Up to 10,000 jobs to go?

UK Coal, the UK's biggest coal producer, is threatening to challenge BHP Billiton's bid for the Drax power station after suggesting it would lead to thousands of job losses, according to reports.

Yorkshire-based Drax, Europe's biggest coal-fired power station, has been the centre of intense bid talk since its US owner, AES, abandoned plans to restructure its �1.3bn ($2bn) debt earlier this month after failing to reach a deal with creditors.

Mining-giant BHP Billiton entered the race last week with the highest bid so far for the station's debt, thereby gaining effective control of the station. It also offered to supply Drax with coal for the next 15 years.

But Drax is currently the largest customer of UK Coal, which warned in the Observer newspaper that a deal with BHP Billiton would have "serious implications" for the UK mining industry.

Cheap imports

According to the newspaper, UK Coal has suggested as many as 10,000 jobs could be lost as a result of the deal.

Drax uses 8million tonnes of coal a year, the majority of which comes from UK Coal's mines.

Drax was knocked by falling wholesale electricity prices

But BHP Billiton plans to bring in its coal from cheap open-cast mines in Western Australia and South Africa, said the Observer.

"The British mining industry employs about 3,500 people directly producing coal for Drax, and at least 6,000 people supplying services and machinery for these mines," a spokesman told the newspaper.

Reports also suggested UK Coal would consider legal action to block the deal if it was excluded from the chance to supply coal to Drax.

"We would certainly go to the Office of Fair Trading and I think there would probably be a case in Europe as well, " chief executive Gordon McPhie told The Sunday Times newspaper.

Earlier this month, UK Coal said it had asked for government aid to help safeguard jobs, a year after shutting its biggest plant, Selby, and cutting 2,100 posts.

Bid war

BHP Billiton is hoping its bid will trump rivals offers from International Power and Goldman Sachs.

The two earlier bids were due to lapse on Friday, but the deadlines have now been extended after the plant's owner asked for more time to consider the offers.

The plant was hit by a slump in wholesale electricity prices, and plunged into crisis last year when its biggest customer, electricity supplier TXU, was put into administration and failed to pay a �50m bill.

The bids for Drax take the form of complex offers to buy out portions of the plant's debt.

BHP Billiton's offer, worth an estimated �95m, would see holders of Drax's A-2 debt get 70p in the pound.

International Power is offering 65p in the pound for A-2 debt and 55p in the pound for B debt.

Goldman Sachs is offering 64p in the pound for A-2 debt and 50p in the pound for B debt.

Both the bids from BHP Billiton and International Power now lapse on 29 August, while the Goldman Sachs offer lapses on 27 August.