Russian mining companies are to use Chinese loans to finance the development of collieries in the Russian Far East, which will then supply Chinese energy producers.

This was revealed last week by Russian Deputy Energy Minister Anatoly Yanovsky.

In a significant development in Chinese policy, the country is issuing a $6-billion credit line for Russian enterprises to develop greenfield coal projects. Normally, China would grant credit to Chinese companies to exploit foreign mineral resources. A condition for the loans is that the recipient miners guarantee to increase their coal supplies to China.

No less than 80% of Chinese power plants are fuelled by coal, and the country is already the biggest consumer of coal in the world, with the volume of its coal imports more than tripling in 2009, compared with consumption in 2008. The country’s coal imports totalled 130-million tons last year, at an average price of $84/t, according to China’s General Administration of Customs.

Of this total, 11,8-million tons came from Russia, and China reportedly intends to increase its imports of the energy mineral from Russia to 15-million tons annually in five years and then again to at least 20-million tons a year, over the next 20 years. Russian coal was bought last year at an average price of $87/t, in sharp contrast to the average price China paid for Australian coal, which was $111/t.

It is not yet clear which Russian companies will benefit from the Chinese credit line. The Russian miners will negotiate directly with the Chinese funders and the Russian government will not be involved in deciding which projects will be funded, Yanovsky said.
He did not reveal any names of Russian companies interested in accessing the Chinese credit lines.

Yanovsky did state that major Russian conglomerate Mechel, which is the country’s largest producer of metallurgical coal and the third-largest producer of coal in general, would not be using Chinese funding as it had already obtained local financing for its new coal projects.
The company is busy developing its new Elga project, in eastern Siberia. (Mechel also produces iron-ore, steel, ferroalloys, steel downstream products, and electrical and heating power.)

Yanovsky said, however, that the deposits to be exploited with the Chinese funding could include the Elegest coalfield in eastern Siberia and a coalfield on Sakhalin Island. The licence to exploit the Elegest field is held by the United Industrial Corporation, which is a privately held company, owned by businessperson Sergei Pugachyov. (Pugachyov is reported to have hired the Credit Suisse group to privately sell shares in his company.) The coal resources on Sakhalin are held by a company called Sakhalinugol.

Other Russian companies that might benefit include the Evraz group, Novolipetsk Steel and Severstal. These are all seeking to develop metallurgical coal deposits in Siberia to feed their steel mills, and could be very happy to export any thermal coal they produce to China.

In addition, and separately, China’s biggest coal producer, Shenhua Group Corporation, is to explore for coal in Russia.

Still on the energy front, Russia is hoping to greatly increase its currently very limited presence in the Chinese gas market. The two countries are expected to sign a gas supply agreement next year, and shipments should start in 2015. China currently produces 80-billion cubic metres (bcm) of gas annually, but the country’s demand for gas is forecast to reach about 300 bcm/y in 2020.

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