THE UK Government has opened up a new battlefront over the limits of Scottish autonomy by intervening in the Scottish Coal liquidator's legal fight to abandon clean-up liabilities for disused mines that could cost in excess of £60 million.

Opposing liquidator KPMG are the Scottish Government, the Scottish Environmental Protection Agency, South Lanarkshire Council and East Ayrshire Council.

As both sides prepare for next month's appeal case over the liabilities, Advocate General and former deputy first minister Lord Wallace of Tankerness has sided with KPMG on behalf of the UK Government.

The move comes as the Office of Fair Trading announced on Thursday it would investigate Durham-based Hargreaves Services' recent £8.4m acquisition of some of the assets of Scottish Coal.

With Hargreaves having bought the assets of ATH Resources, another collapsed miner with interests in Scotland a few weeks earlier, it raises the potential for a full investigation by the Competition Commission.

The court battle over the future of Scottish Coal's 11 disused mines in Ayrshire and Lanarkshire, none of which was bought by Hargreaves, follows the collapse of the company in April. This came with the loss of around 650 jobs, but the Hargreaves acquisition has created 300 new ones, with plans to increase that to 500 within a few months.

The Advocate General and KPMG are arguing UK insolvency law trumps the Scottish environmental regulations, meaning liquidators would have the power to abandon environmental clean-up costs after the company with the responsibility for them has gone bust.

Although Scottish Coal did not leave enough money to pay the full liabilities, KPMG estimates the liquidation will leave between £12m and £30m that could either be paid back to top creditor Lloyds or could go towards the restoration.

Lloyds, 39% of which is owned by the taxpayer, is effectively bankrolling KPMG's case to the tune of several million pounds in the hope of recovering a portion of the £45m it was owed by Scottish Coal.

With strong backing from environmentalists, the Scottish Government and its allies are fighting to prevent the restoration costs reverting back to them. They also want to avoid the courts setting a precedent that would let other polluting companies build up liabiities in the knowledge that they can be avoided by going into liquidation.

They lost the first hearing last month when Lord Hodge at the Court of Session in Edinburgh agreed that KPMG could abandon the sites. The appeal stage will take place in Edinburgh before three judges between September 10 and 13, with the potential for a further appeal to the Supreme Court in London thereafter.

One source on the Scottish Government side said: "The liquidator doesn't want to spend any money on the sites. It wants to save every penny for the bank. We need the money to at least deal with the water voids and other health and safety hazards."

The source added: "The implication will be that anyone can set up a company, take the money out, then liquidate and hand back the licence so that it's someone else's problem. It totally undermines the Scottish Controlled Activities Regulations."

KPMG previously confirmed to the court that the total cost of restoring the disused sites is estimated at between £48m and £90m.

Other available monies amount to £27.6m, leaving a potential clean-up bill of £62.4m.

Scottish Coal also left substantial pension liabilities that are understood to take the total outstanding liabilities over £100m.

The Advocate General has a duty to advise the UK Government on matters pertaining to Scots law.

The Sunday Herald understands that although his intervention is significant, his views carry no more weight than any of the other parties.

It is understood he did not take the opportunity to express an opinion at the original hearing. His office was only made aware that the case raised devolution questions shortly before the hearing.

The Advocate General and the Scottish Government both declined to comment.