SCOTLAND'S two electricity generators are close to signing a new five-year supply agreement with Scottish Coal that would allow the company to develop new reserves at its Castlebridge deep mine in Fife, industry sources said yesterday.

But the prices under discussion are about 20% lower than those paid by ScottishPower and Scottish Hydro-Electric at present.

So Scottish Coal may be forced to implement drastic cuts in the mine's 700 workforce in order to reduce costs.

The trade magazine Coal UK recently reported that up to 200 jobs there were under threat.

ScottishPower and Hydro- Electric are separately negotiating new supply agreements with Scottish Coal which are due to run from April 1, 1998.

But the coal price will be gradually reduced over the life of the new five-year contracts so as to provide Scottish Coal with more revenue at the front end.

This pricing structure is designed to help Scottish Coal finance the development of new coal reserves at Castlebridge.

The faces being worked at the mine, which is situated next to the Longannet power station on the north bank of the Firth of Forth, will be exhausted in about three years time.

So Scottish Coal wants to develop its Airth-Kincardine reserves at an estimated cost of #15m to #20m. These should last until 2020, when Longannet power station will be due for replacement.

The industry sources said a final agreement could be only a few week away, but all parties involved in the negotiations remain tightlipped.

A spokesman for Scottish Coal said only: ''The talks are ongoing and Scottish Coal is hopeful of a successful outcome.''

ScottishPower, which operates both Longannet power station in Fife and the older Cockenzie coal-fired power station in East Lothian, was similarly reticent.

''Negotiations are at an advanced stage,'' a spokesman for the Glasgow-based multi-utility said. ''We cannot make any comment at this stage.''

Scottish Hydro Electric, which has the right to buy up to a sixth of the electricity produced by Longannet and Cockenzie, said it would meet Scottish Coal for further talks next Thursday. The Perth-based electricity company buys its own coal to burn at the two plants.

Both generators want to reduce the price paid to Scottish Coal from #1.50 per gigajoule to somewhere nearer the market price of #1.22 per gigajoule. That equates to a reduction from #36 per tonne to less than #30.

Scottish Coal will undoubtedly see its profit margins trimmed, but both sides have good reasons to strike a deal.

Scottish Coal will secure a revenue stream to fund the development of new reserves at its biggest mine.

And the generators will secure a reliable source of high quality coal with no transport charges attached.

Geological problems have forced Castlebridge to cut back production over the past year, but working at full capacity the mine can provide ScottishPower with three-quarters of the 2.8 million tonnes of coal it burns each year.