Chinese coal miners and power generators incurred 70 billion yuan ($10.2 billion) in losses in 2008 due to rising fuel costs and lucklustre electricity demand, according to Xue Jing, director of the department of statistics and information under China Electricity Council (CEC).
According to an industry source the country's five biggest power generators posted losses of 26.8 billion yuan ($3.9 billion) from January to October 2008. China's domestic coal prices fell from last August along with the country's demand for the fossil fuel.
Government statistics show that the average coal price in China fell by 30 to 40 percent in November, compared to the middle of the year. The price of coking coal dropped 1,000 yuan, a 50 percent decline.
The annual coal prices negotiation conference held in Fujian province at the end of December reflected the sometimes difficult relationship between Chinese coal miners and the country's power generators and ended with no agreement after the miners' demands for higher prices. The five big power-generating companies, China Huaneng Group, China Datang Corp, China Guodian Corp, China Huadian Corp and China Power Investment Corp, had sought a 50-yuan per ton price cut from the 2008 prices; however the coal companies wanted to increase term prices by 4 percent to pass on higher taxes and other rising costs.
As a result the coal companies only able to sell half of the 840 million tons offered to power producers at the conference.
Analysts had previously said that the power generators were not unduly worried over fuel supplies as they have adequate coal stocks and an abundant railway capacity is abundant.
However coal supplies to the Beijing Huaneng Thermal Power Plant was cut by its supplier, Shenhua Group, and only resumed after government intervention according to the National Business Daily. Similar situations have been reported at other thermal plants.
An official from a power plant in Hebei province said their coal stockpile has declined and only can now only sustain 10-day production. Many Chinese power plants have similarly depleted stockpiles.
The coal stockpile at Qinghuangdao port declined to 5 million tons on Jan 6, a 45.2 percent decrease compared to the peak of 9.2 million tons on Nov 16, 2008. As a result the price of 5500-kilocalorie quality coal from Shanxi province reached 580 to 610 yuan at Qinghuangdao port on Jan 9, though this 20-yuan less than the previous week.
Some industry insiders suggest that with coal stockpiles declining, the five electricity companies may compromise and sign the contracts but an official from one of the five leading power generators told the National Business Daily, if they don't have coal in storage, they can choose to shut down their power-generation units because it is also difficult to sell electricity now.
In China, there are strong ties between coal miners and power generators. Over 60 percent of power generation capacity belongs to coal-fired plants and power generators are the largest coal consumers accounting for over 50 percent of the country's coal sales. However, whereas coal prices fluctuate according to market conditions - and have done since 2002 - China's electricity prices are still controlled by the government
Because power generation capacity has increased high coal prices have seen Chinese power generators suffer huge losses.
Power generators have to bear the burden of higher coal prices but they also have to repay money borrowed to invest in their increased capacity.
Huang Shengchu, president of Beijing-based China Coal Information Institute, said the government needs to make efforts to improve its coal pricing mechanism and set up a coal price index.
China has no such index to guide investment in the coal and power generation industries and Huang said such a barometer is needed to prevent what he called the "blind production" of some coal and power companies and also to standardize market orders.
A report by Bank of China (BOC) International (China) Ltd said that it was possible that the National Development and Reform Committee (NDRC) will get involved in negotiations between the two parties. After a similar stalemate in 2005, the NDRC allowed a maximum price rise of 8 percent on steam coal five months after coal companies and power generators failed to reach an agreement. NDRC officials declined to comment on the current situation.
The State Electricity Regulatory Commission has pledged to reform the electricity pricing system and carry out reforms in the power-generation industry this year. It has said it also will make an effort to solve conflicts between coal prices and electricity prices.
Source: China Daily
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