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China's biggest electricity producer, China Huaneng Group, yesterday signed a letter of intent (LOI) with Shanxi Coking Coal Group to jointly develop a coal mine in the resource-abundant province.

 

Shanxi Coking will own 70 percent of the project, with the remaining 30 percent controlled by China Huaneng, according to the agreement.

 

The project at the Xiegou mine is expected to supply at least 5 million tons of coal a year to Huaneng, which relies on the fossil fuel to drive the bulk of its power generating facilities.

 

The mine is scheduled to yield a total of 10 million tons of coal a year in the first phase, with the capacity increasing to 15 million tons in the second phase, Huaneng said in a statement.

 

Huaneng did not reveal how much it had spent on the project or when it was due to begin operation.

 

"The talks have not proceeded that far," said a Huaneng official yesterday.

 

"The annual coal supply entitled to Huaneng will increase as production capacity grows," the power firm said.

 

According to the LOI, the two State-owned energy companies will set up another 50-50 joint-venture to build and operate a 48.8-kilometre-long rail route, linking the coal mine with the main transport network.

 

Shanxi Coking is one of the country's biggest coke-making companies.

 

Coke is a kind of coal used to smelt iron and steel.

 

Huaneng is in talks with other local companies to jointly develop coal resources in North China's Shanxi and Shaanxi provinces, as well as in the Inner Mongolia Autonomous Region.

 

These projects are expected to produce coal within a couple of years, company officials said last week.

 

Li Xiaopeng, president of Huaneng, last week told its annual conference that the power firm planned to secure 30 million tons of coal by buying stakes in coal mines, further increasing that figure to 80 million tons by 2010.

 

The power producer last year used about 100 million tons of coal to fire its 75 power plants across 23 provinces and regions in China. Only a small proportion of that came from coal mines in which Huaneng had a stake.

 

Huaneng's move to secure long-term coal supplies follows price disputes between coal suppliers and users.

 

At the annual coal ordering conference held at the start of this month, power firms failed to reach a consensus over coal prices with mine companies.

 

"They were offering prices much higher than we can afford," said a senior manager with Zhongneng Power Industry Fuel Co, which organizes coal supplies for the country's top five power companies.

 

Analysts expect other power firms to buy stakes in coal sources, as the government has been encouraging partnerships between the two sectors.

 

Huaneng in August last year signed an agreement with Shanxi-based Datong Coal Mine Group to build a mine able to produce 10 million tons annually.

 

The power giant has a 51 percent stake in the project, involving a total investment of 2 billion yuan (US$247 million).

 

It is expected to start producing by the end of 2007.

 

(China Daily January 25, 2006)