From Nation, page 9,issue no.374, June 30, 2008
Translated by Ren Yujie 
Original article: [Chinese]

Cai Wending, who works at a thermal power plant in Hunan Province, had overstayed in Jincheng, Shanxi Province for more than two months. As prices for coal kept rising, Cai once again failed to seal a purchasing deal in time.

Cai stayed in a three-star hotel in Jincheng with his co-worker, Xie Changsheng. They were amongst the hotel's numerous long-term guests, who had come from various provinces, spoke different dialects, but gathered in Jincheng for the same purpose – to buy coal.

For close to three months, Cai had been holding negotiations with coal mining bosses one after another to no avail. The exorbitant prices quoted were driving him up the wall, he loathed: "There seems to be no end to this price surges."

The latest round of coal price surges begun around July 2007, subsequently, prices of coal for generating power had risen nearly 50% within half a year.

By mid-May, 2008, according to data from the Chinese coal market portal (www. coalworld.net), the quoted price for Datong blended coal was between 670 and 690 yuan per ton, Shanxi blended coal was between 625 and 645 per ton, while ordinary blended coal was between 415 and 425 per ton in the Qinghuangdao coal market.

For Cai, 450 yuan per ton was the highest price he was prepared to pay, though it was not enough to mollify demanding suppliers. Meanwhile, his power plant had been calling frequently as coal stocks were running low.      

Based on June 2 data from China's State Electricity Regulatory Commission (SERC), thermal power plants nationwide with a capacity above 10,000 kilowatts had stocked up a total of 372,000 metric tons of coal.

This amount of coal reserves could only last for 11 days worth of power generation. Some provinces experienced acute coal shortage, and could only remain in production for under a week, these included Hebei (4.8 days), Anhui (3.2 days), Hunan (3.4 days) and Hainan (5 days).

This prompted thermal power plants nationwide to deploy numerous purchasing teams to race against time and rivals in obtaining the supplies. Cai told the EO: "Most of the management personnel in my plant have been sent out to source for coal, if you visit our fuel department now, no one is there to greet you."

By mid-May, Cai finally let go of his baseline, and agreed to pay 470 yuan per ton for coal to avoid production interruption.

Battling for Coal
The power plant Cai worked for was a typical one in Hunan province, surrounded by small-scale coal mines. Yet, nearby power plants started competing for the resources in the region in recent years and drove up prices.

Earlier this year, the rare and devastating snowstorm in the region further worsened the supply and demand balance, as coal production dropped. For instance, between January and April this year, coal output in Hunan's Chenzhou city dove 23% compared to the corresponding period last year.

Failing to source for coal in time would mean disruption in generating electricity, said Cai, who has over 20 years of experience in coal purchasing. He added good interpersonal skill and the ability to drink alcohol were crucial in maintaining ties with mines and securing supplies.

He summed up three major challenges in coal sourcing – limited resources, high prices, transportation bottleneck. He said some provinces banned the sale of coal outside of their borders, and that it required strong personal networking to obtain it.

Cai was in fact fighting numerous battles for coal – the one amongst power plants in his own province; between power plants and other coal-based businesses; and with the competitions in other provinces.

In the local coal market, prices basically divided into three groups – the contract price, which is usually the lowest, the local price and out-of-province price, which is the highest and provided an incentive for coal miners to sell across provincial border.

In recent years, more and more power plants in northern Guangdong province had invaded the Hunan coal market by offering higher prices; and with the opening of Beijing-Zhuhai expressway, transportation between Hunan and the Pearl Delta region had improved greatly, further attracting more coal search teams from the south.

External demand had then pushed up local prices, thus leading to the Hunan local government restricting out-of-province coal supplies. That policy, however, only led to smuggling.

"Our boiler is designed for using Hunan-produced coal, it is costly to redesign the boiler," said a thermal power plant manager from Guangdong.

Constant strong external demand encouraged local coal miners to up prices and at times, they failed to fulfill contracts sealed at lower prices with local power plants.

Market-Oriented Vs Planned-Economy
Hunan local power plants usually sourced for coal from two channels – state-owned and private mines, and the latter became the major suppliers in recent years.

Cai claimed that if coal mines fulfilled their contract obligations on a timely basis, local power plants would not have faced shortage, adding private mines were usually small-scale and poor in delivery.

"Private mines are more profit-minded and whenever they could sell for better prices, they would cut or even stop supplying to our plant," Cai claimed.

A manager from a coal distribution company in southern Hunan admitted that prices offered by Guangdong power plants, such as those from Shaoguan and Pingshi, were higher, and contracts amounting to tens of thousands of tons had been sealed lately.

Due to limited local supplies, Cai's plant begun sourcing from mines located farther out, including those from out-of-province, to ensure a monthly supply of some 30,000 tons of coal. Longer transportation distance added to higher cost, Cai said, in addition, the supplies were usually through middlemen with a fee.

The same predicament was shared by Guangdong power plants. For instance, coal supplies with an average price of 560 yuan per ton,upon the port of Guangdong through sea route would cost 770 yuan per ton after taking in the transportation cost. Later, when the supplies reached the client through middlemen, the bill could go up to 900 yuan per ton.

To Cai, he believed the battles for coal was more than just an economic war, but also a political one.

According to Cai, apart from negotiating with coal mines, power plants also maintained close ties with government officials, urging them to restrict sale of coal to other provinces, mobilizing contacts in railway department to ensure timely delivery, and contacting external mine supplies.

Fearing disruption in electricity supplies, local government officials – from provincial chief to city mayors – too had paid close attention to the power plants' plight.

All level of the local government had set up a special task force to ensure local coal supplies, its functions included pressuring coal miners to fulfill their contract obligations, and opening toll-free green lanes for coal-transporting vehicles. 

However, there were conflicts between a power industry that remained under a planned economy and the market-oriented coal mining industry. The former is under close government supervision and has the responsibility to ensure the electricity supply; while the latter operates according to market principles.

A state-owned coal distribution company's sales manager told the EO: "We have heard of the Hunan local government wanted priority to be given to local power plants. That's the job of the officials, our job is to ensure best deal for sale."

The same attitude applied to private mines, as one coal mine boss said: " If I could gain 100 yuan more per ton by selling to Guangdong, why shouldn't I?"

In May, Hunan local government issued a circular that demanded local mines to supply coal based on its electricity consumption. The circular also required mines to ensure timely, transparent and quality supply to local power plants.

"If local mines failed to supply coal to local power plants on time, they would experience a power cut," explained Cai. However, he believed this could only be a temporary measure and might not yield the desired result, as most coal mines had their own power generators.

Yet, the desperate measure appeared to have improved the situation. By the end of May, Cai's plant managed to obtain between 7,000 and 8,000 tons of coal per day compared to several hundred tons per day in the beginning of the month.

On May 28, Cai received a phone call from headquarters, saying 7,097 tons of coal had been delivered, the largest batch of supply since the snowstorm struck. Though still stationed hundreds of miles away in Shanxi province, Cai cracked a smile of relief, knowing the threat of production interruption had been deflected for the time being.