Germany battles to end state aid for coal

By Andrew McCathie Jan 15, 2007, 12:50 GMT

Berlin - German Chancellor Angela Merkel's ruling coalition is battling to hammer out an agreement on the future of the nation's heavily-subsidised coal industry with senior officials now hoping to draw up a plan by the end of the month.

After struggling to find a compromise on Merkel's controversial health reforms, the government was forced to delay until later this month talks aimed at laying out a timetable for ending state aid to the hard coal sector, which currently amounts to about 2.5 billion euros a year (3.2 billion dollars).

But despite facing European Union pressure to cut state support for coal, the prospects of the two parties comprising Merkel's so- called grand coalition government reaching a consensus appears nowhere in sight.

The delay in forging an accord about the future of the nation's last 8 mines has also raised doubts about this year's planned stock market listing by German mining group RAG AG.

The Essen-based company is in favour of ending coal as an energy source and said it has earmarked the 5.5 billion euros which it expects to be raised by its stock market debut for renewing areas damaged by coal mining.

'I am extremely worried,' said Juergen Ruettgers, premier of Germany's biggest state North-Rhine Westphalia where RAG is based and which is home to the bulk of the country's coal mining industry.

'We need a speedy decision over the RAG listing to help guarantee jobs at the company,' he said.

While Merkel's conservative political bloc has set 2018 as a deadline for ending the subsidies, the Social Democrat (SDP) members of her government want any final decision on future support for the industry to be delayed until 2012.

Even then, the SPD has rejected a complete shutting down of the industry and wants to retain a core coal industry, which played a leading role in helping to forge Germany's post-Second World War economic miracle.

But the future of the coal industry is a particularly sensitive issue for SPD, whose political heartland is centred in the coal and industry belt of Germany's Ruhr Valley.

Ending state aid for the EU's coal industry has considerable social implications for the 25-member bloc's coal producing states.

Apart from the 80,000 jobs dependent on coal mining, the drive to reach a compromise on the industry's future in Germany comes against the backdrop of a growing dilemma in the nation about its overall energy needs.

This is particularly the case following Berlin's decision to phase out of atomic energy by 2021.

Unlike the bruising battle with the unions in Britain in the 1980's over shutting a large part of coal mining, Germany has pursued a more consensus approach over the last decade or more to winding back the industry and retraining employees.

But then, the economics behind the German coal mining would not seem to be working in the industry's favour.

While the price for a tonne of coal on the world market is currently about 60 euros, the cost of wrenching one tonne out of Germany's mines, which are carved into the deep earth, is about 190 euros a tonne.

Adding to the pressure to reach a decision is the Merkel government's plan to consolidate Germany's public finances to ensure the country budget deficit remains within the strict fiscal targets laid down for euro member states.

Besides the increasing worries about climate change, Germany's growing energy debate has also been shaped by last year's surge in oil prices along with increasing concerns about the security of supplies in the wake of last year's so-called gas war.

This is especially the case following Russia's Gazprom's fight with Eastern Europe over energy contracts.

Combined with this, the recent rise in German gas prices has alarmed consumers and as a result helped to make greater dependence on gas politically unacceptable in the nation as well other parts of Europe.

Indeed, the question for Germany's political and business leaders as they grapple with the future of coal is what will replace the around 20 per cent gap in the nation's energy mix that will emerge once the nation has dismantled its nuclear energy apparatus around the end of the next decade.

Generous government subsides might have also helped to turn Germany into a world leader in the use of alternative energy sources, even officials in Berlin remain sceptical as to whether renewable energy will have the potential to power the nation's heavy industry in the near future.