Chinese energy companies should not be overly integrated

Since the “Eleventh Five-Year Plan”, most of China’s energy companies have developed their business models in the direction of diversification and integration, and formed a number of integrated enterprises such as “coal power”, “coal circuit” and “coal oil”. Undoubtedly, the integration model brings great benefits to reducing transaction costs, increasing the production scale of the shortage industry, and harmonizing the relationship between industries. However, in the current situation, over-integration also brings a series of problems, especially in the case of imperfect market mechanisms, resulting in a waste of social resources. How to reasonably implement the "integration" of energy companies and make social benefits consistent with corporate interests is a problem that needs to be solved urgently.

What is the status of the business model?

In the early 1980s, the former Ministry of Coal proposed the guidelines for the three main bodies of coal production, capital construction, and diversification, and supported coal companies in actively developing diversified operations. The integrated business model of Chinese energy companies started. Since most of the integration development at that time did not form an economic scale and the economic efficiency was generally poor, the vast majority of companies that invested 3 billion yuan in coal each year were mostly formed through development funds and ended in bankruptcy or conversion. The main reasons for the failure of coal diversified enterprises are the small scale of enterprises, extensive management and management, and the lack of professionals in relevant industries.

In order to develop as soon as possible the Shenfu Dongsheng coalfield, to solve the long-standing contradiction between coal, electricity, and transportation and to ease the pressure on transportation, the state has given Shenhua Group the integrated development of coal, electricity, roads, ports, and oil, to carry out energy companies. Exploration and piloting of integrated operations. With the support of the state, after years of unremitting efforts and practice by Shenhua Group, Shenhua's integrated operation model has been successful. By the end of the last century, Shenhua Group had built a large-scale energy company based on coal, coal, electricity, and oil transportation.

It is in the Shenhua Group's integrated operating model, driven by the rapid expansion and development of energy companies' integrated business models since 2005, among which coal, electricity, coal, and coal chemicals have become mainstream. Of the top 10 coal companies with the top 10 turnover in 2010, 10 have all developed coal chemical projects; 7 have implemented coal-electricity integration, wholly-owned, shareholding or equity participation in the construction of pit power plants; 6 operate modern logistics trade; 5 Home is engaged in equipment manufacturing; individual companies enter the building materials, pharmaceuticals, non-ferrous metals and other industries. At the same time, other industries have also entered the coal industry in large numbers. The “Annual Report on Central Coal Mine Safety Production (2010)” shows that as of the end of 2010, the number of enterprises that the central enterprises invested in coal mining reached 16, except for Shenhua, which is a coal mining industry. In addition to the Group and China Coal Energy Group, there are six power companies (including the five major power groups), one each in investment, real estate, steel, scientific research, railways, military products trade, chemical industry, and agricultural enterprises, involving a total of eight industries. The coal production of coal-related state-owned enterprises has continued to increase substantially, from 280 million tons in 2005 to 7.1 million tons in 2010.

The analysis of the reasons for the rapid promotion and development of the current energy companies' integrated business model mainly includes the following four aspects:

First, due to the implementation of price controls on some industries, the differences in interests between industries have widened, and the return on investment between upstream and downstream industries is far from one another. In particular, coal prices have been rising in recent years, and electricity prices have been controlled by the state, which has not been able to keep up with the overall rise in coal-based energy prices. As the gap between the power generation companies and coal production companies continues to widen, power generation companies have been forced to invest in coal production. As a pillar industry of the national economy, the energy industry is subject to government regulation. For a long time, the price of coal as China's main energy source has always been set by the state. In 2006, the country began to liberalize coal prices gradually. In 2007, the country no longer organized coal orders to formulate coal prices, but coal and electricity parties negotiated on their own. With the rise in coal prices, the cost of thermal power generation companies has increased significantly, and the price of thermal power of final products has been slow to be controlled by the government. This is not enough to make up for the increase in coal prices, which has intensified the conflict of interests among coal and power companies. According to statistics, the price of high-quality coal in the Qinhuangdao coal market has increased from about 270 yuan/ton in 2003 to about 800 yuan/ton in the current period, an increase of about 3 times; and the increase in on-grid electricity prices in the same period was less than 40%. In order to increase corporate profits and protect the supply of coal, power companies have entered the coal industry in large numbers and are engaged in coal production themselves. According to incomplete statistics, by 2011, the five largest power companies' coal production capacity has reached 200 million tons, and continues to grow rapidly, and it is expected to reach 500 million tons by the end of the “Twelfth Five-year Plan” period.

Second, the lack of transport capacity severely restricts the development of other industries, especially the coal industry. As China's coal resources endow with the economic development pattern, the basic pattern of long-distance and large-scale transport of coal resources in China, namely, “West-to-East coal transportation and Northern coal-to-coast transportation,” is formed. For a long time, coal transportation has been the main factor restricting China’s coal supply. By the end of 2012, coal transportation has accounted for about 60% of the total railway transportation volume in China. Some coal transportation passages such as Daqin, Fengsha, Shitai Railway, etc. have been used. Already in super saturation. The limitation of transportation resources has become a bottleneck for the development of coal companies. Some coal-fired power companies, in order to accelerate their own development and grasp the initiative of transport, have invested in the construction of railways in order to obtain more railway capacity.

Third, the successful experience of integrated operations has enabled more industries to try integrated business models and achieved certain results. In particular, after more than 20 years of vertical integration practices, Shenhua Group has formed a comprehensive energy company that is based on coal, electric power, railways, ports, shipping, coal-to-liquids, and coal-based chemical industries. By 2011, coal sales have reached 500 million tons, with more than 40 million kilowatts of electric power installed, and the economic benefits are among the highest among the central enterprises. The extraordinary rapid development of Shenhua Group has received extensive attention from domestic and foreign enterprises and the society. The success of this integrated business model has played a leading role for other companies, making other industry companies actively try integrated development and promoted coal-fired power. The development of integrated operations such as coal transportation, coal transportation, and coal chemical industry.

The fourth is the support and encouragement of national policies. In June 2005, the "Several Opinions of the State Council on Promoting the Healthy Development of the Coal Industry" clearly stated: Encourage the development of coal-electricity integration, and encourage large-scale coal enterprises to join joint ventures with metallurgical, chemical, building materials, and transportation enterprises. In the same year, the China Coal Industry Association (CCIA) has promoted the integration of “coal, electricity, metallurgy, and chemical industries” and “integrated management of coal, electricity, roads, ports, and aviation” as one of the six important basic principles for the healthy development of the coal industry. . Under the encouragement and guidance of national policies, domestic coal companies rely on resources and location advantages to conduct integrated operations, and integration of coal, electricity, coal, and coal chemical industries has become mainstream.