10 April 2002

Expiry of Options for Coal Leases and Conditional Licences

In June 2001 the Coal Authority consulted the industry on the expiry of conditional licences and options for coal lease by direct mail and through its website. These licence and option agreements granted to British Coal formed part of the privatisation packages of assets and liabilities bought by the successor companies. These agreements lapse in October 2004.

The Authority received a number of submissions relating to the licence/option agreements both promoting their extension and against it. The Authority has considered these submissions carefully, particularly in relation to its statutory duties, and has formed the conclusion that the agreements will lapse on the expiry date unless of course the licences have become unconditional and the options exercised.

The Authority has formed the view that the successor companies who purchased the assets of British Coal recognised the commercial risks and time scales associated with these licence /lease agreements and they will have had the defined period of ten years to turn the options into coal leases and associated licences. These companies along with other operators will have the opportunity to apply to the Authority for licences and leases at the appropriate time before or after the expiry of the options. It is likely that if a site forms part of the ongoing business plan of a successor company, then that company will have secured surface land interests to protect its future programme. As surface mining cannot take place without securing the surface interests, it is unlikely that competition will take these sites away from the successor companies although new arrangements with the Coal Authority will have to be put in place.

It is clear that other companies in the coal industry would wish to examine the possibility of taking forward some of the sites held under conditional licence and option by the successor companies. The Authority would be failing in its duty to promote competition if it did not allow this to take place. The Coal Authority also has a duty to secure the best terms reasonably available for its coal and the expiry of the options will enable the Authority to secure best terms for the coal in subsequent leases.

Given the above the Authority will not extend the successor companies’ conditional licences and options for coal lease expiring in October 2004. Where an option has been partially exercised then the remaining part of the option and associated conditional licence will expire.

The Authority believes that by making its policy clear at this stage, it is allowing the successor companies sufficient time to consider the value of retaining agreements which do not feature in their forward programme. Equally other operators can develop their own strategy for the future which may take into account new sites released into the market place. It is not the intention of the Authority to advertise these licences and options near their expiry date although the Authority will follow its normal procedures and advertise any new applications for licences and leases. Details of the agreements have always been a matter of public record in the Authority’s statutory register of licences which can be examined at the Authority’s Mines Records Office.

I Wilson

Director of Mining Projects and Property