China Shenhua Energy takes on parent group's new coal, power assets

Listed coal giant to absorb parent company's newly acquired projects from State Grid

PUBLISHED : Tuesday, 28 August, 2012, 12:00am
UPDATED : Tuesday, 28 August, 2012, 3:38am

China Shenhua Energy, the listed unit of the nation's biggest coal producer, the Shenhua Group, plans to buy a coal-to-liquid fuel and chemicals project, coal mines, and coal and power assets recently acquired by its parent from the State Grid Corp of China.

China Shenhua was close to finishing due diligence on its parent's wholly owned Inner Mongolian production facilities that turn coal into liquid fuel and chemicals, as well as on Shaanxi Shenyan Coal, in which its parent had a controlling stake, China Shenhua president Ling Wen said.

An asset transfer proposal was first unveiled on May 23, when China Shenhua said the coal-to-fuel and chemicals plant and coal mines had a combined equity value of 225.8 billion yuan (HK$276.31 billion), less than 7 per cent of the equity value of China Shenhua at the end of last year. Their combined net profit was less than 4 per cent of the company's profit of 45.6 billion yuan last year.

China Shenhua chairman Zhang Xiwu said the coal to fuel and chemicals operation produced 248,000 tonnes of diesel, 235,000 tonnes of naphtha and 53,000 tonnes of liquefied petroleum gas in the first half. He said the operation was profitable because of lower feedstock costs. Despite this, the chemicals divisions of oil and gas majors PetroChina and Sinopec both plunged into losses in the first half.

In the first half, Shenhua Group's coal and power assets - excluding those not already part of China Shenhua - recorded total raw coal output of 61.3 million tonnes, and combined power output of 20.8 billion kilowatt-hours, Zhang said.

China Shenhua produced 155.8 million tonnes of processed coal and 95.6 billion kWh of power. The tonnage yield of processed coal is about 6.5 per cent lower than the tonnage of raw coal output.

The Shenhua Group agreed this month to take over State Grid Energy Development from monopoly power distributor State Grid Corporation of China.

Zhang said State Grid Energy had recoverable coal reserves of 33.8 billion tonnes; seven operating coal mines with annual output capacity of 26.6 million tonnes; and 15 operating power plants with total generating capacity of 12.5 gigawatts. China Shenhua had 39.9 GW of generating capacity at the end of June.