Shenhuo Coal Power vs. Lu’an Group: Have you seen state-owned enterprises fighting against each other like this?

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Source: Mining Hub Everyone struggles in life since ancient times; it’s just that it’s not until a crisis arises that things get serious. 　　Normally, we often see scenes of mutual criticism, but those are usually just minor disputes for entertainment purposes. Today, the editor will take you to take a look at the \"battle of criticism\" between two well-known state-owned coal enterprises – Shenhua Coal and Electricity Co., Ltd. and Lu’an Mining (Group) Co., Ltd.! 　　Although private enterprises having conflicts is certainly exciting, it still can’t match the appeal, variety of tactics, and intensity of those conflicts among state-owned enterprises. No nonsense – get the sunflower seeds, peanuts, and mineral water ready, let’s go! 　　Overview of the strengths of both camps ★ Shenhuo Coal and Electricity Henan Shenhuo Group Co., Ltd. (hereinafter referred to as “Shenhuo Group”) is located in Yongcheng City, Henan Province. It is a large-scale enterprise group that focuses on coal mining, power generation, aluminum electrolysis production, and the deep processing of products. It is ranked among China’s top 500 enterprises, one of the 100 key enterprises in Henan Province, as well as one of the seven key coal enterprises and seven aluminum processing enterprises supported by the province. It is also part of Henan Province’s first batch of pilot enterprises for circular economy practices. 　　The company currently has total assets of 20 billion yuan and 27,000 employees. It owns more than 10 wholly-owned, controlled, and jointly-owned enterprises, located in Shanghai, Shenzhen, Guizhou, Henan, Australia, and other places. 　　★Luan Group: The predecessor of Luan Group was the Luan Mining Bureau, which was a key enterprise under the former Ministry of Coal. In 1987, it was designated as the first modernized coal mining area in China ； The company has received the National May 1st Labor Medal twice as well as the **-level Enterprise Technical Progress Award; it has won the highest national awards for enterprise management on three occasions. It is known as \"one bureau with three gold horses – the best in China\", and its technical processes, equipment standards, and efficiency and productivity consistently rank among the top in the industry. 　　Luan Group is one of the five major coal enterprise groups in Shanxi. It has total assets of 108.1 billion yuan, 300,000 employees’ family members (including those from Luan Xinjiang Company), and 75 subsidiaries and branches. In the 2017 Fortune Global 500 list, it ranked 448th with assets worth $24.09 billion. 　　The catalyst: The relationship between Shenhuo Co., Ltd. (14.180, 0.60, 4.42%) and Lu’an Group evolved from partnership to hostility in less than 3 years. 　　At the heart of this controversy is the exploration rights for the Gaojiazhuang coal mine in Zuoquan County, Shanxi Province. Public information shows that the exploration area of this coal mine is 109.18 square kilometers, with geological reserves of 1.06293 billion tons. 　　As stipulated in the contract, Shenhuo Shares will transfer the mining rights to Lu’an Group for a transfer fee of 4.69966 billion yuan, which shall be paid by Lu’an Group in 8 installments to Shenhuo. Neither party shall raise any disputes regarding the transfer fee for any reason. 　　This was originally a good thing, but during the period of transfer of mining rights, the Chinese coal market began to decline, and the relationship between the two state-owned enterprises also deteriorated sharply. 　　I. First Round – Lu’an’s payment suspended, issues arise with the transfer of mining rights worth 4.7 billion According to the payment terms stipulated in the contract between the two parties, the buyer, Lu’an Group, was required to pay 20% of the total transfer price (that is, 940 million) by July 9, 2012, as a deposit to fulfill the contract. By December 31, 2012, the second payment of 1.26 billion was to be made. The other 6 payments are to be made annually at 6 different milestones in 2013, 2014, and 2015, with all payments completed by the end of 2015. 　　However, Lu’an Group only paid the first transfer fee of 940 million, as well as part of the second transfer fee, amounting to 800 million (for a total of approximately 1.74 billion), and failed to make any further payments. 　　Due to the cessation of subsequent payments, in February 2015, Shenhuo Shares filed an arbitration petition with the Beijing Arbitration Commission, seeking from Lu’an Group the payment of the remaining 2.61 billion yuan due as consideration for the transfer of its exploration rights. It is also required that Lu’an Group pay a late fee of 2‰ per day, starting from the date of overdue payment until the amount is fully settled; this means that Lu’an will have to pay a late fee of 2.395 billion yuan (as of February 10, 2015). But why is Lu’an unwilling to pay, despite the agreements in place? 　　The main reason is who should pay the resource fee for that mining right. From July to October of that year, Shenhuo Shares and Lu’an Group frequently exchanged communications on this issue through letters and legal notices. 　　Shenhu appeals – we have paid the full amount required for the exploration rights in accordance with **legal regulations, and we have completed the registration process with the Ministry of Land and Resources; there is no issue of overdue or unpaid fees related to the exploration rights. Even if the procedures for changing mineral rights are not completed, the contract does not state that this will affect Lu’an’s obligation to make payments. 　　Luan insists that the Department of Land and Resources of Shanxi Province maintains the position that transfer procedures can only be carried out after the relevant resource fees have been paid. 　　II. Second Round – The two parties engaged in an arbitration battle, with Shenhuo reaping a profit of 3.1 billion. After its request to have the arbitration agreement declared invalid was rejected, Lu’an Group filed a counter-arbitration claim: 1. To declare the contract invalid. 2. Shenhuo should return the 1.74 billion yuan in progress payments already paid by Lu’an, as well as pay a fee for the use of those funds (253 million yuan). Lu’an Group states that the Shanxi Provincial Department of Land and Resources has clearly determined that most of the resources transferred from Shenhuo to Lu’an Group still belong to **, and therefore cannot be disposed of without authorization; this is the fundamental reason why the Ministry of Land and Resources has not approved the transfer of the mining rights to date. 　　The refusal of Shenhuo Shares to pay the prospecting rights fee is another fundamental reason for the Ministry of Land and Resources not approving the transfer. For 19 months after the Shanxi Department of Land and Resources submitted its written opinion to the Ministry of Land and Resources, Shenhuo, as the owner of the mining rights, failed to fully fulfill its obligations regarding approval and changes with the Ministry, despite being aware of these requirements. 　　By this analysis, the Transfer Contract signed by Shenhuo Co., Ltd. and Lu’an Group on June 27, 2012, can be considered invalid. 　　Of course, Divine Fire was unwilling; crying and weeping, it rejected Lu Anshou’s requests outright! The mining rights were already extended and retained by the Ministry of Land and Resources, with the validity period ending on September 28, 2016. If you follow the contract, changing the mining rights registration is no problem at all! 　　Finally, on March 7, 2016, the Beijing Arbitration Commission announced the arbitration result: Shenhuo won. A statement was also issued stating that, according to preliminary calculations by the company’s finance department, if this transfer of mining rights were approved, it would generate an income of 5.794 billion yuan; after deducting various expenses, the net profit would be 3.064 billion yuan! 　　III. Third Round – Even the courts are afraid of it; it has not yet been resolved. Lu’an filed another appeal, requesting that the arbitration award issued by the Beijing Arbitration Commission be overturned! The Third Intermediate People’s Court of Beijing accepted Xiao An’s application in accordance with the law, and held a hearing on the case on May 4, 2016. 　　Interestingly, though the Third Intermediate Court handled this case, the two parties were in such fierce conflict that it was difficult to render a judgment. 　　Thus, although the court was required to issue a ruling to revoke the award or to dismiss the application within 2 months, Shenhuo sent multiple letters to the court requesting that a decision be made in accordance with the law regarding the application to revoke the arbitration award and that the case be resolved as soon as possible. But to this day, the case has not yet been resolved.