions and each side undertook to carry out its part of the bargain.

For the Government this meant taking financial measures to deal with certain past anomalies (such as compensation for pneumoconiosis sufferers and a contribution towards improvement of the miners' pension scheme ) and providing, through legislation, for other agreed measures to support the expansion plan. For the management, this meant getting ahead with the new plan, particularly in terms of intensified exploration for coal, acceleration of new inves..nent and greater research effort into mining techniques and coal usage. For the unions, it meant providing full support for measures to improve efficiency in the industry while ensuring that the interests of their members were adequately taken into account.

Effectively the plan opened up a new era for British coal, with a positive stimulus for management and a greater sense of security for the work force.

Now, over a year after the plan was agreed under the chairmanship of Eric Varley (then Secretary of State for Energy), where do we stand? My firm belief is that all three parties have made a genuine and positive effort to carry out their share of the bargain. The Government have already introduced many of the measures they undertook to do — and, as recently as November 27, Tony Benn (the present Secretary of State for Energy) reaffirmed in Parliament the Government's intention of introducing the remaining measures.

The Coal Board, for their part, have made substantial progress in the coal exploration programme, the investment in new capacity and the expanded research effort. There are now nearly as many deep-drilling rigs exploring for coal on land as there are exploring for oil at sea (indeed there is also a rig searching for coal at sea off the,north-east coast). In the past year alone, known workable reserves of coal have been increased by 500 million tons, and prospects are opening up for a number of new sinkings in addition to the major Selby project (which will produce 10 million tons when completed and will probably be the biggest deep-mining coal operation in the world). Assuming planning consent is obtained for the Selby project, the Board will have committed investment for 22 million tons of new capacity, out of the 42 million tons envisaged in the plan. Not bad going after a year and a half!

The unions have shown their support for the plan by assisting the Board in a series of drives throughout the industry to increase production, productivity and efficiency. While these efforts have not so far achieved all the somewhat demanding objectives set, they have contributed substantially to the industry's

,The 1975

much improved in

In the past eighteen months the coal industrY Spectator situation. In 13, has achieved a pretty substantial turnround in its finances. In the year ended March 1974 we made an operating loss of £112 million due t° the unfortunate strike of that year. But bY March 1975 we converted that to an operating profit of £34 million. In addition, we enabled the Government to reduce the grants to tbe industry by £62 million and we contributed £16 million to the pneumoconiosis compensation fund — a turnround of no less than £224 mu I0 This massive improvement was due partbr the increased production, to which I bay: referred and which was particularly marked1° the second half-year. and partly to the stronger„ market for coal, enabling us not only to sell a" we produced but also to increase our Prices while still remaining competitive. It might be contended that our experience in 1974-75 was exceptional, due to a fortunate combination of circumstances. It is certainlY true that the circumstances are not as fort° ate this year. In particular, the market for MI products is much weaker as a consequence ° the general recession. Nevertheless I hope °eat,: based on the best estimates we can make alte; more than half the financial year has passed. Tt shall once again achieve an operating Prc4`e and once again enable Government to reduc the level of grants paid to us. During the year we have had to rnalce4/9 crucial decision. That was whether temPor°70 to curb the rate of investment required Le achieve our long-term plan in order to sa" t money. We decided firmly against this and1 s!s about controlling our cash and our costs t other ways. Indeed, we have througb°°„, adopted a counter-cyclical policy, deliberatevs stocking coal we could not sell now in readinecsR for the next upturn, rather than cutting be,th on production. And we have continued vilte our policy of recruiting juveniles in node: fce build up a balanced and younger labour lo' over the years. We believe that, in our circumstances, th15,,ist the right policy. By adopting a differe.'d approach we might well have benefit% short-term, but would certainly have 1°5 long-term. We would not have been able to acbievpiie what has been done in the past eighte„-d months without the support of the unions 8;0 of the whole labour force. We were able or conclude our wage negotiations last Yes0 without disagreement and we aim to again this year, bearing in mind the Nth''.fie support for the Government's counter-inflat,1:ed policy. As management we have w°r%, assiduously to extend participation and °Lir sultation way beyond what is laid down 1° statute. We have achieved some success, ;0e it is no doubt with this in mind that te Gormley recently said to the Secretary of Stitill at a tripartite meeting that the atmosphere en the industry was now better than it had be for a decade. basic This is the story of how one of Britain's -pr. industries has taken the first steps to rec°vvre ing some of its earlier greatness. Far be it fr,„°0 me to suggest that the next steps will be Pi'at sailing. They almost certainly will not. Puttry least all who are employed in the coal 10d the know that we are set for expansion and tbaL ,70g plan to achieve that expansion is already taess shape. It would be foolhardy of me to gnag what sort of progress report I could be rna-; in, say, a couple of years' time, but (subjec` a unpredictable external factors) there is 01., reasonable chance that we shall still be course.