EU clamps down on loss-making coalmines

The Business of Mining - thebusinessofmining.com | July 21, 2010 | 1:44 pm Energy Coal 

“Loss-making coal mines across Europe will have to close over the next four years after the European Commission clamped down on government aid to the sector on Wednesday.

The move will hit hardest in Germany’s Ruhr region, north-west Spain and parts of Romania, and could affect tens of thousands of jobs.

New European Union rules that come into force from January will only allow government operating aid to be provided to hard coal mines if closure plans are in place. Those plans will have to ensure the mines are shut down by October 15 2014 at the latest.”

Source: Financial Times, July 20, 2010



Observations:

  • Spain and Germany are the countries spending most on keeping uncompetitive coal mines in operation in order to provide employment and gain energy security.
  • German underground hard coal mines are notoriously inefficient. The mines typically mine coal layers less than 2 meters in height using longwall systems. Subsidies at 50% or more of production costs are not uncommon.
  • Subsidised coal mining mainly takes place in areas with high unemployment, forcing the governments to keep employment levels in the mining industry high.
  • Coal is not one of the raw materials mentioned in the European Union’s recent Raw Materials Initiative. The Initiative calls for action to strengthen the position of the European mining industry for a number of key minerals.

Implications:

  • The governments are working on ramping down the production in the subsidised coal mines, but this ramp down takes decades in order to manage unemployment rates in the mining area. The European plan to close the mines in 4 years time would cause enormous unemployment problems and supply problems for some clients. It is therefore very unlikely this plan will be executed in the current form.
  • Probably Germany will trade concessions in the closure plan of the coal mines with lowering of agricultural subsidies, from which mainly French farmers benefit.

©2010 | Wilfred Visser | thebusinessofmining.com

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