20 January 2014, National Energy Administration (NEA) published the Energy Work Plan for 2014, which sets the following key targets for this year:

• Total energy consumption to be ~3.88 billion tonnes of standard coal equivalent;
• Coal share of total energy mix to fall below 65%; and
• Non-fossil fuel share will increase to 10.7%.

This lines up with the “12^th Five Year Energy Development Plan” issued by the State Council on 1 January 2013:

• 2015 total energy consumption to be 40  billion tonnes of standard coal equivalent;
• Coal share of total energy mix to fall around 65%; and
• Non-fossil fuel share will increase to 11.4%.

For full 2014 Plan – click here and for full 2015 Plan click here (Chinese only).

Despite the decrease of coal’s share in the energy mix, demand for coal will continue to increase in absolute terms. According to British Petroleum’s Energy Outlook 2035, it is predicted that China will become the largest energy importer by 2035. This will provide both opportunities and challenges for local coal enterprises.

Coal Resource Tax

Moreover, miners could be faced with a coal resource tax. Recent developments towards this tax are as follows:

• 23 April 2013 – State Council Survey on Coal Deposits for Environmental Damage:  A total of 30 provinces & municipalities have set up deposit systems that require coal enterprises to pay local governments for potential damages to the environment. Until the end of 2012, local governments had collected RMB61.2 billion in deposits. In Shanxi, although the deposit scheme has been in place since 2006, it has only collected RMB9.7 billion by 2012 under the Coal Sustainable Development Fund. See full report on ecological compensation here (Chinese only)
• 12 November 2013 – State Council Sustainable Development Planning for National Resource-based Cities (2013-2020): 262 cities to improve their environmental performance by 2020. Ecological damage compensation schemes and deposits for potential damages to the environment form part of the proposed solutions.  See full plan here (Chinese only)
• 18 November 2013 – State Council Opinions on Promoting Smooth Operations of Coal Industry: MoF and NDRC tasked with cleaning up the coal industry in major coal-producing provinces by effectively reduce taxes and the charge burden on coal enterprises. See full opinion here (Chinese only)
• 17 December 2013 – MWR Water-for-Coal Plan: Large scale coal bases expansion must take into account regional water availability. See our summary here

Given these developments, China is expected to start promoting coal resource tax reform in  1H2014. Observers expect the proposed new tax be 2%-10%. Currently, the all-in coal-related taxes & fees account for 20%-30% of the operating income of coal enterprises (see full Chinese Xinhua article here).

The proposed coal resource tax reform intents to unify and replace some of the taxes and fees which have been mostly charged by local governments. Although specific rates of this new tax are yet to be determined at the regional level, there is still reason to be optimistic. See our views for 2014 in 5 Trends for 2014.