Opening the Pioneer River of Coal and Electricity Reorganization

Energy is not only the source of economic development, but also the key factor affecting the quality of life of the public.

As a big power in China's coal industry, China Shenhua not only realizes the operation of the whole coal industry chain, but also opens the pioneer of coal and electricity restructuring through the merger of the group level and China Guodian Group Corporation. Li Jun, general manager and investment director of Shenzhen Fuxing Fund Management Co., Ltd., said in an interview with reporters of Securities Times E Company that, as the upstream and downstream industries with interdependent lip and teeth, the coal and thermal power industry has maintained a pattern of growth and decline year by year. The combination of "Shen Diao" has become a useful attempt to break the predicament of coal-fired roof cattle.

Eliminate the predicament of coal roof cattle

As the largest coal listed company in the world, China Shenhua's resource volume and industry influence are self-evident. According to the company's semi-annual report published on August 24, 2019, as of June 30, the coal reserves of enterprises under the Chinese standard are 30.13 billion tons, the coal reserves are 14.78 billion tons, and the coal sales reserves of enterprises under the JORC standard are 8.12 billion tons. The coal resources controlled by Shenhua in China are mainly located in Shaanxi and Inner Mongolia regions, which are also the key coal-producing bases in China. Their abundant coal resources have become a powerful backup to ensure the long-term stable production of enterprises. However, with the implementation of supply-side reform in the coal industry in 2016, the coal price has ended many years of downturn, and the contradiction between coal and electricity has been highlighted.

In the year of high coal price in 2017, as the leading representative of the industry, Shenhua's net profit increased 98.3% year-on-year, while that of Guodian Electric Power (2.470, 0.00, 0.00%) fell 52.97% year-on-year, which shows the opposite trend of the profit pattern of coal and electricity.

In March 2017, because of the heavy cost burden, Ningxia Seven Thermal Power Plants jointly reported to the local Economic and Credit Commission the rise in coal prices and other reasons leading to difficulties in business operation.

In August of that year, A-share listed company Huaneng Power also announced that the contract of Changxie Coal Company could not be fulfilled due to the reduction of production of coal mines under Shenhua Group. It is expected that the coal-fired power plants under the company will have a shortfall of 351.12 million tons, which will have a significant impact on the company and its power plants and will safeguard their rights in accordance with the law. Under this background, in July 2017, 16 ministries and commissions, such as the National Development and Reform Commission and the Ministry of Industry and Information Technology, jointly issued the Opinions on Promoting Supply-side Structural Reform to Prevent and Dissolve the Risk of Overcapacity of Coal and Electricity, and proposed that restructuring and integration should be actively promoted. Encourage and promote the restructuring and integration of large power generation groups, encourage the upstream and downstream enterprises of coal and power industry chains to play the synergistic effect of industrial chains, strengthen the long-term cooperation between coal and power enterprises, stabilize the coal market price, and support the dominant enterprises and main enterprises through asset restructuring, equity cooperation, asset replacement and free delimitation. Conversion and integration of coal and electricity resources. On August 28, 2017, SASAC approved the joint restructuring of Shenhua Group Co., Ltd., the former controlling shareholder of Shenhua Group, and Guodian Group. Shenhua Group changed its name to State Energy Investment Group Co., Ltd. as the restructured parent company, it has incorporated Guodian group. The combined state energy group, with assets exceeding 1.8 trillion yuan, ranks second only to the State Grid, PetroChina and Sinopec in China's energy central enterprises, becoming the fourth largest energy central enterprise in China.

"The restructuring of Shenhua Group and Guodian Group has not only created China's energy giant, but also opened the way for realizing coal-electricity pooling and building coal-electricity integration." Li Jun, general manager and investment director of Shenzhen Fuxing Fund Management Co., Ltd. The restructuring of Shenhua Group and Guodian Group is conducive to alleviating the long-standing contradiction between coal and electricity, enabling coal and power upstream and downstream enterprises to play the synergistic effect of industrial chain and further enhance the integrated management level of coal and electricity. Guan Dalian, a futures analyst in Yide, believes that merging the resources of the former leading enterprises in coal and power fields in China can provide samples for smoothing coal-electricity relations, breaking through industrial obstructions and enhancing comparative advantages. It can effectively alleviate the problems of homogeneous development and resource decentralization, and achieve the optimal allocation of resources at a higher level in the field of coal and power. Under the background of supply-side reform, it has a very positive significance. The joint restructuring of Shenhua Group and State Power Group is the largest restructuring of central enterprises since the founding of New China. National Energy Group has become the first central enterprise of reform and reorganization after the 19th National Congress of the Party. It has eight industrial sectors, including coal, thermal power, new energy, hydropower, transportation, chemical industry, science and technology, environmental protection, finance, and so on. It is the largest coal production company in the world, thermal power generation company, wind power generation company and coal-fired coal chemical company. At present, the total number of employees in the National Energy Group is 350,000. By the end of 2017, it had 480 million tons of coal production capacity and 226 million kilowatts of power installed, including 175 million kilowatts of thermal power. The Group is the only company in the world that has mastered the technology of direct coal liquefaction and indirect coal liquefaction of millions of tons at the same time. It operates 2 155 kilometers of self-operated railways, has design throughput capacity of 247 million tons of ports and 62 ships.

As the industrial foundation of the National Energy Group, the vast majority of coal resources come from the original Shenhua Group. According to the official website, the State Energy Group has 97 coal mines with a capacity of 685 million tons per year. Among them, 74 wellworks and coalmines have 420 million tons per year and 23 open-pit coalmines have 264 million tons per year. In 2017, the output was 508 million tons, and the mechanization rate of mining reached 100%. At the same time, the Group has the world's first 200 million tons of Shendong.