China to restructure coal industry by forming giant groups

China plans to restructure its coal industry by forming six to eight coal groups with each boasting a production capacity of 100 million tons by 2010 through mergers and acquisitions, according to a recent government document.

With the average output remaining low, China's coal companies need regrouping to make better use of their resources, said Pu Hongjiu, vice chairman of the China National Coal Association.

The country will also have another eight to ten coal groups with a production capacity of 50 million tons each, said the document jointly issued by five ministries including the National Development and Reform Commission.

These giant groups are expected to contribute more than half of China's coal output of 2.6 billion tons in 2010, it added.

The move comes in the wake of a nationwide campaign to close small coal mines, which account for one third of China's total production but two thirds of the deaths resulting from colliery accidents. In 2006, accidents in small coal mines claimed 3,431 lives.

China produced 2.4 billion tons of coal last year but production of its 80,000 coal companies averaged only 30,000 tons.

Large companies will have more resources by acquiring small ones, said Huang Qing, directorate secretary with Shenhua Group, which produced 203 million tons of raw coal last year to become China's first coal company to pass the 200-million-ton milestone.

The country's second largest coal producer, China National Coal Group, produced 90.6 million tons of coal last year.

The document also encouraged mergers between companies from different regions and from different sectors such as coal, power and transportation.