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Chinese coal-to-gas and coal-to-chemicals operations sold off

World Coal,

Datang Power, one of the largest independent power producers in China, has announced its intention to divest its coal-to-gas and coal-to-chemical divisions. The company cited problems that have risked the company's attractiveness to investors. 

In a filing to the Hong Kong Stock Exchange late Monday, Datang said it will sell the operations to China Reform Corp., an asset management company backed by the ministry-level State-owned Assets Supervision and Administration Commission.

The assets include stakes in the Keqi and Fuxin coal-to-gas projects in Inner Mongolia and Liaoning provinces, respectively, as well as the Duolun coal-based methanol to propylene or MTP complex, also in Inner Mongolia.

Datang said the sale, which it described as a "reorganisation," would allow it to focus its capital and technology resources on its principal business, which is coal-fired power generation. In addition, the deal would optimise its business structure, improve its corporate strategy and increase its core competitiveness, the company claimed.

The company had initially developed its chemicals business to leverage its lignite coal reserves and abundant water resources in eastern Inner Mongolia, as well as to heed the government's push toward low-carbon chemical products.

However, operations have not run as smoothly as hoped. Shortly after starting up, production at the Keqi project – China's first large-scale coal-to-gas development – was suspended early in 2014 for about three months due to corrosion of the gasifiers.

The plan was to produce 1 billion m3/year from the project over 2014, before slowly scaling up production to the designed capacity of 4 billion m3/year.

Datang had signed a 30-year gas sales agreement with state-owned PetroChina for the gas in December 2013, with the gas transported from Keqi to Miyun in Beijing. From Miyun, the gas will be sent through PetroChina's 110-km (68-mile) Gubeikou-Gaoliying pipeline to northern Beijing.

Datang has a 51% stake in the Keqi project, with gas company Beijing Gas Group holding 33% and two other minority partners holding the remaining 16%. 

Datang was also developing the 4 billion m3/year Fuxin coal-to-gas project, although there has been no target date for commissioning, due to the issues arising at Keqi.

The Duolun project, which was officially commissioned at the end of 2013, has also been ravaged by mechanical problems at the MTP units. These issues ultimately led to a planned major overhaul at the facility, which will be carried out in August. 

Ultimately, the decision to divest has been forced because of a fear of what investors might think. In a research note Tuesday, Nomura Research said numerous mishaps, including various delays and repairs at the projects, have "continuously tested [...] investors' patience."

The sale of the assets will free up cash, stop losses and remove the "biggest overhang on the stock," the bank added. 

Datang said the transaction price for the assets will be negotiated and determined following the results of an audit and evaluation. 

Edited from various sources by Sam Dodson

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