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China's top utilities protest plan to ban low-grade coal imports
May 30, 2013 / 10:59 AM / 5 years ago

China's top utilities protest plan to ban low-grade coal imports

* Top 5 utilities protest to NDRC against NEA proposal

* Proposal would have raised costs for power firms

* Faltering domestic coal mining industry had lobbied for ban

By Fayen Wong

SHANGHAI, May 30 (Reuters) - China’s top five utilities have formally protested a government proposal to ban imports of low-grade coal that could jack up their costs, a move that could derail domestic miners’ efforts to boost demand for their coal.

The big utilities have only just begun to see their thermal power businesses turn profitable after haemorrhaging billions over the past five years due to soaring coal prices.

China Huaneng Group, China Datang Corp, China Huadian Group, China Guodian Corp and China Power Investment Corp are objecting to a draft proposal from the National Energy Administration (NEA) on banning imports of low-quality coal.

“We’ve lodged a formal protest with the National Development and Reform Commission. We can’t sit by and do nothing when we’ve been in the red for so long,” said a source at a utility, who declined to be identified due to the sensitivity of the matter. The NEA comes under the NDRC, the country’s top economic planning agency.

Beijing is caught between supporting its miners as coal prices fall and curbing use of low-quality coal which causes pollution, and the concerns of utilities who already suffer from low state-set electricity prices for consumers.

The world’s top consumer and producer imported 55 million tonnes of low-grade coal in 2012, mostly from Indonesia.

The power companies and the NDRC could not be reached immediately for comment.

The utilities said in their complaint that the NEA’s proposal, if adopted, would distort the market, raise coal prices and have little use in protecting the environment, the utility source said.

The proposed import ban has sent share prices of the power firms’ listed units tumbling. Huaneng Power and Datang Power Co have dropped 10 percent and 13 percent, respectively, since May 20, against a 4.3 percent decline in the broader market.

The NEA, in charge of researching and drafting strategies to address China’s energy needs, came up with the proposal to limit imports after coal miners lobbied the government to protect the faltering industry.

The proposal is for a ban on imported coal with a calorific value lower than 4,540 kcal/kg, sulphur content higher than 1 percent and 25 percent ash on a net-as-received basis, according to an NEA document obtained by Reuters.

The proposal also sought to raise licensing requirements for Chinese coal traders, including having a minimum registered capital of 50 million yuan ($8.16 million). They also should have imported more than 1 million tonnes of coal in the last three years.

In their complaint, the utilities said the move would force many coal traders to shut, eroding market competition and causing coal prices to rise, according to a second source.


Cooling economic growth, new mine supplies coming onstream, robust hydropower output and surging imports have sent local coal prices tumbling to a near four-year low, causing some miners to sink into the red and cut output.

That led the coal miners to lobby for curbing imports. Low-grade coal became a target because it competes with a large proportion of their production.

China imported about 290 million tonnes of coal in 2012, against total output of 3.6 billion tonnes.

It was not clear when a final decision on the draft proposal will be taken. The NDRC may need to consult the Ministry of Commerce since it may affect trade ties with Indonesia, industry sources said.

Also, many coastal power plants have signed long-term supply agreements with Indonesian suppliers and a ban would force them to renege on the contracts.

Experts said Beijing, which wants to limit domestic coal output at 3.9 billion tonnes by 2015, has been encouraging imports since 2010 and the proposal goes against the broader goal of conserving its own resources.

“The current downturn could be a catalyst to accelerate consolidation for the coal sector. That fits with the government’s 12th five-year plan to consolidate the scattered industry and eliminate outdated capacity,” said a coal analyst, who declined to be identified as he was not authorised to speak to media. ($1 = 6.1267 Chinese yuan) (Editing by Muralikumar Anantharaman)

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