BEIJING - The National Energy Administration (NEA) says local governments must accelerate the preparation of schedules for the merger and acquisition (M&A) of coal mining companies, and should hand in their plans before the end of June.

Several provinces, including Shandong, Hebei, Heilongjiang and Fujian, have all drafted proposals and are currently awaiting replies from the authorities, according to the NEA.

However, an industry insider said that even though the task is tough and urgent, some provinces will be unable to provide accurate plans quickly because unexpected changes are likely to occur during the M&A process.

A senior analyst, speaking on condition of anonymity, said that M&A transactions need to proceed cautiously because of the complexity of the process.

"China has thousands of coal mining companies. During the process, negotiations over details such as share-based compensation will take a long time," he said. "To some extent, the schedule cannot be outlined clearly, but if the local government has the determination, the process will be carried out more rapidly. As the first province to have finished the M&A process, Shanxi is a typical example of that determination."

In October, the National Development and Reform Commission instructed local governments to make plans for M&A.

During the period of the nation's 12th Five-Year Plan (2011-2015), the process will produce 10 large-scale coal companies, each with a production capacity of 100 million tons annually, plus another 10 companies with an annual production capacity of 50 million tons.

According to the China National Coal Association, major coal companies will establish technological research and development centers and devote three percent of their annual profit to it. The percentage of mechanized production will increase, in order to secure higher productivity.

The analyst said the process will provide opportunities for producers of coal mining equipment, because the larger miners will require more equipment to help increase production.

"M&A will also provide opportunities for the majority of mining companies and manufacturers of production equipment, especially in the field of high-end coal mining," he said. "High technology will be the new trend in China's coal industry."

Increases in the price of thermal coal - the fuel used in power generation - may also slow, as the process may result in a reduction of excess capacity, the analyst said.

Shandong province formed Shandong Energy Group Co Ltd from six provincial coal companies in March, which was a major development in the M&A process. Hebei and Shanxi provinces will also begin the elimination of small-scale coal companies soon.

China Daily

(China Daily 05/05/2011 page16)