BHP Billiton targets UK coal deals

ANGLO-AUSTRALIAN mining giant BHP Billiton has admitted it has its sights on lucrative coal-supply contracts as part of its likely bid for Britain's giant Drax power station.

BHP's ambition is a major threat to UK Coal which earns about one-third of its annual revenues from Drax, Europe's largest coal-fired station, using £250m worth of coal each year. UK Coal would face enormous difficulty in competing with low-cost Australian coal.

The Yorkshire station went on the block last month after owner, US operator AES, walked away having failed to agree a restructuring deal with creditors.

Reports over the weekend said BHP will bid for an equity stake in the plant later this week. But the Melbourne-based company, headed by chief executive Chip Goodyear, today refused to confirm those rumours.

A BHP spokeswoman said: 'We are interested in selling coal to Drax and we are interested in them on that basis.'

Discussions on a coal-supply deal first took place several months ago before AES lost interest.

Although BHP has no experience in the power industry, Australian analysts believe the company could join with a power industry player in a bid for Drax, largely as a way of securing the station's coal contract.

Coal is Australia's biggest export but exporters are under pressure to find new markets through a combination of the current low price and the recent surge in the Australian dollar, which is cutting margins.

Exporters are also facing new competition from China in traditional Asian markets.

If BHP Billiton wants to go in for Drax, however, it will have to move quickly. Listed group International Power and Goldman Sachs have given creditors of the 4,000 megawatt Yorkshire facility until this Friday to enter exclusive talks with one bidder.

Goldman has offered to buy 21% of the power station's £1.3bn debt for £130m. International Power has offered £80m for a 36% stake and 15% of the debt.

AES paid £1.87bn for the station in 1999 but Drax lost its most lucrative sales contract late last year with the insolvent utility TXU Europe. A slump in wholesale power prices has also had an impact.