Gas Distribution Utility | Xiangdong District, Pingxiang City, Jiangxi Province, China
At A Glance
Exclusive Operation: In March, 2012, Changfeng received regulatory approval from Jiangxi Provincial Development and Reform Committee, which secured its 50-year exclusive operation rights to operate a natural gas construction and distribution business in the Xiangdong district including the Pingxiang Industrial Ceramic Park (the “Park”) which resides within the Xiangdong district.
Industrial Users Oriented: The Park currently houses 25 industrial ceramics factories and is designed to house over 70 ceramics related manufacturing factories in total by the year 2020. The Park represents a large potential market for Changfeng given the large amount of heat energy required for the kilns used by the industrial ceramics companies.
The Xiangdong District is one of the three administrative districts of Pingxiang City. Pingxiang City itself is located in the western part of Jiangxi Province and is approximately 50 kilometers east of Changsha City.
In March 2012, Changfeng received the regulatory approval from the Jiangxi Provincial Development and Reform Committee to operate the piped natural gas distribution in Xiangdong District, Pingxiang City, Jiangxi Province. Within Changfeng’s 50 years operation rights’ coverage resides a 30 square kilometers in size Industrial Ceramic Park (the “Park”), which indeed is a production base for ceramic manufacturers.
Construction of the Park was initiated by the Provincial Government in 2006 with the purpose of improving the ceramic industry by developing efficiencies in areas such as logistics, rail and to enhance the quality of the manufactured goods through research and development. The area is designed to house approximately 72 companies of which, approximately 25 are in operation. Changfeng hopes that many ceramic manufacturing plants in the Park would convert to and/or use natural gas as their heating energy based on the above consideration.
Pipeline Networks at Xiangdong District and the Park
Changfeng started to install the pipeline in the Park in 2011. As to March 31, 2013, totally 10 kilometers main line and service pipeline has been buried underground and a set of CNG pressure regulators and gas processing facilities were installed.
Currently, CNG is the sole gas source to supply in the Park. The Company purchases CNG on the market without signing any long term gas supply agreement.
In the long run, the gas to supply to Xiangdong operation is mainly from the WEP II. Gas quota for the Xiangdong project from 2013 to 2015 will be, 35 million cubic metres for 2013 and up to 50 million cubic metres each for 2014 and 2015, respectively. This gas quota was approved by the Jiangxi Provincial Energy Board in November 2011, and will be delivered through the Xiangtan sub-line of PetroChina’s WEP II.
The availability of the piped gas from WEP II to Xiangdong operation will be subject to the construction of the branch pipeline in between the Xiangtan sub-line and the city-gate.
Revenue from distribution utility in Xiangdong operation comes from two separate sources, gas sales, pipeline installation and connection fees.
Gas sales price to the end users are promulgated by the local government. Gas sales are mainly to two customers categories: residential customers and non-residential customers, each with different pricing. Residential customers are defined as residents in the residential buildings, including condominiums and apartments in the city. Non-residential customers refer to the ceramics manufacturers in the Park, together with gas users in hotels, restaurants, hospitals, etc.. The currently regulated gas sales price is RMB3.4/ cubic metres (Approx. C$0.55/ cubic metres) for residential customers and RMB3.8/ cubic metres (Aprrox.C$0.62/cubic meter) for non-residential customers. As of March 31, 2012, two non-residential customers have been connected for gas use by the company.
Gas connection fee is a one-time upfront charge billed by the Company to customers for installing the service pipeline and connecting the customers’ gas facilities to the Company’s pipeline networks. Different customers are charged at different rates for the connection. According to the regulated pricing guidance, residential clients are charged at a relatively fixed amount, and non-residential clients are charged according to their maximum daily usage volume.
The Xiangdong District is in what is considered as one of the industrial ceramic capitals of China. In 2009, approximately 100 ceramics- related manufacturing companies in the Park generated combined revenue of approximately $2.5 billion USD.
The local government is encouraging the use of natural gas as the heating energy source in the Park for both environmental and manufacturing quality reasons. The major energy source for heating for the local ceramic industry is currently coal, coke gas or water gas which causes serious air pollution in the region. Natural gas is a much cleaner heat energy source and the use of natural gas allows the ceramic companies to produce higher quality, more differentiated products that are higher in value.
Panorama of the Xiangdong District Ceramic Park
Xiangdong Project Location Map