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Coal Shares Tumble

Coal shares tumble on concern over resource tax reform

Eric Ng – SCMP – Updated on Jul 05, 2008

Mainland coal stocks tumbled on speculation the central government would unveil a long-expected drastic rise in resource tax paid by coal miners as soon as this weekend, in a bid to reduce resource wastage and pollution.

The planned tax reform, first proposed in 2006, might also come as a kind of windfall tax after coal price soared, analysts said.

Like the windfall tax imposed on oil production revenues, the levy collected from miners could be used to subsidise loss-making power generators that suffered from tight government control on electricity tariffs to tame inflation, the analysts added.

Beijing this weekend will launch the much-anticipated reform of the coal resource tax from one collected on a per-tonne basis to one charged as a percentage of sales revenues, according to the National Business Daily, which did not cite anyone. It would also increase the levy, the report added, without giving the amount.

Coal producers now pay 2.50 yuan to 3.50 yuan (HK$2.85 to HK$4) per tonne or about 1 per cent of their revenues, according to Nomura Securities analyst Donovan Huang. Sun Yaohai, director of the National People’s Congress’ Regulation Office of Environmental and Resources Protection Commission, was quoted by China Business News last November as saying Beijing wanted to increase that to 3 per cent of revenues.

Mr Huang said a 3 per cent tax on the average price charged by coal miners to distributors, without the transportation cost of about 350 yuan a tonne, amounts to 10.50 yuan a tonne or 7 yuan to 8 yuan higher than at present.

Based on Yanzhou Coal Mining’s 34.4 million tonnes of planned sales of self-produced output this year, the tax increase could amount to as much as 275.2 million yuan. For China Shenhua, with planned sales of 177 million tonnes, that would be 1.42 billion yuan and for China Coal Energy’s 100 million tonnes, it would be about 800 million yuan.

The amounts would represent 8.38 per cent of Yanzhou’s net profit as forecast by Thomson Reuters, 4.26 per cent of China Shenhua’s and 8.33 per cent of China Coal’s.

However, some analysts have already accounted for the tax in their earnings forecasts.

The three coal miners’ shares yesterday fell 0.35 per cent to 4.7 per cent in Hong Kong, and a deeper 6.7 per cent to 8.13 per cent in Shanghai.

Mr Huang said he assumed the 3 per cent levy would take effect from this month.

However, it remained uncertain whether the government would impose a higher than 3 per cent levy, Mr Huang said, considering that the tax may become a kind of windfall tax and the heavy losses suffered by power companies. The other unknown is whether the tax would be levied in a progressive manner according to the level of coal price, similar to the windfall tax on crude oil revenues.

Beijing has imposed a temporary price freeze on coal prices charged by miners at mid-June levels. However, Mr Huang said this had not stopped distributors from charging more. The spot market price at Qinghuangdao port has surged 10.9 per cent since the price cap was imposed.

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