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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" from the Voice of Economy, the annual coal power struggle is intensifying. This year's round has introduced new dynamics. As reported by 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). The draft prohibits the import of low-calorific-value coal and sets qualification requirements for importers. As a result, power companies now face greater challenges in importing such 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 the environment. Looking back at the coal-fired power game, it's clear that over the past few years, coal prices have remained high, and both market coal and power companies have faced difficulties. This year’s situation has seen a significant shift. Most coal mining companies and listed firms posted losses in their 2012 annual reports, while the top five power companies reportedly earned around 46 billion yuan, the highest level in a decade. Meanwhile, the State Council recently approved the "Notice on Deepening Economic System Reform in 2013," expanding the scope of resource tax ad valorem to include coal. The coal industry is entering a tough phase, while power companies are thriving. The timing of this policy from the National Energy Administration raises questions about its true intentions. However, the ongoing coal-power conflict isn't beneficial for either side. Perhaps the long-forgotten "coal-electricity linkage" mechanism could offer a balanced solution.
The focus now is on whether these restrictions will apply to all imported coal. According to the "Provisional Measures" issued by the National Energy Administration, the government aims to limit coal with calorific value below 4544 kcal, sulfur content above 1%, and ash content above 25%. Importers must also meet certain criteria, including 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 for storage and operations. Lin Boqiang, an economist and director of the Energy Economics Research Center at Xiamen University, believes the current restrictions have limited impact and won’t likely expand into broader restrictions on imported coal. However, the key issue remains the overall approach. Whether the policy evolves into a broader restriction on imports is what people should watch closely. Although the affected amount is not large—over 50 million tons—the potential for future expansion is something power companies need to monitor.
Currently, the coal market is weak, unlike the past decade. The market environment has changed significantly. Coal companies have their own demands, which are understandable. If this round of restrictions is seen as a way for the Energy Administration to support the coal industry, it might not happen again. This is a concern for many. Restrictions on foreign coal don't seem to be based on sufficient evidence regarding domestic practices. Many believe the timing of this temporary measure appears to favor the coal industry, especially since coal demand and supply are currently imbalanced. Most listed coal companies had poor performance last year, and coal mining is about to be included in the resource tax scope. Despite this, power companies still prefer importing coal overseas due to its competitive advantages. That’s why the five major power groups have raised concerns about the provisional measures.
Lin Boqiang pointed out that the rationale behind the policy is unclear. First, it was introduced suddenly without prior notice. Second, while the National Energy Administration claims it's aimed at energy conservation and emission reduction, the actual impact of restricting low-quality coal is small. The lack of evidence for restricting foreign coal while allowing domestic coal to be used freely makes the policy appear unjustified.