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Joint dispatch of coal and electricity is the only way to resolve market conflicts
Polaris Thermal Power Network News: According to the "Yangguang Finance Review" published by the Voice of Economy, the annual struggle between coal and power companies continues to unfold. This year's coal-power game has taken on a new shape. As reported in the Securities Daily on the 29th, the five major power generation groups—China Power Investment Group, Huaneng Group, Datang Group, Huadian Group, and Guodian Group—have jointly submitted a letter to the National Development and Reform Commission, opposing the policy of restricting the import of low calorific value coal. These top power companies are against part of the "Provisional Measures for the Administration of Commodity Coal Quality" (Draft for Comment). According to these measures, coal with low calorific value is banned from import, and coal importers must meet certain qualification standards. As a result, power companies now face increased difficulty in importing low-quality coal.
While the new regulations from the National Energy Administration may help reduce environmental pollution caused by inferior coal, analysts at a recent coal industry seminar argued that limiting imported coal has limited impact on improving air quality. Looking back at the coal-fired game over the years, coal prices have remained high, and both market coal and power companies have struggled. However, this year’s coal-power game has seen a significant shift. Most coal mining companies and listed firms reported losses in their 2012 annual reports, while the top five power companies saw profits reaching an estimated 46 billion yuan—the highest in a decade. At the same time, the State Council recently approved the "Notice on Deepening the Key Work of Economic System Reform in 2013," expanding the scope of resource tax ad valorem to include coal. The coal industry is entering a difficult period, while power companies are thriving. The timing of the National Energy Administration’s policy introduction raises questions about whether it is intended to support the coal sector. Whether or not this is the case remains unclear. However, the current coal-power conflict is not beneficial for either side. Perhaps the long-forgotten "coal-electricity linkage" mechanism could serve as a solution to balance the situation.
The key question now is whether the restrictive standards will be extended to all imported coal. According to the "Provisional Measures" issued by the National Energy Administration for public comment, the government aims to restrict coal imports with calorific values below 4544 kcal, sulfur content above 1%, and ash content exceeding 25%. Additionally, coal importers must have a registered capital of at least 50 million yuan, a trading volume of over 1 million tons in the past three years, and proper facilities and storage sites. Lin Boqiang, an economist and director of the Energy Economics Research Center at Xiamen University, believes that the current restrictions will not significantly affect the market and are unlikely to evolve into broader restrictions on imported coal in the future. However, the debate over whether these rules will expand to cover all foreign coal remains a critical issue.
Lin Boqiang noted that the current standards mainly target imported coal, which accounts for approximately 20% of total imports. While this is not the central issue, the overall concept of restricting low-quality coal raises concerns. If these restrictions eventually extend to all imported coal, it could have a more substantial impact, especially on large power companies. At present, the coal market is weak, and the environment is different from the past decade. Coal companies are seeking ways to improve their performance, and such demands are understandable. If this restriction is viewed as a way for the Energy Administration to support the coal industry, then similar measures are unlikely to appear again. This is something everyone should pay attention to.
Critics argue that the new policy lacks sufficient evidence to justify its focus on foreign coal rather than domestic sources. Many believe the timing of the policy suggests it is meant to support the coal industry, given that coal demand is still strong, and many coal companies posted poor results last year. With coal soon to be included in the resource tax, power companies continue to favor importing coal due to its competitive advantages. Therefore, the five major power groups have actively opposed the provisional measures. Lin Boqiang pointed out that the policy’s focus on foreign coal without addressing domestic issues makes the justification seem insufficient. He explained that people have raised concerns because the policy was introduced suddenly, without prior notice. Additionally, while the National Energy Administration framed the policy as a move toward energy conservation and emission reduction, the actual impact of restricting low-quality coal is relatively small. The lack of evidence to support the focus on foreign coal rather than domestic sources has further fueled skepticism.