The nation's largest power producer, China Huaneng Group (CHNG) signed an agreement on Friday with Shanxi-based Datong Coal Mine Group to build a 100-million-ton-per-annum coal mine in the northern province. The two energy producers will set up a 700-million-yuan (US$86.3 million)-registered joint-venture for the Fengyu coal mine project, which is located south of Shuozhou, Shanxi Province.

A CHNG subsidiary for the group's energy resource and transportation services will own 49 per cent of the coal project, with the remaining 51 per cent controlled by Datong Coal Mine.

The two companies will invest a total of 2 billion yuan (US$246.6 million) to build a large-size coal mine able to produce 10 million tons of coal annually as well as to construct supporting facilities for coal cleaning and rail transportation, said CHNG in a statement sent to China Daily.

Construction of the project will start next March, and the coal mine is scheduled to go into operation by the end of 2007.

According to the agreement, 49 per cent of the coal produced in the Fengyu mine will be supplied to feed CHNG's coal-fired plants, which make up more than 90 per cent of the power giant's output portfolio.

And CHNG has the priority to buy the remaining Fengyu-produced coal which is sold to the market.

The partnership reflects the power company's long-term strategy to extend business to more energy sectors and financing services while focused on electricity generation, Zhou Chengwen, CHNG's director for media relations, on Friday told China Daily in a telephone interview.

Besides, gaining a stake in the coal project will help the power producers to secure long-term and stable coal supply as well as to fend off the market risks when the coal prices still maintain the bearish trend, Zhou added.

CHNG statistics show the power producer used some 42 million tons of coal to generate 122.17 billion kilowatt-hours of electricity in the first half of this year.

Zhou said the co-investment will help the coal firm to deepen relations with its strategic buyers and will boost its profitability in the long run.

Datong Coal Mine was not available for comment on Friday.

Zhu Hongren, deputy director of the Bureau of Economic Operations under the National Development and Reform Commission, said the central government is encouraging the joint operations within the coal and power companies, in a move mainly to ease the squeezed coal supply shortages that have plagued the power sector.

(China Daily 08/13/2005 page3)