Triple threat

One of China's largest coal producing regions, Shanxi province, is facing a triple threat of power and coal shortages, coupled with rising coal prices.

Shanxi's coal shortage, which is expected to escalate to as high as 200 million tons, is largely due to the huge coal demand across China, experts say.

Coal prices have also soared, making life difficult for buyers such as Zheng Wei, manager of a power plant in Jiangsu province who has been in Shanxi for two months looking for coal.

Zheng's plant owned by one of China's top five power generation companies, consumes about 10,000 tons of coal a day when it is operating with its full capacity. But now, he says one power generation unit has been shut down due to the coal shortage.

Zheng says in the past two months, he has bought 100,000 tons of coal, equal to a 10-day consumption of his plant.

Zheng adds that in Jincheng, a city in southeast Shanxi, there are at least 100 people looking for coal and bargaining with mine owners like he is doing.

"Although we have coal supply contracts with some mines in Datong, it is far less than enough," Zheng says, " I has tried my best to persuade mine owners to sell us more."

Soaring price

Coal companies in Shanxi have all increased their prices. In the first quarter, the average coal price of the province's five leading companies stood at 377 yuan per ton, an increase of 13 percent over a year earlier, according to local statistics.

In 2007, the standard coal price increased 62.7 yuan per ton year- on-year, and this year the price has seen a 104.4 yuan increase per ton in the first quarter, and 70 to 80 yuan rise per ton in the second quarter, according to Shanxi Province Electric Power Association (SEPA).

As for coal used for power generation, the price saw a growth of 31.5 yuan in the first three months of this year compared with a year earlier.

Soaring coal prices have driven most Chinese power companies into the red. The five leading power firms - Huaneng, Datang, Guodian, Huadian and China Power Investment - have said their power generation businesses are expected to see losses in the first half of the year.

This June, the government raised the commercial electricity user tax in Shanxi by 0.0199 yuan per kWh. And again, the government raised on-grid electricity tariff by 0.02 yuan per kWh - an average of 5 percent - from 20th of August, in a move to reduce domestic power producers' losses and help boost supplies.

However, industry insiders cannot agree on whether that the rise in the on-grid power tariff can fully offset domestic power producers' losses.

The hike can offset the 40 yuan per ton coal price rise, however, coal prices increased 140 yuan from January to August this year, and will rise further.

Industry observers say that the government at all levels should do more to encourage coal mines to produce more as a more effective way to curb the rising prices. However, while some mines are working beyond their authorized production limits, others have been accused of underproduction in order to create an artificial shortage and increase prices.

Safety concerns

Shanxi province, which produces one-fourth of China's coal, yielded over 330 million tons in the first half of the year, a 14 percent year-on-year rise. But coal sales to other provinces increased by 10 percent to 278 million tons during the same period.

The certified production capacity of the province is 590 million tons, but the 1,922 existing mines only have a total production capacity of 539 million tons because more mines are still under construction.

To meet the demand, many of Shanxi's coal miners, especially State-owned ones, are operating beyond their certified production capacity, something that is a major threat to mine safety, says Wang Shouzhen, chief of the Shanxi coal bureau.

In the first half of the year, 46 mine accidents were recorded in Shanxi, which resulted in 124 deaths. This number, however, was down 22 percent from the same period last year.

"Overproduction has been a long-time threat to mine safety in Shanxi," says Liu Wenge, head of energy and safety division at China Coal Information Institute.

Although mine safety in Shanxi has improved this year, past serious mine disasters can be most likely linked to overproduction, says Wang.

Overproduction is also continuing to batter Shanxi's fragile environment that suffers from coal dust pollution and an increased disruption of above and below ground water flows.

But, Robert C Lao, a scientist and senior environmental advisor of Canada-China Cooperation on the Management of Environmental Sustainability, argues that based on Shanxi's coal reserves and production capacity, the mines have the ability to raise their current productions.

However, some mine owners have reduced production and are waiting for coal prices to rise higher, he adds.

Power shortage

As a producer of one-fourth of China's coal, Shanxi has also witnessed approximately 5,000 mW worth of power shortages this year, the highest level recorded in recent years.

The province is currently facing a power shortage, which has adversely affected the economy, said the provincial electricity regulator in July.

The province has an installed power capacity of 34,340 mW. However, in July, power generators with a capacity of 3,500 mW halted production because of the coal shortage, accounting for 15.2 percent.

As of August 13, Zhang Jun, an officer of Dispatch Center at Shanxi Electronic Power Corp, says power generation capacity has been improved to 15,600 mW and Shanxi's power crunch has improved somewhat.

However he isn't optimistic that Shanxi's power supply problems will improve soon and suggests that power conservation measures at high energy consuming enterprises should be monitored and strengthened.

At the worst time of power shortage this year, there were 19 power generation units with a total capacity of 3,790 mW that stopped operation.

Now, only two units are not working with a capacity of 185 mW. The coal reserve in the province's major power plants is 2.15 million tons, merely enough to support 13 days of operations.

One suggested solution is increased cooperation and coordination between the power plants and coal mines.

Xu Baoshun, a coal company official in Shanxi, says the coal and power enterprises should build up stable long-tern contractual relationships so both sides can appropriately arrange their production and transportation needs.

Dong Jibin, deputy director of Shanxi Academy of Social Sciences, agrees and adds the power supply and demand imbalance is having a negative impact on the province's economic development.

(China Daily 09/01/2008 page10)