New energy group to boost industrial synergy

Updated 2017-11-29 10:01:55 Global Times

Post-merger integration needs efforts by Shenhua, Guodian: expert

The nation's new energy behemoth China Energy Investment Corp (CEIC), officially inaugurated on Tuesday, is set to boost synergy between the coal and electricity sectors in terms of efficiency, industry sources said.

The company, born after the merger of China's top coal producer Shenhua Group Corp and a major power producer, China Guodian Corp, will be the largest coal producer worldwide, and its total assets will surpass 1.8 trillion yuan (3 billion), CEIC said in a statement sent to the Global Times on Tuesday.

It has 330,000 staff members in total, covering eight businesses such as coal production, coal-fired power generation and new energy, according to the statement.

The formation of the company was approved by the State Council, China's cabinet, in August, according to the website of the State-owned Assets Supervision and Administration Commission of the State Council. It signed its first deal, which involves investment of .7 billion in shale gas, power and chemical projects, in the US state of West Virginia on November 9, Reuters reported.

CEIC, which combined the coal production and electricity-generation business, will help tackle challenges in connecting these two sectors, Zhang Zhibin, general manager of coal and steel trading company Yonggang Group, told the Global Times on Tuesday.

"When coal prices dropped in 2015, the electricity sector saw increased profits but the coal industry bore losses. In 2016, the coal sector boomed but electricity lost its growth momentum. So the merger is seen as an example of balancing between these two," said Zhang, an industry veteran.

Conflicts between these two sectors have caused losses to electricity producers this year, the Economic Information Daily reported in June. For example, a power plant in Northwest China's Ningxia Hui Autonomous Region found the price for coal with a calorific value of 4,500 kcal soared from 200 yuan per ton to 320 yuan per ton over the past year, which increased the cost of generating electricity, the media report noted. As a result, the plant lost 10 million yuan each month.

That wasn't the only electric utility to feel the financial impact of coal price fluctuations. Major power generation enterprises saw profits decline in the first nine months, Chen Zongfa, head of the policy and legal affairs department at China Huadian Corp, told a recent industry conference in Shanghai, domestic news site thepaper.cn reported on Sunday.

The combination of the coal and electricity sectors will accelerate in 2018, and the synergy between the higher and lower ends of the supply chain will improve, according to a post on the website of the Ministry of Land and Resources (MLR) on Friday.

"After the Shenhua-Guodian merger, some local coal producers and electric power generators in Northwest China's Gansu Province have formed an energy conglomerate by integrating resources," Zhang noted.

Coal producers have invested in 180 million kilowatts of electric power plants so far this year, which marked new progress in the synergy of the coal and electricity sectors, according to the post by the MLR.

Coal-powered plants' output has been shrinking while hydropower and new-energy plants maintained growth momentum in October, according to a post on the website of the National Bureau of Statistics on November 14.

The cost of coal accounts for 70 percent of a thermal plant's total operating costs, Zhang Min, a coal expert at industry consultancy Sublime China Information Co, told the Global Times on Tuesday.

"As coal prices have been increasing since the beginning of this year, electricity generators have seen declining profits, so the combination of these two sectors is likely to be a way out of this dilemma," she said.

Industry insiders expressed some doubt about the transparency of the merger process that created CEIC.

"We know nothing about how they merged and how they carried out corporate restructuring," an industry insider who preferred not to be identified told the Global Times on Tuesday.

"It's the first time that two energy giants with such large business scales in China have combined, and there will be a post-merger integration period during which the two parties need to work on potential risks," Zhang said.

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