UK Coal's long-anticipated entry into administration hits pension scheme

Pension Protection Fund, the government-sponsored pensions lifeboat scheme, takes over responsibility for partially honouring pension promises

The retirement savings of 7,000 past and present mine workers at UK Coal, Britain's largest coal mining business, took a hit on Tuesday as the pit operating group responsible for repairing the pension scheme's deficit of at least £450m sank into a long-anticipated administration.

But in a complex deal between the government, the Pension Protection Fund (PPF) and two sets of administrators, some 2,000 jobs have been saved, largely at two of the mining group's three deep pits.

The third pit, Daw Mill, the site of a devastating fire in February, is to be permanently closed, the company confirmed, with 350 workers made redundant. Before the fire, a restructuring deal at Daw Mill had been expected to generate £100m in cashflows by the middle of next year for the group's struggling pension scheme.

Despite years of financial woes, UK Coal still generates 6% of the nation's electricity by supplying Drax in North Yorkshire and three other power stations in Nottingham shire. Accounting for more than half the coal mined in the UK, the mines are still seen by many in Westminster as fulfilling an important role in near-term energy security requirements for Britain.

One source involved in the restructuring said the company had been "overwhelmed at how helpful government had been at every turn". However, early plans to involve the Shareholder Executive investment quango in a rescue of UK Coal were ultimately ditched. The quango is already responsible for taxpayer holdings in such businesses as Royal Mail, Channel 4, Eurostar and the Royal Mint.

Meanwhile, the PPF, the government-sponsored pensions lifeboat scheme, has taken over responsibility for partially honouring the pension promises made by UK Coal before its demise.

After taking into account the value of brownfield development land, the likely hit to the PPF is estimated to be between £450m and £500m, according to independent pensions expert John Ralfe. That makes it the biggest ever deficit taken on by the lifeboat scheme, more than the £333m hit from the UK administration of telecoms equipment maker Nortel in 2009.

A coalface at Daw Mill, a UK Coal owned pit that suffered a devastating fire in February and is to be closed, with 350 workers made redundantUK Coal pension scheme members who have not yet reached retirement will now have 10% wiped off the retirement value of the pension they have accrued. Meanwhile, weak inflation protection within the PPF means all scheme members can expect to see the value of their retirement savings further eroded over time.

In a highly unusual arrangement, the continuing operations of UK Coal will rapidly pass through the hands of administrators, re-emerging under a new company called UK Coal Production.

Although the new business will not technically be owned by the PPF, administrators from Price water house Coopers said the lifeboat scheme would "retain economic benefit through substitute debt instruments". The size and maturity of these new obligations are not disclosed.

Among the assets in the UK Coal pension schemes – inherited now by the PPF – is a 75% interest in Harworth Estates, which owns brownfield land previously used for mining operations. The minority interest is held by stock market listed company, Coalfield Resources. This was, until a complex restructuring deal last year, an enlarged operation encompassing the mining operations of UK Coal as well as these property interests. At that time it went by the name UK Coal.

Article Source : http://www.guardian.co.uk

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UK's largest coal producer 'seeks voluntary liquidation'

Up to 2,000 jobs at risk after UK Coal Operations hit by £300m losses and 'disastrous' Daw Mill mine fire

Britain's largest coal miner, UK Coal, is fighting for survival as it grapples with the consequences of the devastating fire that closed its biggest colliery.

The firm refused to deny reports that it is seeking voluntary liquidation, which would allow parts of the business to continue trading, in order to avoid enforced liquidation and a full shutdown. Following the blaze at the Daw Mill colliery in March the company lost £100m of equipment, £160m of coal and ran up £35m in costs, making further restructuring inevitable.

 UK Coal said this week that it is holding talks "with a wide range of interested parties" over the future of its last two deep mines – Kellingsley in North Yorkshire and Thoresby in Nottinghamshire – as well as six open-cast mines in north and central England. The company produced 7.3m tonnes of coal in 2011, helping generate 5% of the UK's electricity.

Kevin McCullough, chief executive of UK Coal Mine Holdings, said: "Our main focus has been on preserving 2,000 jobs and securing the future of UK coal mining. Our remaining mines have been performing well since the fire at Daw Mill and we continue to work closely with our employees, government, pension funds, the Pensions Regulator, suppliers and customers. We remain positive that we have an underlying profitable business."

"There will undoubtedly be some difficult decisions as we have had to look at all possible options, but there is a good business here with 2,000 families depending on our workforce and I am confident we will be able to announce more news in the coming days." Company spokesmen did not respond to further questions.

The company announced the closure of Daw Mill in north Warwickshire with the loss of 650 jobs in March after the worst coal-mining fire in 30 years.

The fire was the latest blow to the industry following Hargreaves Services's decision last year to mothball the Maltby mine near Rotherham with the loss of 500 jobs.

Voluntary liquidation would allow a subsidiary to run the firm's surviving mines but could pass on the company's £540m pension deficit to the UK Pension Protection Fund, which would force losses on some of the company's 6,800 savers. If UK Coal fell into insolvency the workforce could see 10% of the value wiped off their pensions. The Pension Protection Fund pays 90% of a pension's value to workers yet to reach retirement age, but usually pays out 100% to existing retirees and those with long-term health problems.

UK Coal has been grappling with its pension deficit for years and recently spun off its less-risky property business, Harworth Estates, to help solve the problem in a move that won the approval of the Pensions Regulator.

"At £540m this would be one of the very largest hits for the PPF, since it opened in 2006," said John Ralfe, an independent pensions consultant. "This would wipe out half [PPF's] surplus." The PPF reported reserves of £1.06bn in 2012. "Last year's convoluted restructuring, approved by the Pensions Regulator, only managed to paper over the cracks. The devastating pit fire has brought things to a head very quickly, but with UK Coal's pension problems things were never going to end well."

A spokeswoman at the Pension Protection Fund said it was monitoring ongoing developments and liaising with other parties including the pension scheme and the Pensions Regulator.

Chris Kitchen, secretary of the National Union of Mineworkers, said it was disappointed that the government had not done more to help UK Coal, following a promise from former energy minister John Hayes in March that "the government will do all it can ... to protect the interests of [the Daw Mill] workers".

The NUM wants the government to grant closure aid to Daw Mill, which would allow mine workers to keep an enhanced redundancy package worth £12,000 more than the statutory minimum. "The minister made a statement that they wanted to help. There is a route that is open to them. But it involves the government spending money."

A spokesman at the Department for Energy and Climate Change said the government was helping Daw Mill workers find jobs through "full mobilisation of a job centre rapid response process".

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Article source : http://www.guardian.co.uk