A shortage of coal has forced China Huadian Corporation to cut back electricity production, while disuse has caused some of its generators to break down. Gao Yongyu looks at the company’s dilemma in China Business News and explains how it is looking to get into the mining business to put the issue behind it

China Huadian Corporation (CHC) has recently been forced to shut down power generation at its plants in Guizhou, Sichuan and Yunnan provinces due to an ongoing shortage of coal.

Yang Jiapeng, the director of the corporation’s development and planning division, said that disuse had caused one of the company's four power generators capable of producing 300,000 kilowatts of electricity to break down, costing the company US$96,658 in lost profits every day it does not operate.

Guizhou, Sichuan and Yunnan provinces, all in southwest China, are suffering from a coal shortage, confirmed Bai Xuegui, head of CHC’s research body. “The corporation has faced the same problems over the past few years, during which time some of our generators ceased to work,” he said. “But this year the situation has gotten worse.”

He told the newspaper that a 300,000 kilowatt power generator working at full capacity generated 300,000 kilowatts of electricity an hour. With a market price of RMB0.3 a kilowatt and production costs of RMB0.2, the loss of a 300,000 kilowatt power generator costs the company US$96,658 (RMB700,000) every day it does not work.

Coal prices increased nearly 10% last year in China, greatly affecting CHD. “We bought less and hence generated less electricity and our revenue was US$688.51 million (RMB5 billion) worse off,” said Yang. “We are hoping to just break even last year, let alone make a profit.”

According to internal statistics, 11 of the corporation’s plants in Sichuan, Fujian, and Hunan provinces reported losses last year. The losses were offset by profits in other areas, allowing the company to post across-the-board profits between US$550.31 million and US$688.51 million (RMB4 billion to RMB5 billion).

Coal resources coveted

A meeting on energy conservation and gas emissions held by the National Development and Reform Commission and National Energy Office a year ago marked the beginning of a gradual shutting down of all polluting, inefficient power generators with limited capacity.

Yang said the corporation has been forced to shut down all of its plants with less than 100,000 kilowatts capacity following the meeting. They also closed down several plants with higher capacity. In total, more than 30 power generators with a combined capacity of seven million kilowatts were closed, resulting in a loss of US$413.11 million (RMB3 billion) for the company.

“The setback came because we did not have sufficient coal supply ourselves,” Yang added. “We had to source most of the coal from other companies last year but aim to supply 50% of our coal needs this year.”

CHD has since built coal mines with a combined annual output of 23 million tons, mostly in Inner Mongolia, Shanxi and Xinjiang provinces, which are far away from its core power generators. “Construction of the nearby Huandian Xuangang Coal mine has also kicked off,” said Bai. “But CHD is a latecomer to the upstream business.”

Datang Group, one of CHD’s competitors, has also said it planned to boost its self mined coal, aiming to produce 30 million tons by 2010 to cut coal sourcing costs. In 2004, it teamed up with coal miner Tongmei Group in a US$385.57 million (RMB2.8 billion) deal involving a 15 million ton coal mine in Tashan, Shanxi province. In 2005, the group joined Kailuan Group to set up an energy company in Weizhou, Hubei province, with an annual coal output of 10 million tons.

This article originally appeared in Chinese in China Business News on January 10, 2008. The China Perspective takes no responsibility for the accuracy of the original article.