Coal Industry Faces Unprecedented Hardships in 2016

2016 was a year of enormous difficulties for the coal industry: Production slump, rising costs, capital shortage and growing competitive pressure.

High pressure
Domestic coal production faced mounting difficulties due to competition from imported cheap coal, sharp price slumps of minerals (alumina and hydrate) and coal tax hike of 3 per cent from July 1, 2016 (pit coal tax rose from 7 per cent to 10 per cent, opencast coal tax climbed from 9 per cent to 12 per cent, resulting in a combined coal price value of VND700 billion). Coal producers continued to maintain stable production and ensure employment and incomes for workers. In the first 11 months of 2016, the coal industry produced 37.39 million tonnes, down 0.3 per cent from the same period of last year.

Mr Le Minh Chuan, Chairman of the Board of Members of Vinacomin Group, said that although coal output dipped slightly, revenue and profit plunged due to many reasons like unfavourable market development, falling coal prices, weak sales and rising inventory. Besides, production costs kept rising because of more difficult production from deeper sources and growing environmental fees. Currently, selling prices are almost bottoming when fees and costs pick up.

Some coal buyers did not take the volume as stated in purchase contracts such as An Khanh, Vinh Tan 1 and Vung Ang 1 thermal power plants, fertiliser producers and cement producers.

Declining selling prices, notwithstanding production output equal to 97 per cent a year ago, caused a sharp slump in revenue. Tough business and shrinking revenue and profit forced Vinacomin to consider cutting 4,000 workers this year.

Rising capital demand
As the coalmining floor gets deeper, production costs and investment costs grow as a result. According to investment plans, the coal sector needed VND17,934 billion of investment capital a year.

According to coal industry development planning to 2020, with a vision to 2030, Vietnam will build the coal industry into a highly competitive industry powered by advanced technologies. Coal production will meet the demand of domestic power production.

According to the plan, the total coal demand will reach 86.4 million tonnes, 121.5 million tonnes and 156.6 million tonnes in 2020, 2025 and 2030, respectively. The biggest coal consumers are hydropower plants, which will respectively use up 64.1 million tonnes, 96.5 million tonnes and 131.1 million tonnes.

The investment demand of the coal industry in 2030 is VND269,003 billion, an average of VND17,934 billion a year. The fund will come from its own capital, commercial loans, concessional loans, share offering via the stock market and other sources.

According to the plan, coal export and import will meet domestic demand for coal types and volume. Exports will be gradually reduced while imports are sought to fulfil the domestic needs, particularly for power production.

The coal sector will enhance the quality of power supply system and apply power-saving solutions.

To carry out the master plan, the Ministry of Industry and Trade will focus on long-term coal supply solutions like accelerating coal exploration in Dong Bac basin to increase coal reserves, stepping up coal resource investigation and assessment in the Red River basin, actively negotiating with coal exporters to buy long-term coal import contracts, applying advanced methods in resources management, protection resources, and controlling transportation, processing and consumption of coal. It will diversify fund sources, pace up investment, strengthen cooperation, diversify training methods, and promote technology research and transfer.

Huong Ly