Two of the largest power companies and one coal giant have agreed to jointly build power plants and tap the largest coal mine in East China.

Huaneng Group, China Power Investment Group and Huainan Mining Group Tuesday signed a letter of intent to construct a multi-billion-yuan coal-power complex in Huainan, East China's Anhui Province.

The scheme aims to unearth coal in the Huainan mine area, which sits on half of the coal reserves of East China, to fuel the planned power plants. The electricity is expected to supply the power-pinched East China markets, including Jiangsu and Zhejiang provinces and Shanghai Municipality.

According to the scheme, the companies will build coal-fired generators with a combined annual capacity of 10 million kilowatts before 2010, as well as a coal production base with an output of 30 million tons a year.

The generating capacity is equivalent to one-third of the total capacity of the largest domestic power producers at present.

In the longer term, the complex will expand the generators to 20 million kilowatts with coal production doubled.

The officials said they are still in negotiations over the investment and the form the co-operation will take - either by the establishment of a joint venture, or a looser alliance - to develop the project.

"The market is promising with rapid economic growth in East China," said Li Xiaopeng, president of Huaneng Group, yesterday at the signing ceremony.

The prosperous East China areas have seen their electricity demand surge in recent years as the economy continues to boom. Electricity consumption has increased by 13 per cent annually in the past three years, but the construction of new plants has grown by less than 7 per cent a year during the same period.

Analysts said an electricity supply deficit of 6.8 million kilowatts will affect the area by 2005.

They said as power plants have reached almost saturation point in these areas, more electricity has to be sourced.

The government has chosen the East China market as a pilot area to push forward reforms in the power industry. As part of this endeavour, they are working to improve power distribution across provincial borders.

Zhang Ping, deputy governor of Anhui Province, said the coal-power complex will not only meet increasing electricity demand in the east of the country, but also provide a valuable opportunity for the relatively backward Anhui Province to cash in on its untapped coal reserves.

The Huainan coal mining area enjoys abundant resources with proven reserves of 15 billion tons, of which 10 billion tons are currently untapped.

The province is eager to build the coal industry as its cash cow to boost its low level economy.

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