RJB 'must cut costs to win new UK orders'

BRITISH coal mines run by RJB Mining will have to reduce their costs and increase productivity to win orders when the current contracts run out, a senior National Power manager has warned.

Keith McNair, director of fuel management at the biggest of the privatised generators, said the owners of the newly privatised industry were managing the transition to a privately run industry well, but that they could not afford to be complacent with the current guaranteed contracts ending in 1998.

He also said that National Power has negotiated to buy coal from the US, because exchange rates meant dollar-denominated coal was cheap, and also because a mild winter had left US-produced coal with no market. This coal is used to top up its needs, and is additional to that it is contracted to buy from RJB. He added that American coal was of equal or better specification. "If the price is not right, other fuel sources will replace UK coal," he said.

Mr McNair, a Canadian with a reputation for straight-speaking, was talking at a meeting of the Institute of Mining Engineers in Pontefract. The fact that a report of his speech was sent to newspapers - apparently by sources in the coal industry - has infuriated National Power, which is publishing its interim results this week and is keen to avoid publicity.

A spokesman insisted the speech did not contain "anything that Mr McNair has not been saying for years". He strongly denied suggestions that it was an attempt by National Power to apply pressure in advance of negotiations on new coal contracts.

RJB Mining, which took over all the deep mines in England, has a guaranteed market for 28 million tonnes a year, at a set price, until March 1998. It is at the centre of controversy both over the price it paid for the mines, which some observers regard as too high, and over the past business dealings of its chairman, Richard Budge.

Although it should generate enough earnings to pay off its bank debt by 1998, its long-term success depends on it being able to compete internation- ally. When RJB was bidding for the pits, it based its figures on a cost of ?1.25 per gigajoule. Industry sources say US coal can be bought at a cost equivalent to ?1.10 per gigajoule or less.

It is understood that National Power has already invited bids to supply between 6 million and 8 million tonnes of coal between 1998 and 2000, as part of its policy of offering rolling contracts, rather than negotiating the whole deal in one go.