Bye-Bye Coal: Germany's Mining Industry Counts its Days

AP

The legislation foresees €2 billion in compensation for miners

"This is a historic day in the history of Germany's industry," said Jürgen Rüttgers, governor of the western state of North-Rhine Westphalia, following the agreement by Chancellor Angela Merkel's cabinet on the gradual phase-out of coal subsidies.

German Economics Minister Michael Glos of the conservative Christian Social Union greeted the decision, saying it was "clear that coal no longer had a future."

Though the basics of the plan were agreed on in February, Social and Christian Democratic ministers wrangled over the final wording of the legislation, which will now head to the lower and upper houses of parliament for expected approval in the coming months. The legislation is necessary in order to structure compensation payments to the industry's 34,000 workers, as well as to address the lasting social and environmental effects of coal mining in the country.

A Soft Landing for Miners

The law foresees Germany's federal and state governments subsidizing the coal sector with an estimated €21.6 billion ($29.7 billion) until 2018. The agreement also clears the way for the creation of a foundation for the coal conglomerate RAG. The RAG foundation will manage the money for Germany's eight remaining coal mines and the sector's employees until 2018. In addition, it paves the way for RAG to float shares on the stock exchange next year.

Germany's Social Democratic Party, which has coal miners in part to thank for its creation in the 19th century, managed to wrangle into the agreement a clause which will call for a review of the plan in 2012. Social Democrats said the clause would safeguard both the mining industry and Germany in the case of plummeting energy reserves, higher costs for competing energies or an unexpected market turnaround.

"We're taking that seriously," said Labor Minister Franz Müntefering. "A review means a re-examination, a serious re-examination."

As it stands, Germany's coal miners will be able to end their careers gradually. State and federal governments will provide €2 billion as compensation to miners who will lose their jobs when the mines -- seven in North Rhine-Westphalia and one in the state of Saarland -- close in the coming years. A timeline for closure is expected in the coming months.

A New Company is Born

"It's a decision of historic consequence," said Hubertus Schmoldt, president of the Mining, Chemical and Energy Industrial Union, which worked on the agreement.

The immediate winner is clearly RAG, a consortium in which steel giant ThyssenKrupp, Arcelor as well as energy companies E.On and RWE are involved. The three companies will transfer their shares in RAG to a newly created foundation.

RAG's non-mining activities, such as power stations, real estate and chemicals production will be floated on the stock exchange in early 2008, and the company will be renamed. The expected €5 billion from the initial public offering will go to phasing out coal operations and mitigating the continuing environmental costs coal mining has meted out on the region. The companies non-coal divisions are largely profitable.