Rail Freight Traffic

Anne McGuire Excerpts

Wednesday 24th October 2012 Westminster Hall

[Sandra Osborne]

Yes, and some of the companies are not in a position to do that, even if they wanted to.

In 2012, 1,196 people are directly employed in open-cast mining in Scotland and 704 in east Ayrshire, which has the greatest number of coal sites in Scotland and the highest number employed in the industry. It produces more coal than any other area in Scotland and that is worth some £9.4 million to the local community. Following the decline of the deep mining sector and the devastation that followed, decline has set in and has been difficult to shift. The area has had consistently higher than average unemployment rates, population decline and trends of low economic activity and a high percentage of jobs in the public and retail sectors and areas of high relative deprivation. I am sure that the Minister gets the picture, but, if not, he is welcome to come to see for himself. The bottom line is that under no circumstances can we afford to lose the relatively secure, well-paid, private sector employment and input to the local community that the open-cast mines bring.

The consultation includes a range of suggested charge increases, but an increase of £4.50 a tonne is forecast. The consultation states that coal producers could absorb that increase in track charges, but no evidence base is presented to support the assertion and it appears to be just an arbitrary statement. Furthermore, the consultation proposes that the coal and the nuclear industries be singled out to be burdened with the increased track charges. A cynical view would be that the ORR sees those industries as a captive market without the ability to revert to road transport.

[Mrs Anne McGuire (Stirling) (Lab)]

Does my hon. Friend accept that there has been an element of price stability in rail freight charges and that organisations and companies, such as Fergusson Group—one of the major suppliers of coal—in my constituency could not have factored in the massive price hike suggested in the consultation?

[Sandra Osborne]

Yes. The regulator has a duty to ensure that companies can anticipate what the price regime will be, so that they can plan.

Figures from the Department of Energy and Climate Change show that coal production in the UK was 17.9 million tonnes in 2011, and Scotland contributed 33% of that, as a part of supplying the UK’s coal-fed electricity generation needs. There are concerns that the consultation proposals are contrary to certain Government policies and, if implemented, could pose a serious threat to not only the coal industry, but the rail freight industry and, in particular, the viability of Scottish coal mines, as I said. Only a few minutes ago, the Freight Transport Association contacted me with its concerns about the potentially devastating impact on rail freight in Scotland.

Coal is a significant and essential component to electricity generation in the UK. It regularly contributes more than 50% of the electricity produced on a winter day and, quite commonly, 40% on a summer day. Against that background, requirements are also imposed by the large plant combustion directive, the industrial emissions directive and electricity market reform. Notwithstanding that, the key electricity market reform drivers are security of supply, affordability of electricity and decarbonisation.

The proposed increase in track charges will threaten the security of indigenous coal production if we accept that the result of such charges will be to shrink the coal market by 5% to 10%, as identified in the consultation. That would damage the secure industry base of coal-generated electricity capacity, which has been consistent at 40% to 50% of the total generation. Given the much longer haul from the mines in Scotland to the English power stations, the adverse consequences of the track charges will be disproportionately felt in Scotland compared with elsewhere in the UK.

On the affordability of electricity, the consultation assumes that the Scottish coal producers will absorb the increased costs. As previously stated, there is no evidence base for such an assumption, and the coal industry is currently under financial pressure. The additional costs will threaten mine viability, given the inevitable switch to gas by generators, and that will impact on price and the security of supply.

In the conclusion to the report “The impact of changes in access charges on the demand for coal”, the ORR consultants acknowledge the threat to Scottish-produced coal by the long-term impact of increased track charges on the development of future open-cast mines in Scotland. However, those concerns do not appear to have made it to the conclusions of the main consultation report. I can only assume that they believe that the Scottish coal industry and more than 1,000 Scottish jobs are expendable. What form of consultation was carried out by NERA—the ORR consultants—to allow the suggestion that the Scottish coal producers can bear the cost of any changes? The fact is that they cannot and will not absorb those extra costs.

The ORR charging regime could detrimentally affect employment and investment in Scotland’s mining sector and typically in economically deprived areas. Have the Scottish Government and relevant local authorities engaged with ORR to assess the potential effect, and will mitigation plans be drawn up should the proposals be implemented?

Would a 10% reduction—the reduction proposed by ORR for freight traffic—in passenger traffic be considered an acceptable result of increased track charges? If not, has ORR discriminated against the coal industry on the basis that it seems to be content to see a decline in real freight traffic?

Assuming a 5% to 10% reduction in UK coal production, there will be a requirement to increase the amount of coal that is imported, which will increase the carbon footprint in transport and probably increase carbon emissions. The transfer of environmental and social impacts overseas is of concern to the UK Government. The report “Securing the future—UK Government sustainable development strategy” states that environmental policy should encompass impacts outside the UK. It says that

“there would be little value in reducing environmental impacts within the UK if the result were merely to displace those impacts overseas.”

Those impacts would include the transport of raw materials into the UK. It is important that the UK makes the most of its indigenous coal assets and recognises that, apart from the important security of supply issue, a domestic minerals industry is the most sustainable way to supply the market.

In the market analysis section of the consultation, there is an acknowledgement that there could be a substantial reduction—up to 25%—in the demand for rail-hauled coal because

“there is scope for reductions in length of haul”.

As coal can only be mined where it exists, it appears to be a clear policy of the ORR to direct electricity generators to import coal via ports to achieve the shorter haul on rail that it alludes to in its analysis, rather than take indigenous UK coal. Owing to the substantially longer haul distances for Scottish mined coal to the English power stations, the track charge proposal can only be seen as a direct attack on the Scottish coal mines.

Furthermore, generators sourcing their coal from overseas will not be able to pass on any increased track charges to international coal producers. Despite all the crocodile tears that we have heard in the past couple of weeks, the only way in which those extra costs can be recovered is through increasing the price of electricity to the consumer. If there is a need substantially to increase coal imports, there is concern over whether there is enough rail-served deep port capacity to cope with the increase.

Carbon capture and storage projects are due to start in 2014. The proposed increase in track charges could seriously damage the prospects of such projects before they start. That would threaten the ability of the UK to build up its indigenous capacity and to be self-sufficient with respect to energy supply. We all know that carbon capture and storage is the way forward for the coal industry in the longer term.

It is clear from the ORR-commissioned reports that a distance-related charge creates significant market distortion. How is that acceptable in competition terms? The Scottish industry has invested tens of millions over recent years. How could this fundamental change in charging policy by the ORR have been reasonably anticipated, and hence the risk of stranded investments avoided?

Has the ORR constructed an economic impact assessment on how the increase in charge would affect the Scottish mining industry, and how will such a charge affect the rural communities in my constitueny? We have already been thrown to the wolves once before.

The coal industry is heavily dependent on a healthy rail freight sector, and any potential threat to it is also a direct threat to the coal industry. The Rail Freight Group issued its initial response to the consultation in a letter to the chief executive of the ORR on 28 May 2012. I note the RFG’s comment about how the ORR chose to balance its duties and whether undue weight was given to the duty to have regard to the funds available to the Secretary of State, perhaps at the expense of the duty to promote the use of the railway for rail traffic, and the duty to enable companies to plan their businesses with reasonable assurance. That concern seems to be backed up with the apparent acceptance by the ORR within the consultation document that a 10% drop in coal-rail traffic as a result of increased track charges is acceptable, without any analysis of the potential impact on the rail freight industry or on the coal industry as an end user.

In a letter to me on 1 October, the Minister stated:

“the Government wishes to facilitate the continuing development of a competitive, efficient and dynamic private sector rail freight industry. We are committed to ensuring that policies and regulations should work to this end and should not create unnecessary transactional costs or other obstacles to the achievement of these objectives and future growth. In an industry where planning and operational decision-making are increasingly devolved, we would wish ORR to have regard to the importance of sustaining efficient and commercially predictable network-wide freight operations when they take decisions about access rights and charging structure.”

Although that may not have been the unequivocal response that I would have liked, it did raise my hopes that the Minister understood what the impact of these proposals would be if they were put into practice.

All my comments show that the consultation has been blinkered. It has not considered the wider strategic effect if the suggested track charges are implemented. The proposed track charge increase appears arbitrary and not supported by any evidence base, as is the comment that the coal industry would be able to absorb such costs. That leads on to the unacceptable conclusion that there will be a reduction of 5% to 10% in coal transport by rail, which is an odd position for the ORR to support, bearing in mind that it has a duty to promote rail use.

If those charges are implemented, they will affect the viability of the UK coal industry, especially in Scotland, with the resultant increase in imports and carbon footprint and loss of employment. The practical effect of the proposals is a direct attack on the coal industry in Scotland and the likely withholding of further investment in the industry. The proposal would also seem to be contrary to other Government policies of indigenous energy generation, security and affordability of supply, employment and sustainable development.

I hope that the Government will agree that the most appropriate way forward is the maintenance of the status quo in respect of the current charging regime. I look forward to the Minister’s response, and I apologise again for my slightly difficult throat.