China introduces long-term coal contracts for power generation, heating companies

At the ‘2022 Shanxi Coal Trading Conference’ held in China recently, the Shanxi Energy Bureau underlined the requirements for signing and fulfilling medium-to long-term coal contracts. 

According to the requirements laid down by China’s top planner National Development and Reform Commission (NDRC), suppliers of medium- to long-term coal contracts shall cover all coal-producing enterprises. The contractual volume signed by coal companies above a certain size should reach more than 80% of their own resources. 

Checking price fluctuations

 More than 90% of increased capacity approved since 2019 should be signed off, and all increased capacity approved should sign medium- to long-term contracts for power coal. The contracts of power generation and heating enterprises must be fully covered and should cover annual coal consumption. 

The contracts form a long-term mechanism for cooperation between production, transportation and consumption, which is conducive to stabilising market expectations and reducing coal price fluctuations. 

The coal contracts assume significance in winter when supply guarantee is called for. As many as 40 coal enterprises in Ordos, the main producing area, have signed long-term agreements with 18 provinces, autonomous regions and cities involving 53.64 million tonnes (mn t) of coal. 

Fulfilling contracts

 According to the work plan for signing and performing of contracts in 2022, the coverage next year is larger than in previous years. In principle, the supplier covers all coal production enterprises with an approved capacity of 300,000 t and above. 

After deducting imported coal, the annual consumption of power generation and heating enterprises should achieve full coverage under medium- to long-term contracts. This is the first time that power generation and heating enterprises will implement 100% of the long-term agreement, compared with 75% last year.

 According to the work plan, the monthly performance rate of a single contract shall not be less than 80%, and the quarterly and annual performance rates shall not be less than 90%. All parties involved in production, transportation and consumption, break down the annual contracts into months. The monthly performance rate shall not be less than 90%, and the quarterly and annual performance rates shall not be less than 95%.