China will merge thermal power assets of State power companies as part of its ongoing efforts to deepen supply-side reforms and slash overcapacity in the sector, according to a document put out by the State-owned Assets Supervision and Administration Commission.
The move aims to boost healthy development of the sector, against the backdrop of rapidly increasing coal prices, overcapacity, and intense competition, all of which have been major obstacles for coal-fired power companies since 2016, the document said.
The first round has already started, according to Shanghai Securities News, with plans to merge the coal-fired power assets of five top State-owned power companies in the five northwestern coal-rich provinces/autonomous regions, to cut 25 percent to one third of overcapacity, raise equipment utilization, lower losses by more than half, and significantly reduce liability-asset ratios by the end of 2021.
China Huaneng Group Co Ltd, China Datang Corp, China Huadian Corp, State Power Investment Corp and China Energy Investment Corp will respectively take charge of the mergers in Gansu, Shaanxi, the Xinjiang Uygur autonomous region, Qinghai, and the Ningxia Hui autonomous region.
Pilot work has started in the five provinces/autonomous regions because coal-fired power companies in these overcapacity-ridden areas have reported losses in consecutive years, according to the document.
By the end of 2018, the five companies had 474 coal-fired power plants with combined power generation capacity of 520 gigawatts, among which 257 were loss-making.
The companies' coal-fired power assets totaled 1.5 trillion yuan ($212.87 billion), with total debt to asset ratio of 73.1 percent, while accumulated losses from the 257 power plants rose to 37.96 billion yuan.
The document said the assets exchange and transfer and reconstruction will be carried out in accordance with laws and regulations, and after the merger, the five companies in charge must eliminate outdated and inefficient capacity and desist from adding new capacity.
The pilot work could later on extend to other central SOEs with coal-fired power operations and more regions, if circumstances allow, said the document.
Hu Chi, a researcher at SASAC's research institute, said the pilot work is part of the ongoing reforms and reconstruction of SOEs, and reflects the deepening supply-side reform and elimination of overcapacity efforts in the coal industry.
Also worth noticing is that the pilot work involves not only central SOEs, but also local ones, said Hu. "Through the pilot project, leading companies will have larger shares of the industry's total assets and resources. It will also help them to steer away from redundant investments and increase resources utilization and profitability," he said.
By coordinating operations in coal production and electricity generation, leading companies will have a better say over product prices to generate profits, he said.
Besides, mergers and construction of coal-fired power assets are also likely to give rise to more value-added industries in the coal-rich but relatively underdeveloped provinces, such as modern coal chemicals and new energy, he said.
He added that the pilot work is not that easy to accomplish due to the tangled relations among central and local SOEs, as well as the pressure to cope with staff replacement and liabilities.
Yuan Jiahai, a professor with the School of Economics and Management in the North China Electric Power University in Beijing, raised concerns over unfair competition rising from the merger.
