On July 13, 2020, SDEG was newly incorporated upon an agreed merger between the former Yankuang Group and the former Shandong Energy Group. Since then, SDEG has been actively promoting the reform, development and transformation. What achievements have been made? Has SDEG secured successful experiences? What does the future hold? With these questions in mind, recently, our correspondent interviewed Li Wei, Secretary of the CPC Shandong Energy Committee and Chairman of SDEG.
Accelerating industrial and regional integration in market-oriented approach so as to achieve "six synergies".
Li Wei introduced that the responsibilities of the new SDEG have been positioned as “ one guarantee and two optimizations” by the CPC Shandong Provincial Committee and Shandong Provincial People’s Government, i.e. guaranteeing Shandong’s energy security and optimizing Shandong’ s energy mix and energy layout.
Based on the above responsibilities, SDEG has identified “Mining, Electric Power, High-end Chemicals, High-end Equipment Manufacturing, New Energy and New Materials, and Modern Logistics and Trade” as its six major business segments. In addition, SDEG will promote reforms, development and transformation by closely focusing on its positioned responsibilities and its major business segments.
“The former Yankuang Group, as a traditional energy enterprise, developed itself through a market-oriented approach, whose businesses were divided based on different industrial segments. However, the former Shandong Energy Group followed the traditional operation mode and divided itself into several second-level subsidiaries with each running diversified businesses, leaving the industrial and regional integration yet to be carried out”. Li Wei commented that one of the important tasks the new SEDG should complete is to organically integrate the two different development models and give full play to their respective advantages on basis of strictly adhering to the safety bottom line.
The two headquarters took the lead in completing the merger and reorganization between the two groups. The second half of 2020 witnessed the smooth and swift integration of the two headquarters and the results are as follows: the number of departments has been reduced by 50% with staff cut off by 31% and 36 middle-level management withdrawn from their positions. Compared with the pre-merger period, the reorganized headquarter have become much more streamlined and operated more efficiently.
In June 2021, Li Wei returned to SDEG, and took the position as Secretary of CPC Shandong Energy Committee and Chairman of SDEG. Facing the heavy duties and immense pressure brought by the reorganizing and integrating, maintaining safety and stability as well as production and business operation, Li Wei firstly focused on stabilizing safety through proposing and implementing two-year action plan of safety battle and establishing the “2356” safety control system to adapt to the new changes brought by reforms and development. Putting equal emphasis on "management, equipment, system and quality", SDEG gradually stabilized safety production through a series of measures such as strictly implementing the three-tiered safety management and control accountability system, thoroughly carrying out safety inspection and rectification, and deepening the source management of major disasters. This year, the “No.1 document” issued by SDEG is Decision on Strengthening the Work of Safety Production in 2022, in which safety production is again prioritized in all works and the bottom line for safety development is required to be guarded unswervingly.
Only when safety has been stabilized could other works such as supply guarantee, reform and transformation go hand in hand.
As a key backbone enterprise of Shandong Province, one of the core responsibilities of SDEG is to ensure the energy security in Shandong Province. Starting from the second half of 2021, SDEG has taken multiple measures to deal with severe shortage of coal supply. By cutting off a total profit of RMB10 billion, SDEG has supplied nearly 30 million tons of thermal coal both inside and outside Shandong Province, successfully completing the task of supply guarantee. Besides, SDEG has strengthened its coal reserve capacity by implementing 15 key projects, and has completed the province's coal reserve tasks for peak summer and peak winter ahead of schedule. SDEG will fully promote Yulong Island Refining-petrochemical Integration Project in an orderly way, and build it as a landmark project when implementing “replacing old growth drivers with new ones” in Shandong Province. In 2021, SDEG was conferred the title of "Shandong Socially Responsible Enterprise" and ranked No.1 among all nominated enterprises.
In 2021, “integration” was the key word that had been embedded in the whole process of SDEG’s reform and development. In response to miscellaneous management levels, long decision-making chain, low operational efficiency and other issues, SDEG actively promoted industrial and regional integration.
It is known that a total of six second-level subsidiaries of SDEG are developing the same coal industry in the Heze region. In Shaanxi, Inner Mongolia, Xinjiang and other places, there are also a number of mining groups affiliated to SDEG that are conducting homogeneous investment and industrial diversification.
The result is that due to the low industrial development intensity, low efficiency and difficulties in management brought by long control radius, it is impossible to achieve synergy in management, resources and others.
In 2021, in accordance with the principle of realizing intensive layout by regions, SDEG insisted on taking the approach of “establishing first and then breaking”. Taking property rights as the link while coordinating the interests of all parties, SDEG established Luxi Mining Group, Xibei Mining Group, Xinjiang Neng Hua Company and Xinwen Mining Inner Mongolia Energy Group through integration, forming a pattern of “one management body and one investment body in one region”.
The purpose of integration is to better respond to market competition, and the approach is also market-oriented. “Taking property rights as the link and coal mines as “dowries”, Linyi Mining Group and other second-level subsidiaries invest in and hold shares of the newly formed regional companies by their respective audited and evaluated net assets. Li Wei said: “Previously there existed superfluous parent companies, which resulted in low development synergy. But through restructuring, we have achieved intensive development and personnel will be transferred together with assets. The new regional companies will be responsible for the unified management of daily production and operation and concentrate efforts to make bigger “cakes”. As for the original parent companies, they will exercise their rights as shareholders and share their dividends in accordance with market principles.
“Establishing first and then breaking” is one of the important principles that SDEG adhered to in the reorganization and integration. Taking the integration of mining industry as an example, Zibo Mining Group, Linyi Mining Group, Longkou Mining Group and other secondary subsidiaries will still survive. However, mines affiliated to these secondary companies will be accordingly transferred to the four regional mining companies. While these mines’ management units have been replaced, their personnel and production operations remain unchanged. The original secondary subsidiaries will take charge of other non-mining industries. In the next step, SDEG will further integrate these non-mining industries based on industrial categorization.
In addition to mining industry, SDEG also completed the restructuring of marketing and trade, chemical industry, material supply, finance and other industries in 2021.
“After regional and industrial integration, SDEG will take separate routes to develop its listed companies and non-listed companies. While supporting listed companies to become better and stronger, SDEG will securitize the assets of non-listed companies at appropriate times and strives to form a '1+N' listing pattern in 3 to 5 years.” Li Wei said.
The industrial integration also means reforming the second-level subsidiaries. In view of the super-large number of personnel, miscellaneous units and institutions, lengthy management chain and low management and control efficiency, SDEG has reformed the second-level subsidiaries. The approach is summarized as "two compressions, one reduction and one optimization", that is, to compress the number of management and organizations, to reduce the size of the organizations and to optimize working posts. In 2021, after sorting and integrating, SDEG has cut down 23 second-level subsidiaries and 49 third-level subsidiaries while its 6 mining groups have reduced altogether 47 headquarter organizations and downsized 805 management positions. The ultimate purpose is to build SDEG into a streamlined energy enterprise with lean personnel and improved efficiency. At the same time, SDEG also fully implemented the tenure system and contractual management among all managerial level personnel from all its subsidiaries.
The reforms of the third-level subsidiaries are underway and also the key focus for SDEG in its next round of reform.
At the beginning of the joint reorganization of SDEG, it was proposed to realize the "six synergies" in region, industries, resources, management, personnel and market. At present, all related work is thoroughly progressing and the synergy effect has initially appeared.
Taking synergy of personnel as an example, after the joint restructuring, the personnel of resource depleted mines can be deployed across units and transferred to the new mines of another enterprise where these personnel could continue to employ their expertise and management advantages thus solving the problem of how to arrange the surplus personnel within SDEG. In addition, it also brings down the general labor costs for the SDEG.
Another example is the synergy of resources. The reorganized SDEG is equipped with much more complete categories of coal products and extra-adequate available resources therefore it could provide customers with better services and secure advantages in market competition.
Five out of SDEG’s six major industries are related to coal. Mining, of course, mainly refers to coal mining. Electric Power is mostly coal-fired power generation and a large part of High-end Chemicals is actually coal chemicals. As for High-end equipment manufacturing, SDEG mainly manufactures mining equipment. And coal serves as the main commodity in Modern Logistics and Trade. Industrial synergy among different pillar industries is also the development potential that SDEG focuses on exploiting. For example, industrial synergy can be forged among Coal Mining, Electric Power and High-end Chemicals. Given the bad time of coal market, SDEG might benefit from its downstream industries such as Electric Power and High-end Chemicals, and vice versa.
The synergetic efficiency and benefits among different industries can be huge. In 2021, SDEG has achieved a revenue of RMB4.5 billion through synergy effect.
Shandong International Commodity Exchange
Based on coal, SDEG moves towards intelligence and digitalization
Among the six major industries of SDEG, coal-based mining industry is obviously at the core. Even in the face of public pressure such as "de-coalization", SDEG has not diverted its attention from the coal industry, instead it has accelerated its pace in optimizing coal reserve conditions, regional layout, coal types and coal quality, and selected and acquired competitive coal assets. SDEG proposed that by the end of the “14th Five-Year Plan”, it will ensure a total coal production of 350Mt/a from both domestic and overseas mines and strive to reach 400Mt/a.
Why SDEG proposed such a target?
“Given China's coal dominated energy endowment and poor reserve in oil and gas, it is only through coal that we can take the initiative and secure energy security. Although China's proven coal reserves are about 1.5 trillion tons, excluding those in nature reserves and those occupied by closed coal mines, plus an overall mine recovery rate of less than 40%, the remaining resources that can be exploited in green and economic ways may be less than 500 billion tons.” Li Wei explained, “At present, China consumes about 4 billion tons of coal each year, and these remaining coal resources may still be insufficient to meet China’s energy demands before carbon peaking and carbon neutrality. It is estimated by experts that 1.2-1.5 billion tons of coal are needed for peak regulation, chemical industries and others in China per year even after achieving carbon neutrality.”
Based on this, SDEG proposed that by the end of the “14th Five-Year Plan” (2021-2025), it will ensure a total coal production of 350 million tons from both domestic and international mining sites and strive to reach a 400 million tons of output.
SDEG has the confidence in achieving the goal.
In terms of resource guarantee, SDEG has increased its capital holding in Inner Mongolia Mining Group in 2021, acquiring a total of 4.7 billion tons of coal resources through various means. The mines under construction have an annual coal production capacity of tens of millions tons, which is expected to be released at the end of the 14th Five-Year Plan.
Viewing global development as its long-term focus, SDEG has been steadily developing resources in Australia, Canada, Latin America and other regions using its technological, managerial and other advantages and has become China’s only coal-based company that has been listed on four major listing platforms in both China and beyond (Shanghai, Hong Kong, Australia, and New York). In 2021, Yankuang Energy's market capitalization exceeded RMB100 billion, ranking the first in Chinese coal industry and the fourth among global coal industry by the Dow Jones Sustainability Emerging Markets Index. For its next move, Yankuang Energy will specially focus on Australia where it will conduct capacity upgrading and M&As and build a coal production base of over a hundred million tons’ capacity.
In terms of mining technology management, SDEG also takes the leading position in China. In September 2020, SDEG successfully held National Coal Mine Intelligentization Site Promotion Meeting. On June 18, 2021, China's first “Coal 5G + Industrial Internet Standardization Working Group" started its work at SDEG.
"We are committed to seek intelligent and digital development." Li Wei said, "We are working with Huawei for a digital transformation plan."
However, Li Wei refused to "deify" intelligence. He pointed out that breakthroughs are needed in some core technologies of intelligent mining, such as coal & rock identification. The intelligence applied on the ground is still in its infancy. Meanwhile, if related technologies want underground application, we must navigate the challenges of matching and integration.
Practically and realistically speaking, Li Wei is well-prepared to lead SDEG in the direction of "enabling heavy equipment, high reliability, fewer labors but with higher efficiency, and normal operation". Essentially, what we want is intelligent, efficient coal mines－“Inside this kind of modern mines, we must strike an appropriate balance between efficiency improvement and normal coal production. Although we try our best to slim down underground workers, some staff, however few, must be there, otherwise production will halt. Hopefully, if we manage to reduce the number of workers and their labor intensity, accompanied by better production efficiency, the underground production environment can be fundamentally improved, hence safer production”.
In this aspect, SDEG took steps to classify coal mines and build a batch of "155", "277" and "388" mines. To be more specific, "155" mines require no more than 100 people in a single shift underground, as well as 5 people in coal mining working face and advancement working face; "277" mines require no more than 200 people in a single shift, 7 people in coal mining working face and advancement working face; "388" mines require no more than 300 people in a single shift, and 8 people in the two faces, respectively.
Jinjitan Coal Mine is a stand-out of SDEG's intelligent and efficient mines. The mine has built a leading fully-mechanized intelligent top-coal caving working face in China, with a daily output of more than 50,000 tons of coal. The number of people in a single shift is only about 80, only 5 workers in the working face.
In 2021 alone, SDEG invested 6.3 billion yuan to promote intelligentization, built 133 intelligent mining working face, 24 “5G+” intelligent mine application scenarios, and 8 “277” and “388” coal mines. Meanwhile, 9 of SDEG-built national leading intelligent demonstration mines have passed acceptance inspection and are ready to operate.
"As the technology matures, in the mines where conditions permit, we will try to reduce the number of workers per shift to less than 50." Li Wei said.
In his eyes, the low-latency, large-capacity, and high-definition features of 5G technology have laid the foundation for intelligent mining. The application of 5G in coal mines is very promising.
On October 17, 2020, SDEG unveiled the world's first independently-developed and highly-reliable 5G network system for coal mining.
SDEG is also seeking to bring in more mature 5G technologies from other companies. "Key technological innovations must be jointly developed instead of independent R&D."
On January 9, 2022, SDEG and Huawei established a joint innovation center to jointly overcome the bottlenecks constraining intelligent mining. In recent years, SDEG and Huawei have initially established more than 20 joint innovation projects in the areas of mining-used HarmonyOS and AI, which pointed the way forward for the two sides to promote digital transformation.
In a word, not only production should be intelligent, but also management and operation should also be smart and digitalized.
On January 10, 2022, the second batch of financial information system integration project covering 253 SDEG’s subsidiaries was successfully launched, marking a full coverage of SDEG's 695 subsidiaries. The project represents an integrated operation and control platform incorporating human resources, financial management, material procurement, sales and trade, financial sharing, and master data management, which has provided much support for SDEG to accelerate the in-depth integration and digital transformation.
SDEG Dispatching Center
Technological upgrading toward low-carbon transition
For SDEG, a traditional fossil energy enterprise, how to transform and advance going forward is also what Mr. Li ponders about. In his opinion, "technological upgrading and low-carbon development" is crucial.
In 2021, SDEG invested 4.2 billion yuan in R&D, a year-on-year 25% increase; it undertook 22 national and provincial-level scientific research projects, and won 62 provincial and ministerial-level sci-tech awards; it held SDEG’s first science and technology conference, and offered RMB24 million to reward eminent individuals with major achievements; it witnessed 4 subsidiary companies passing the gazelle enterprise certification and 12 newly-added high-tech companies. All this helped SDEG win the title of "National Technology Innovation Demonstration Enterprise".
Chemical industry-wise, based on the keen analysis of the domestic market, SDEG’s chemical industry is developing apace toward high-end fine chemicals. On November 11, 2021, the caprolactam produced by Lunan Chemicals is marketed. As an organic chemical raw material, caprolactam can be processed into textiles, industrial yarn, carpet use filament and food packaging, etc. It is widely found in automobiles manufacturing, electronic appliances, packaging, machinery, sports, and daily necessities. It goes without saying that caprolactam epitomizes the high-end chemicals of SDEG.
Power industry-wise, in 2021, SDEG went to great lengths to optimize the power supply structure and develop large-capacity, high-parameter generator sets. It now has an existing installed capacity of 11.66 million KWH, with Shenglu Power Plant generating 1.01 million KWH. Besides, Tianchen Fuyuan Phase II project completed constrcution and 6 small power plants were closed down.
High-end equipment manufacturing-wise, the 10-meters super-high hydraulic support prototype proudly produced by SDEG reached the European test standard. The materials produced by Shandong Energy Light Alloy Company became a foundation for body profiles for a high-speed maglev train with the world’s fastest speed of 600 kilometers per hour.
Modern logistics and trade-wise, in 2021, SDEG initiated the establishment of Shandong International Commodity Exchange. The transaction volume handled by Hainan International Energy Exchange exceeded RMB200 billion. The trade volume, risk prevention and control and profitability saw great improvement.
New materials-wise, after 20 years of innovation and development, SDEG’s Dongchen Ruisen Company has become the "chain master" of the special nylon industrial chain in Shandong Province. At present, it has developed 10 kinds of products in 4 categories, such as long carbon chain nylon, high temperature nylon, transparent nylon, and long carbon chain nylon elastomers. These products can be widely utilized in automobile, aerospace and military industry, machinery, wire and cable, oil, 3D printing, daily necessities, among other fields.
Taixing New Materials Co., Ltd. has grown into a shining flame retardant supplier with the most product varieties and the most stable product quality in China, ranking atop in the list of the top 10 brands in China's flame retardant industry in 2020.
New energy is an important industry for the transformation of SDEG. As Mr. Li sees it, the current new energy industry is experiencing development window of opportunities: First is the support of national policies; Second is the lower cost and better competitiveness of photovoltaic and wind power, especially considering the cost of carbon emissions, the cost effectiveness of new energy power generation will grow; Third is that the proportion of coal-fired power is still relatively high, leaving potential for the power generated by new energy to be connected to the grid and consumed normally. Aware of this, SDEG is actively advancing the new energy industry.
In 2021, SDEG invested 6 billion yuan to establish Shandong Energy New Energy Company Limited and set up a New Energy Fund. This is the only provincial-level new energy investment platform company in Shandong Province.
Modern workshops of Donghua Heavy Industry
Relying on New Energy Company as operating entity, in 2021, SDEG won the dominate development right of building offshore wind power base in the middle of Bohai Sea. Preliminary work are underway for the first phase of 1.9 million KWH of installed capacity. With the help of incoming power transmitted from other provinces into Shandong, SDEG is pushing forward Alxa Alliance and Hangjinqi Wind Power Projects. In 2022, SDEG will remain active in the construction of offshore wind power installations, so as to ensure that the electricity of 500,000 KWH, or 1 million KWH ideally, is successfully connected to the grid.
Photovoltaic industry-wise, on August 27, 2021, SDEG's first Photovoltaic + Energy Storage Power Generation Project started construction in Lingtai County of Pingliang City, Gansu Province. On September 14, 2021, the New Energy Company signed a contract with Tancheng County Government for the county-wide distributed photovoltaic power project.
On October 29, 2021, invested and developed by SDEG, the first phase of the county-wide distributed photovoltaic power in Yishui county, Shandong Province, began construction. This project is one of the three pilot projects for county-wide development of distributed photovoltaics determined by National Development and Reform Commission and Shandong provincial government.
In the future, SDEG will play out the role of an investment platform of the New Energy Company and leverage a mixed-ownership reform mechanism, in order to attract strategic investors and build new energy industry clusters such as wind power, photovoltaics, hydrogen power, and geothermal power.
Arguably, 2021 was a "year of harvest" for Shandong Energy Group. According to initial calculation, by the end of 2021, the total assets of SDEG reached RMB751 billion, and the revenues RMB752 billion, making it the first enterprise in Shandong Province with total assets and revenues all up to "RMB750 billion" and a total social contribution of RMB99.3 billion. The Group eventually saw accelerated economic development, improved operational effectiveness, enhanced social contribution, and burnished brand image.
Based on the existing reforms and industrial layout, SDEG has designated 2022 as a year of consolidation and innovation, a year of “Transformation”, and a year of Improved Management.
"We must adhere to continued progress and innovation, spread our experience and practices in reform and development, production and operation, and growth drivers replacement, and regard innovation as the main driving force for SDEG to grow sounder and stronger." Li Wei said.
“Transformation” means highlighting the direction of market-oriented and high-efficiency reform, coordinating the relationship among governance structure, management and control model, and mixed ownership reform, completing the three-year task of SOEs reform, optimizing the industrial layout and structure, improving industrial development, and accelerating the pace for leading industries in the transition for green, low-carbon, high-end and high-efficiency development.
“Improved Management” means to improve the quality and efficiency of our development through lean management. In 2022, Shandong Energy Group will take concrete actions to diversify products and increase output, increase the projects reaching capacity and efficiency, reduce debt-to-asset ratio, reduce costs and expenses, reduce the number of subsidiaries in the red, improve profitability, labor productivity and R&D investment.
SDEG has specified the goals and tasks during the "14th Five-Year Plan" period (2021-2025). As Mr. Li said, SDEG will remain firm in building a safe, efficient, green and intelligent mining industry, fully expedite the high-end chemical industry to extend indsutrial chain and increase added-value, reinforce the power industrial chain in a complementary way between different sources of energy by utilizing internal and external resources, steadily cultivate the new energy and new material sector, drive the intelligence, specialization and innovation of high-end equipment manufacturing, and upgrade modern logistics through real entities. By the end of the "14th Five-Year Plan", SDEG, committed to the six businesses segments, expects to be a “double trillion enterprise”, with both its assets and annual revenues exceeding RMB1 trillion yuan, in addition to the assets securitization rate above 85%.
