Overseas investors eye nation's coal sector
(China Daily)
Updated: 2005-04-12 08:50

The restructuring of China's fragmented coal industry has inspired foreign investors to make a foray into the key State-dominated sector.

"There will be sizable merger and acquisition opportunities from the consolidation and technology upgrades of the (coal) industry," Jean M. Dreyer, head of Asian Mergers & Acquisitions at BNP Paribas Peregrine, said at the two-day 2005 Coaltrans China Conference in Beijing yesterday.

The comment came as the Chinese Government is consolidating the coal industry to alleviate the acute coal supply shortfall. Beijing is fostering a score of coal mining conglomerates, including Shenhua Group and Hong Kong-listed Yanzhou Coal, by encouraging them to acquire thousands of small, inefficient collieries.

Dreyer said Chinese coal companies have realized the importance of forging partnerships with foreign investors to improve management, technological and financing capabilities, in a bid to gain a competitive footing in the international market.

This provides foreign investors with opportunities to carve out a niche in China's lucrative coal sector.

But Dreyer warned there are potential pitfalls for foreign companies, such as misunderstanding cultural background and administrative hurdles.

Wu Yin, deputy director of the Energy Bureau of the National Development Reform Commission, yesterday said large coal conglomerates and large production bases are the backbone of the government's coal industry policy.

The conglomerates are the major conduits through which the government implements its strategy to improve the safety of coal mines, consolidates resources and reduces pollution, said Wu.

Coal supplies 70 per cent of China's energy consumption. But the industry is hampered by its small-scale firms.

The 10 largest coal companies make up less than 15 per cent of the nation's total production, while the four largest companies in the United States account for 80 per cent of their country's total.

Small coal mines, often without sufficient investment in safety control, accounted for the lion's share of gas explosions at collieries last year, during which time more than 6,000 miners were killed.

Last year, the government outlined a plan to nurture several conglomerates with annual production of 100 million tons each.

Shenhua, which plans a dual listing in Shanghai and Hong Kong this summer, China Coal Energy and Hong Kong-listed Yanzhou Coal, are among those receiving the government's support.

Meanwhile, the government has also pinpointed 13 places, including Shanxi, Shaanxi and Henan provinces and Inner Mongolia Autonomous Region, as large production bases. Bases could be operated and managed by several conglomerates.

The government has issued 2.4 billion yuan (US$290 million) in national bonds in the past two years to support exploration and the construction of the bases.

According to Jin Shangzhong, vice-governor of Shanxi Province, the five largest mining firms will make up 70 per cent of the province's total output in the next three to five years.

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