KPMG Plans to Sell Powerfuel's Coal, Carbon Capture Businesses by March

KPMG International, administrator for Powerfuel Plc, said it may sell the mining and power businesses within three months.

“We’ll run a normal sale of the business to get the best price,” Richard Fleming, U.K. head of restructuring at KPMG, said in a phone interview from London. “The existing shareholders may make an offer on the businesses and we’d take the best offer,” Fleming said.

Powerfuel is owned by Chief Executive Officer Richard Budge and former Russian billionaire Mikhail Abyzov, according to a company presentation last month. The company “has too much debt,” Fleming said. Assets include a coal mine and a project to build a power station in northern England that captures carbon-dioxide from gasified-coal and buries it underground for storage, according to information on its website.

The coal mine needs about 30 million pounds ($47 million) to raise production, KPMG said in a statement. The company has permission to build a power station at the site and won 180 million euros ($239 million) of European Union funding to demonstrate the capturing and storage of CO2. Powerfuel is 653 million pounds short of the investment needed to develop the CCS project, according to KPMG. The funding will be available if new owners can raise the additional investment needed for the project, Fleming said.

Fund Demonstration

Britain’s coalition government adopted a former Labour plan to fund the first demonstration to capture carbon emissions and pipe them underground for storage in depleted North Sea gas fields on a commercial scale. They also promised subsidies to three other so-called CCS projects via a levy on electricity bills. CCS has already been tested on a small scale.

Powerfuel’s CCS plans are “one of the more progressed projects in Europe,” said Kieron Stopforth, a CCS analyst for Bloomberg New Energy Finance in London. The project may apply for additional EU funding from the sale of carbon permits, he said. They may also benefit from the U.K.’s subsidy plans. “If they secure funding from these incentives they should have little difficulty bridging the funding gap.”

U.K. baseload power for the six months through September 2011 has risen 8.8 percent this year to 46.80 pounds a megawatt- hour. The government has said it plans to consult on a way to tax consumers of electricity from high-emitting sources to help make investments in low-carbon technologies more attractive. CO2 is one of the greenhouse gasses blamed for global warming.

“It’s a very high risk for a developer to take that construction risk given current power prices and uncertainty over the levels of subsidy,” Meg Brown, a London-based analyst at Citigroup Inc., said by telephone. A power price of about 160 euros a megawatt would be needed to make CCS viable on a new power station, she said.

Powerfuel’s Budge couldn’t immediately be reached by Bloomberg News. The company “is working with administrators to ensure the best possible outcome,” Michael Turner, a London- based spokesman for Powerfuel, said by telephone yesterday.

To contact the reporter on this story: Catherine Airlie at cairlie@bloomberg.net

To contact the editor responsible for this story: Stephen Voss on sev@bloomberg.net

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