China Coal expands into power generation
China Coal Energy, the listed unit of the nation's second-largest coal producer, has formed a joint venture with customer China Power International Development (CPID) in Shanxi province, in its first investment in a large coal-fired power project.
It is the latest in a string of investments by mainland state-backed coal miners into power projects, reflecting producers' confidence in power generation. The sector has had low profitability due to state control on power prices amid high inflation and rising coal costs.
The two companies have agreed to set up China Power Shentou Power Generating, a joint venture with 4.98 billion yuan (HK$6.08 billion) of investment. The new entity will be 80 per cent owned by CPID and 20 per cent by China Coal, a unit of China National Coal Group.
'This is part of our downstream expansion into power generation, which is our newest business segment in addition to coal chemicals production and coal mining equipment manufacturing,' said Zhou Dongzhou, China Coal's company secretary.
The joint venture will buy the 1,200-megawatt Shentou coal-fired project, due to open in 2013. The plant will replace small and outdated facilities to be demolished under Beijing's policy to cut emissions and improve energy efficiency.
CPID last June sold a 42 per cent stake in a power plant in Hubei and a 25 per cent stake in another one in Anhui to Huainan Mining - one of the CPID's major coal suppliers - for a total of 744 million yuan.
Both deals were accompanied by agreements by CPID's investment partners to supply coal at favourable prices to the power projects, it said.
'As the coal suppliers have stakes in our power plants, it is also in their interest to ensure the plants have sufficient coal and [are] procured at good prices,' said CPID spokesman Shou Rufeng.
Zhang Xiwu, chairman of China Coal's rival, China Shenhua Energy, said in August that the firm was in talks with several investors looking to back power plants, which may help hedge the risk of lower coal prices.
This year, China Shenhua, a unit of the country's largest coal producer, Shenhua Group, bought stakes in several power projects in Henan province and the Yangtze River Delta.
China National Coal's output, in tonnes, last year - an increase of 22.9 per cent from the previous year