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China Review

Coal shortage blamed on


he projected increase in Chinese coal de mand indicates a con-

tinuing need for substantial in- vestments in both coal mining and coal transportation infra- structure, warns Richard Wilmot, a partner in the Shanghai office of Holman Fenwick Willan, a sentiment with which Claus Schensema, managing director, GAC For- warding & Shipping (Shang- hai) Ltd, agrees. “To alleviate the current

logistical bottlenecks, there’s a need to continually improve port facilities, turn-around times of vessels due to con- gestion, prioritisation of deliv- eries into the key energy sec- tors, and expansion of the rail

network westwards,” said Schensema.

Rail’s key role

The rail network plays a key role in coal transportation in China and its government is committing considerable funds to improvements, Wilmot says. Examples of some recent

and forthcoming investments in the rail network include: major capacity expansions for some of the country’s existing coal railways; the planned construc- tion of several new coal rail-

ways; the scheduled delivery of 300 modern General Electric locomotives to the Chinese Railways Ministry by the end of this year, and an estimated US$100B of investment in rail services included in China’s stimulus package. The importance of efficient

logistics to China is also high- lighted by its Railway Minis- try’s announcement that it is reviewing its operations in an attempt to improve the trans- portation of coal across the country.

“China has numerous major

inadequate transportation

Substantial investment must be made in China’s infrastructure if the logistical challenges of moving coal within the country are to be overcome

In January, many power

plants in coal-rich northern Shanxi province faced coal shortages, forcing one to buy stocks from other provinces in order to generate enough elec- tricity to meet higher demand during an unusually cold spell. Experts said the main rea-

son for the shortage was the lack of coordination among coal mines, the railways and power plants. Most blamed low efficiency and high transporta- tion costs for the crisis. The railways’ monopoly on

transporting coal and its poor capability to do so are the two main reasons for the high cost of coal. Coal has been the main fuel for most of China’s power

China’s coal consumption is forecast to nearly double over the next twenty years

plants for a long time and will remain so for some time to come.

Limited options

Transportation makes up more than half of the cost of coal. But the development of coal trans- portation has not kept pace with growing demands for coal. Be- sides, China’s coal and electric- ity markets are divided into many segments and power plants have to pay extra charges to many administrative divi- sions, making electricity cost- lier.

To solve this problem, more

co-ordination among the coal mines, railways and the power plants is needed. “Only if transportation ca-

pability and efficiency are im- proved can the power plants meet the growing needs of so- ciety,” said one Hong Kong- based market analyst. More coal will be needed

17 – 19 October 2010 Amsterdam RAI Conference Centre, Amsterdam, The Netherlands

30 years on and the world’s leading coal conference continues to attract the who’s who in coal from around the globe. For the 29th conference in London last October

there were more than 1400 participants from 66 countries.


• Meet with the industry’s key decision makers under one roof • Hear from a faculty of over 40 leading international experts on what the future holds for coal with a gain in marketing sites

• Win new business • Consolidate existing relationships • Visit a diverse range of companies in the exhibition

COALTRANS 30TH ANNIVERSARY AWARDS DINNER – Monday 18 October - Beurs van Berlage

The Coaltrans Awards Dinner has been designed to recognize individuals and

companies who have contributed to the sustainable development of the coal

industry over the last 30 years. Attendance is complimentary for delegates and their partners. To guarantee your place, visit

because wind power is not suit- able for China, according to vice minister of Industry and Information Technology Miao Wei. A wind power generator can usually run for 20 years, but its life expectancy would be greatly reduced if it were eroded by sandstorms which occur in some provinces, he explained. He said one problem is that

China failed to strike a balance between power suppliers and users and cited central Hubei province as an example. Hubei has invested in hy-

droelectric power and should enjoy clean power generated by the Three Gorges dam in the province. But instead the prov- ince sells its hydroelectric power to eastern areas and so instead has to purchase coal to generate power for its own use. This has a ripple effect on

supplies in neighbouring prov- inces, which have to buy coal from areas further away, such as Xinjiang in the west. Such an approach raises logistics costs and causes huge waste, Miao said.

Port developments

For more information or to register please go to

Amsterdam-FP-Ad.indd 1


15/03/2010 14:43

“There are numerous port ter- minal facilities for coal import/ export in China, such as Shang- hai, Ningbo, Tianjin, Guang- zhou, Dalian, Qinghuangdao, Dandong and Shenzhen. Growth in many of these ports averaged greater than 20% per annum in the five years to 2008,” says Paul Aston, a part- ner in Holman Fenwick Willan’s Shanghai office.

shipping ports with a capacity of over 50 mtpa. Combined, China’s total shipping capacity is in excess of 2,890 mt. By 2010, 35% of the world’s ship- ping is expected to originate from China. “Efficiency in maritime port

infrastructure could be im- proved - clearance times vary from three days to a month, mostly caused by documenta- tion, customs and tax proce- dures. It is however catching up under a major programme of investment in berths, handling equipment and storage and a streamlining of procedures.” “Foreign investment into

China is becoming less chal- lenging. In fact, the ports in- dustry was one of the first in China to welcome foreign capi- tal. Most coastal ports have re- ceived foreign funds after Shanghai’s port first attracted overseas capital in 1992,” Aston explains. “Foreign investment is seen

as having prompted big changes and improvements in China’s ports in terms of both infrastructure and improved port management and has also brought advanced operating concepts.”

Open to investment

Regarding mines, and in con- trast to the past, China is be- coming increasingly open to foreign investment in its coal sector, particularly in an effort to modernise existing large- scale mines and introduce new technologies into the industry, say Aston and Wilmot. This is being led by the China National Coal Import and Export Cor- poration which is the primary Chinese partner for foreign in- vestors in the coal sector. But is the trend for Chinese

investment in overseas coal companies likely to continue? Richard Wilmot thinks that it is.

“China’s outbound merg-

ers and acquisitions will main- tain its ambitious growth for the foreseeable future, with acquisitions of energy and re- sources continuing to domi- nate,” he says. “With the global financial

crisis making assets abroad more attractive, the value of Chinese companies’ M&A outbound deals can be ex- pected to increase.” The largest deal last year

was the US$7.3B bid by Sinopec for Swiss Addax Pe- troleum, notes Wilmot. Three other deals an-

nounced in the second half of 2009 were Yanzhou Coal Mining Co Ltd’s US$2.9B ac- quisition of Australian Felix Resources Ltd; PetroChina’s US$1.7B investment for a stake in Canadian Antha- basca’s oilsands assets, and China Investment Corp’s US$1.58B for 15% stake in U.S-based power firm, AES Corporation. “Areas of interest in for-

eign investment concentrate on new technologies with ef- ficiency and environmental benefits, including coal lique- faction, coal bed methane (CBM) production, and slurry pipeline transportation projects,” he says. 

BMI March/April 2010

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