China Power Plants Exempt from ban on Low-Quality Coal

China's bid to limit the consumption of low-quality thermal coal in major cities to help curb pollution will not apply to power plants, traders and utility sources said, exempting a sector responsible for half the country's coal use.

China said on Monday that from 2015 it would restrict the production, consumption and import of coal with high impurity levels in a bid to fight smog, much of which is caused by using coal for heating and electricity.

The government set three new quality thresholds, with the most stringent requirement banning the use of coal with more than 16 pct ash and 1 percent sulphur content in key population centers like Beijing and the Yangtze river delta region.

The move led to worries among some Australian producers that deliveries to China - accounting for about a quarter of the country's total exports - would be affected.

But two sources from large power companies said utilities would be exempt from these requirements.

"This regulation doesn't affect us. It doesn't apply to power stations so we will continue taking Australian coal if the price is right," said an executive in charge of coal procurement at one of the country's top utility firms.

Industry experts noted the National Development and Reform Commission's (NDRC) policy document set the most stringent requirement for coal known colloquially as "san mei" - a variety typically used to heat hotels or restaurants.

Coal consumed by large scale power plants and other industrial users is typically referred as "commercial coal".

"No one was really sure what the NDRC meant by 'san mei', which is why the market got confused and thought it would include commercial coal," said a trader from a large international firm.

"But we have also received clarifications from our utilities customers that this regulation doesn't apply to them."

The NDRC could not be reached for comment.

With power plants exempt from the restrictions, the impact on imports will be limited.

The Minerals Council Of Australia has already said the regulation will have little impact on the country's miners.

China's power companies, which have suffered steep losses in the past decade due to high coal prices, have lobbied hard against plans proposed by the coal association to restrict imports.

At an industry meeting held in late August by top power firms, miners and the NDRC, utility representatives argued that any move to restrict imports would push up generation costs.

China is also aiming to cut the share of coal in its total energy mix to 62 percent by 2020, down from about 65 percent now, according to a separate policy document published by the NDRC on Friday.

The document also raises efficiency standards for coal use in power plants and will seek to cut the amount of coal burned for heating, a major source of smog.

Currently, about 50 percent of coal used in China is turned into electricity, but this should rise to 60 percent by 2020, the document said.

The NDRC said smog-affected regions like Beijing, Hebei and the Pearl and Yangtze river deltas would have to reduce coal use elsewhere before any new coal-consuming project was allowed to go into operation. It also confirmed China would not allow the construction of new thermal power plants in those regions.

By Fayen Wong and Sonali Paul