China’s Coal Province Looks to Offload Smaller Projects

Shanxi province will seek outside investment for nearly 100 state-owned projects, many from its traditional strength in coal mining, as part of Beijing’s broader drive to boost efficiency in such traditional industries by introducing private sector partners.

Among the 94 projects being open to outside investors through stake sales, 40 are coal-related, including coal development and coal cleaning projects involving more than 62 million tons of capacity, officials said at a Monday meeting in the northwestern province to discuss the topic. Projects also come from other traditional sectors such as nonferrous metals and power generation, and even real estate is included on the list.

The program, which was announced previously, calls for the transfer of state-owned equity in specified projects owned by provincial state-owned enterprises, as well as projects that are nominally state-owned but have no real investment and management. Within the coal sector it has special focus on smaller projects, said Gao Chunyi, a vice president at Shanxi State-owned Capital Operation Co. Ltd. Projects will be open to investment from state-owned and private sector entities both inside and outside the province.

China has been trying to focus on major production centers in the coal industry, while deemphasizing smaller, less efficient operations, as part of a years-long effort to consolidate the oversupplied sector. In one of the latest moves on that front, the central government recently launched plans to create the country’s second-largest coal mining conglomerate by merging at least some of the assets of at least five of the seven major coal mining companies in Shanxi.

As that consolidation occurs, many large state-owned enterprises are currently more focused on their larger mining operations with capacity of 10 million tons or higher, Gao said.

Of the 40 coal-related projects in the program, 80% were relatively small with annual capacity of 1.2 million tons or less, according to Caixin’s calculations.

About a dozen state-owned companies are participating in the program, including Shanxi Coking Coal Group Co. Ltd., Datong Coal Mine Group Co. Ltd., Lu’An Mining Industry Group Co. Ltd. A wide range of investment will be permitted by outsiders, from as little as 1.32% to as much as 100% from investors who want to take over an entire project. Most coal-sector projects within the program revolve around coking coal, fat coal and anthracite.

The program is also designed to allow companies to search for partners with geographic and operational strengths that complement their own to raise project efficiency. Shanxi State-owned Capital Operation previously disclosed that its target was to generate 10 billion yuan ($1.4 billion) in investment through the program.

Contact reporter Yang Ge (geyang@caixin.com)

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