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
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.
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
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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.
For more information or to register please go to
“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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