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  • Dec 18, 2014
  • Updated: 5:25am
BusinessChina Business
RAILWAYS

On the right track to railway reform

China Shenhua Energy's plans to invest more than 10 billion yuan in coal rail projects is a sign the rail sector is being liberalised

PUBLISHED : Monday, 03 September, 2012, 12:00am
UPDATED : Monday, 03 September, 2012, 3:30am

In a sign of further reforms in the country's rail sector, China Shenhua Energy hopes to invest more than 10 billion yuan (HK$12.23 billion) in coal rail projects.

Shenhua, the Hong Kong- and Shanghai-listed unit of Shenhua Group, the mainland's biggest coal producer, was in talks with the Ministry of Railways to invest in new rail projects, said Zhang Xiwu, chairman of the state-controlled firm. "The ministry is liberalising private investment in rail projects," he said.

The company had already invested in the Jitong railway in Inner Mongolia, Zhang said. He said Shenhua had a plan to increase its coal railway network from 1,600 kilometres at present to 3,170 killometres by 2015.

Jefferies analyst Julian Bu said: "The railways ministry has almost 100 per cent control of rail projects. Because the ministry is heavily in debt, the trend is that over time China will liberalise this sector. The ministry is being forced to relinquish part of its control over rail projects."

The ministry suffered an after-tax loss of 8.8 billion yuan in the first half of the year as it struggled to cope with rising operating costs and mounting debts, financial magazine Caijing said in a report on its website, citing official figures.

The ministry's debt-to-assets ratio climbed to 61 per cent at the end of June, it said.

On July 30, a State Council meeting called for major infrastructure projects to draw private investment in railways, urban development, energy, telecommunications, finance, health care and education.

On August 16, another Hong Kong-listed coal company, China Coal Energy, announced it had formed a joint venture with the ministry and 14 other investors to invest in and build a 1,837 kilometre coal railway from Inner Mongolia to central China, with an investment budget of 154 billion yuan. An HSBC report called this "a new direction in railway development funding".

"It is the first time the Railways Ministry has taken a minority stake in a major project," the HSBC report said. The bank said in another report that the private sector would be the key to financing future infrastructure projects.

After 2015, railways and ports would be a significant part of Shenhua's business, said Zhang. "Railway and ports are a necessary resource. Whoever has railway and ports has sustainable growth capability," he said.

Shenhua owns four operational rail lines, two ports and 12 ships. In addition, Shenhua has more than 650km of railway under construction.

The new lines under construction included those in Bazhun, Zhunchi and Ganquan railways, Zhang said. Shenhua also plans to increase the coal capacity of its operational Shuohuang railway.

Additional reporting by Reuters

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