China plans penalties for illegal coal use

OREANDA-NEWS. June 05, 2015. Beijing has outlined penalties for power generators that buy coal from illegal mines, in a further attempt to curtail output from smaller coal producers.

Power plants that purchase coal from illegal mines will face a reduction in their quota for power output that could hurt revenues, according to a joint circular from China's top planning agency the NDRC, energy agency the NEA and the state's administration of coal mine safety.

The NDRC will encourage utilities to sign long or medium-term contracts with lawful coal mines by extending power generation quotas at compliant power plants, the circular said. The government agencies did not offer details on how they will calculate the penalties and benefits they plan to administer.

The move is part of a long-term push to close mines that are operating with incomplete certification or inadequate safety provisions, for which government agencies have mulled solutions for many years.

The latest release reiterated the government's commitment to shutting down capacity at mines that are exceeding approved output plans. Coal mines should not produce more than 110pc of their registered monthly output — as agreed in advance with local authorities — according to a circular released in August by the NEA.

The move will compound the implementation of capacity restrictions at 1,254 mines across the country, shedding some 77.79mn t/yr of "outdated" coal production capacity this year — a plan that the NEA revealed in May. It will also benefit from attempts this year to strengthen oversight infrastructure, including making regional government agencies more accountable for collecting data on mining certification and ensuring compliance with coal mine regulations.

And although the latest clampdown largely reiterates a long chain of government commitments to cut production, the latest drive appears to be having some impact. China cut coal output in January-April by 77mn t year on year to 1.12bn t, according to data from coal transport and distribution association CCTD. A large portion of this was undertaken by the largest producers — China Coal Energy and Shenhua each cut output by around 12mn t — but the country's restrictions on smaller mines are likely to have played a major role.

Assuming the same rate of production across the whole year, China's output would equate to 3.36bn t in 2015, outdoing the government's planned production cut. China aims to reduce overall coal production by 190mn t, or 5pc on the year, to 3.68bn t this year, focusing on low-grade and uneconomical output as well as supply from in unsafe mines, China Coal Industry Association said.