Caixin
Jan 30, 2018 06:51 PM
BUSINESS & TECH

Power Companies Ask Beijing to Lower Coal-Transport Costs

A freight train loaded with coal in East China's Anhui province. China’s four largest state-owed power companies argue that rising transportation fees, combined with weak supply, pose serious challenges to their business prospects. Photo: VCG
A freight train loaded with coal in East China's Anhui province. China’s four largest state-owed power companies argue that rising transportation fees, combined with weak supply, pose serious challenges to their business prospects. Photo: VCG

China’s state-owned power companies have asked economic planners to lower the cost of transporting coal by rail, highlighting tensions created by rising energy demands.

China’s four largest state-owed power companies — China Huaneng Group Co. Ltd., China Datang Corporation, China Huadian Corporation Ltd., and State Power Investment Corporation Ltd. — submitted a joint statement last week to the National Development and Reform Commission (NDRC), arguing that rising transportation fees, combined with weak supply, pose serious challenges to their business prospects.

Freight prices have long followed a benchmark price set by the NDRC, which allows for a certain percentage of fluctuation. Last month, the NDRC began allowing rail operators to raise prices by 15% from the benchmark — up from 10% before.

The joint statement said that logistics made up more than 50% of the total cost for cross-region coal purchases, and in the northeast — where China Railway Corp. (CRC) subsidiaries have raised prices in two provincial capitals, Harbin and Shenyang — most of their power plants have posted losses.

CRC is acting according to market demands, and is not responsible for the increased cost, a source from CRC told Caixin. In 2013, China began pushing CRC and its regional subsidiaries to become more market-oriented.

Beijing initiated a “coal to gas” campaign to tackle pollution, but cold weather and a shortage of cleaner natural gas led to increased coal demand.

The average 2017 price for coal rose 34% to 642 yuan ($101) per ton year-on-year, according to a figure published by China-based consultancy Fenwei Nengyuan.

Last year, China partially banned diesel-powered coal trucks in the region around Beijing, Tianjin and Hebei province. This, combined with rising demand for coal, helped push up the demand for freight in 2017. NDRC figures showed that coal transport by rail rose 15.1% to 1.97 billion metric tons (2.17 billion tons) for the period from January to November.

The tension between the rail sector and power companies is unlikely to go away, as the 2017 truck ban is expected to continue to stoke demand for rail shipments.

Sources from the National Railway Administration told Caixin that market-oriented reform in the railway sector will continue and that CRC, not NDRC, usually has a final say on the specific pricing of coal transportation.

Contact reporter Mo Yelin (yelinmo@caixin.com)

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