Coal Bed Methane ("CBM"),
also known as coal mine gas, naturally exists as a gas absorbed in
coal deposits. CBM has great potential in China as a clean source
of energy. On the other hand, due to its flammable nature, it has
also been fingered as a major culprit in coal mine accidents.
Therefore, the proper extraction and utilisation of CBM prior to
coal mining can bring both economic and safety benefits.
Methane is one of the six greenhouse
gases defined in the Untied Nations Framework Convention on Climate
Change. Comprehensive utilisation of CBM captured from coal mines,
such as through power generation, is eligible under the Kyoto
Protocol for carbon credits under the clean development mechanism
This article outlines Chinese
government policy toward foreign investment in CBM. It explains how
CBM investments in China must take the form of a joint venture, and
how such a joint venture must be majority-held by Chinese partners
if it wishes to seek CDM status for its projects.
Exploration and Exploitation
The Catalogue of Industries for
Guiding Foreign Investment ("Investment Catalogue"),
which sets forth restrictions on foreign investment in various
industries, restricts the exploration and exploitation of CBM to
equity joint ventures and cooperative joint ventures. Thus, foreign
companies who seek to invest in exploration and exploitation of CBM
in China are not entitled to carry out such operations with a
wholly foreign owned enterprise, but have to cooperate with one or
more Chinese partners by setting up a joint venture.
Currently, China United Coal Bed
Methane Co., Ltd., an enterprise established in 1996 with the
approval of the State Council, is the sole Chinese enterprise
authorised to cooperate with foreign companies in the exploration
and exploitation of CBM. However, the Circular of the Ministry of
Commerce, the National Development and Reform Commission and the
Ministry of Land and Resources on Relevant Issues Concerning
Further Expansion of Foreign Cooperation on Coal Bed Methane
Exploitation, which was issued on 17 October 2007, calls for the
designation of other qualified domestic investment partners. The
circular calls on the Ministry of Commerce, the National
Development and Reform Commission ("NDRC") and other
relevant authorities to jointly select other domestic enterprises
to carry out pilot exploitation of CBM in cooperation with foreign
companies within certain regions designated by the State Council.
This policy should provide foreign companies in the future with
more choices for selecting a local partner.
Utilisation of CBM
– Power Generation
The Chinese government encourages
the use of CBM, especially for power generation. But, just as for
exploration and exploitation of CBM, the Investment Catalogue
restricts foreign investment in the utilisation of CBM to joint
The Implementing Opinion on Power
Generation by Utilising CBM, issued by the NDRC and effective as of
2 April 2007, sets forth incentives and guidelines for the use of
CBM. It gives priority, in principle, for the use of power
generated from CBM to the coal mining area, and allows companies
that supply the power grid to purchase surplus energy. CBM power
plants are not required to participate in tariff bidding, nor will
they be subject to any peak load tasks. Further, the on-grid tariff
for CBM power shall be determined by reference to the biomass power
tariff set out in the Trial Measures on the Administration of
Pricing and Allocation of Expenses in Relation to Electricity
Generated Using Renewable Energy. This is comprised of the
benchmark on-grid tariff for provincial desulfurised coal-fired
generators in 2005 plus a subsidy tariff.
These favourable policies have led
to greater interest among foreign companies in establishing CBM
power plants by cooperating with local coal mining companies.
However, investors who wish to seek CDM classification for their
power plant should be aware that Chinese parties must be the
majority shareholders in such joint ventures. Under the Kyoto
Protocol, CBM power plants are eligible to apply for CDM status due
to the reduction of methane emissions that result from the power
generation process. However, in accordance with the Measures on the
Operation and Management of CDM Projects, only domestic companies
or Sino-foreign joint venture companies with Chinese parties as
majority shareholders may apply for classification as a CDM
In sum, although the Chinese
government has taken a position that encourages the production and
use of CBM, its policies also demonstrate an interest in keeping
domestic Chinese enterprises deeply involved in such projects.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
To print this article, all you need is to be registered on Mondaq.com.
Click to Login as an existing user or Register so you can print this article.
The Court in this Judgment has exhaustively addressed the issue of legitimacy of claims raised by the mining leaseholders to recommence mining operations...
Some comments from our readers… “The articles are extremely timely and highly applicable” “I often find critical information not available elsewhere” “As in-house counsel, Mondaq’s service is of great value”
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).