Mergers, acquisitions facilitate Shanxi's coal capacity cutbacks

Shanxi province, China's major coal-producing region, plans to phase out all small coal mines with an annual production capacity of less than 600,000 metric tons by the end of 2020, according to the local authorities.

The coal mines will be required to carry out mergers and acquisitions (M&A) to increase efficiency in the sector. Coal mines with capacity reaching or exceeding 600,000 tons are also encouraged to reduce overall capacity through M&As, said the guideline published on the provincial government's official website.

After the M&A activities, each of all coal mining enterprises in the province should have an annual capacity of more than 3 million tons by the end of 2020, according to the guideline.

There were 615 coal mines in operation in Shanxi at the end of 2017, 35 of which produce less than 600,000 tons of coal a year, according to data from the Coal Industry Department of Shanxi.

China's coal production increased 3.2 percent year-on-year to 3.45 billion tons in 2017, according to the National Bureau of Statistics. Shanxi produced 875 million tons of coal last year, accounting for about a quarter of the country's total coal output.

Compared with closing small coal mines, mergers between adjacent coal mines or mines with similar coal types significantly lower costs required to finance layoffs, said Wu Lixin, deputy director of the strategic planning research department at the China Coal Research Institute.

The move is in line with statements issued by the State Council, China's cabinet, last September to support the province in further deepening reform and transforming its resource-based economy, as well as to bolster the country's continuing efforts to streamline its coal sector, Wu said.

The province will cut its coal capacity by 23 million tons this year, Shanxi Evening News reported, citing an official from the province's land and resource department.

Shanxi has canceled 56 coal mining licenses in the past five years, cutting its coal capacity by 51 million tons in each of those years, said Zhou Jianchun, head of the Shanxi Land and Resources Department.

"The province is also actively exploring new energy sources, such as coalbed methane, with proven reserves reaching 578.4 billion cubic meters, accounting for 88 percent of the country's total," Zhou said.

The resource-rich province plans to increase its proven reserves of coalbed methane to more than a trillion cu m, and to raise annual output to 20 billion cu m by 2020, according to Zhou.

China's centrally administered State-owned enterprises are expected to slash coal capacity by more than 10 million tons this year, focusing on industrial restructuring and upgrading, Shen Ying, chief accountant of the State-Owned Assets Supervision and Administration Commission told a recent news conference.

Gao Boyang and Ma Shenxun contributed to the story.