EMBATTLED miner UK Coal is considering dumping some or all of its £875m pension burden into the taxpayer-backed Pension Protection Fund as it struggles to balance huge debts, the Yorkshire Post understands.
The Doncaster-based coal miner is drawing up a deep restructuring in a bid to reduce its unsustainable retirement obligations and debt. It has warned the restructuring is the only way to create a sustainable future for its mines.
UK Coal’s pension schemes’ liabilities had ballooned to £875m by the end of 2011. Their deficit was up to £430m from about £250m in 2009. It is believed the company is considering asking the PPF to take on some or all of its retirement obligations. However, a decision rests with its schemes’ trustees and The Pensions Regulator.
The PPF and the schemes’ trustees declined to comment. A spokesman for The Pensions Regulator said: “We are aware of the issues associated with the company and the scheme”, but refused to comment further.
UK Coal said in April it plans to offer a minority equity stake in the mining business, plus future property earnings, in return for a reduction in the pension schemes, as well as other liabilities.
Its restructuring also involves isolating risk at each of its three deep mines, and splitting mining and land interests. The property company would take on its bank debt, and could issue shares to raise funds.
UK Coal operates two main pension schemes: the Industry-Wide Coal Staff Superannuation Scheme and the Industry-Wide Mineworkers Pension Scheme.
The schemes have around 9,600 members. Some 1,657 are active members, 3,681 are deferred and 4,303 are claiming pensioners.
UK Coal is also putting its plans to its banks Lloyds and Barclays, shareholders, customers, the Department of Energy and Climate Change and the Coal Authority. A final decision on the restructuring is not believed to be imminent.
Should UK Coal turn to the PPF it could represent one of the biggest bailouts by the fund, which was set up by the government in 2005 as a safety net for pensioners of failed companies.
Among the biggest schemes deposited with the PPF belonged to failed retailer Woolworths and collapsed car-maker MG Rover. Woolworths’ scheme has 10,231 members and the MG Rover’s has 6,000 members. The PPF’s total liabilities last year were £13.4bn, with a £678m surplus.
As well as its heavy retirement obligations, UK Coal has been weighed down by tough geology and rising staff costs. It has already warned it may have to close Daw Mill deep mine in the West Midlands. The falling coal price is also adding to the company’s plight.
UK Coal declined to comment on possible recourse to the PPF.
In a statement, the company said: “UK Coal believes a restructuring is the only practicable way to create a long-term and sustainable structure for the group and recognises that this will require significant co-operation and support from all of those with an economic interest in the group.
“The company’s proposals involve a substantial reduction of the pension, and other, liabilities of UK Coal.”
The group could also face questions at its annual shareholder meeting on Friday after advisory consultancy PIRC raised concerns around chairman Jonson Cox’s pay and benefits package, plus the independence of a non-executive director.