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Guodian will dig deeper into coal

By Wan Zhihong (China Daily)
Updated: 2008-05-08 09:25

China Guodian Corp (Guodian), one of the five leading power producers in the country, will expand its main business into coal mine development.

Apart from power and heat production and supply, Guodian can also take part in coal mine development, said a statement of the State-owned Assets Supervision and Administration Commission (SASAC).

The SASAC also approved two other big State-owned companies, COFCO and Poly Group, to cover other business areas such as energy and mining resources.

Analysts said the move will make Guodian's business more diversified and increase the company's competence, especially in the face of high coal costs.

"With more coal resources in hand, Guodian can offset the increasing cost for the raw material to some extent," said Liang Dunshi of China Coal Transport and Distribution Association.

Guodian has some coal mine assets and has started coal business in regions like Shanxi and Inner Mongolia, a Guodian source told China Daily yesterday.

Like Guodian, other domestic power producers have all begun to make forays into coal. China Huaneng Group, the country's largest power company, plans to increase its annual coal production capacity to 60 million tons by 2010.

Zou Yiqiao with the State Electricity Regulatory Commission (SERC), last month said Chinese power companies must buy coal and transport assets to ensure their fuel supply.

Coal prices for power generation have risen 10 percent this year, putting power companies under huge pressure, said Zou. By April, the country's five major power producers signed less than 50 percent of the term contracts with coal suppliers they need for this year, he said.

According to the SERC, the country's electricity regulatory body, rise in coal prices will result in an additional 30 billion yuan ($4.29 billion) in fuel costs for Chinese power companies.

In the first quarter, five big power companies - Huaneng, Datang, Guodian, Huadian and China Power Investment - all saw losses in their power production business.

Although Huaneng saw an overall profit of 150 million yuan in the first quarter, the company's power production business lost 80 million yuan, a source with the company told China Daily yesterday.

Reeling from high coal costs, these power companies have urged the government to raise electricity prices. In 2004, the government introduced a mechanism that tied power tariffs to coal price. If the coal price rises by more than 5 percent over a six-month period, power tariffs will be raised, going by the mechanism.