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460 million is a modest target; the transformation of Shanxi’s energy and chemical industry has already begun. Author/Source: Huahua Network – Coal Chemicals. Date: July 4, 2019. Clicks: 40. Recently, news that Shanxi Lu’an Chemical Co., Ltd. was raising capital by 460 million yuan attracted attention in the industry. A total of 8 domestic and foreign investors participated in this capital increase, including Zhongke Synthetic Oil Engineering Co., Ltd., Air Products and Chemicals Inc. (China) Investment Co., Ltd., Huisheng Engineering (China) Co., Ltd., Zhongke Lu’an Energy Technology Co., Ltd., as well as subsidiaries of Tongmei Group, Yangmei Group, and Shanxi Coking Coal Group, such as Shanxi Coking Group and Jinmei Group. Compared to the scale of those 8 companies, the capital increase of 460 million yuan is not a large amount; however, it is the backdrop of Shanxi’s new round of reforms in state-owned enterprises and assets that has drawn attention from all sectors. 〉〉〉A corner of Luan Group’s integrated demonstration project for the clean utilization of 1.8 million tons of high-sulfur coal for oil, chemicals, electricity, and heating production per year. For the first time, private capital is involved, with the five major coal companies sharing ownership interests. Shanxi, which possesses abundant coal resources, has in recent years been labeled as having an overdominant role of coal in its economy as well as an overdominant shareholding structure. Data shows that by the end of 2018, the total assets of state-owned enterprises in Shanxi Province reached 2.92 trillion yuan, ranking fifth in the country, just behind the four direct-controlled municipalities. Among them, the total assets of the five provincial-owned coal companies in Shanxi, namely Tongmei, Coking Coal, Yangmei, Lu’an, and Jinmei, alone exceed 1 trillion yuan. However, due to its size rather than strength and structural imbalances, Shanxi has repeatedly suffered the severe consequences brought about by drastic market changes. Therefore, it is imperative to make a firm determination to develop new drivers of growth and promote structural transformation as a top priority for Shanxi’s economic transition. The so-called “structural reversal” includes both the structural reversal between coal and manufacturing in the industrial structure, as well as the structural reversal between coal-based and non-coal industries among provincial-owned enterprises. Against this backdrop, great expectations are placed on the reform of state-owned enterprises, particularly in terms of specialized restructuring and mixed-ownership reforms. As one of the five major coal enterprises under Shanxi Province, Lu’an Group, with a 60-year history of development, has shifted its core business from \"coal mining and processing\" to \"modern coal chemical industry\" as part of its reform process. >>> Workers at Lu’an Group Solar Technology Co., Ltd. are inspecting the appearance of silicon wafers. Shanxi Lu’an Chemical Co., Ltd., which was established through this capital increase and expansion, was founded in February 2018. It is the seventh specialized large-scale group company established in Shanxi, as well as the first such group company formed with a key provincial state-owned enterprise as its major shareholder. It is regarded as a platform for the integration of the high-end coal chemical industry in the province. As early as last October, Lu’an Group posted a transaction announcement on the official website of the Shanxi Property Rights Trading Market regarding the \"capital increase project for Shanxi Lu’an Chemical Co., Ltd.\"; it planned to attract 1 to 16 external investors to invest capital in the company, after which they would collectively hold no more than 25% of the shares. The four companies that participated in this capital increase and share expansion—China National Synthetic Oil Engineering Co., Ltd., Air Products and Chemicals Inc. (China) Investment Co., Ltd., Huisheng Engineering (China) Co., Ltd., and China National Lu’an Energy Technology Co., Ltd.—were the shareholders who were selected through an open call for contributions. Except for Zhongke Lu’an, which is controlled by Lu’an Group, the other three are private enterprises. This is the first time that private capital has been involved in a capital increase and expansion among the newly established professional large groups in Shanxi. >>> Workers at Luan Group Solar Technology Co., Ltd. are carrying the newly produced single-crystal silicon rods. You Hao, chairman of Lu’an Group, said that through capital increase and mixed-ownership reform, the equity structure of Lu’an Chemical has been further optimized and its asset scale has increased. At the same time, efforts have been intensified to carry out mixed-ownership reforms in subsidiaries such as Coal-Based Clean Energy Company, Zhongke Lu’an Energy Technology Company, Taihang Lubricant Company, and Refined Wax Chemicals Company. In addition, the other four key provincial coal enterprises, including Shanxi Tongmei, Coking Coal, Yangmei, and Jinmei Group, also participated in the capital increase, resulting in another instance of the five major provincial coal groups holding shares together, following Shanxi Gas Group. Liu Junyi, general manager of Lu’an Group, believes that this will bring new opportunities and inject new momentum into further deepening reforms at Lu’an Chemical. Advance restructuring prudently and achieve high-quality development through innovation. An industry expert analyzed that since 2017, Shanxi’s approach to promoting the professional restructuring of state-owned enterprises has been changing; “Throughout this process, it has become clear that haste is not advisable. Professional restructuring cannot be merely a simple integration at the ** level – it is necessary to wait for the right moment and proceed prudently.” ” The \"cold winter\" in the coal market that lasted from the second half of 2012 to the first half of 2016 caused Shanxi, a major coal-producing province, to feel the pressure exerted by certain statistics: Shanxi’s coal production was on par with that of Inner Mongolia, yet the number of coal mines there was twice that of Inner Mongolia ； Shenhua Group’s coal production is equivalent to half of Shanxi’s, and its workforce accounts for only one-tenth of Shanxi’s… From the five major coal enterprises under provincial ownership to Shanxi’s seven major coal enterprises, there are many coal companies in Shanxi, but they are not strong enough; they develop in a homogeneous manner and compete with each other, resulting in increasingly serious problems. Professional reorganization is precisely the solution to these issues. “Simply carrying out specialized restructuring based on categories such as thermal coal, chemical coal, coking coal, and coal chemicals is not necessarily the best option. For example, it is not very practical for a company to focus solely on coal chemical manufacturing when it does not have access to coal itself. ”Industry insiders mentioned that at present, almost all state-owned enterprises in Shanxi are profitable, making it the right time to bring forward high-quality assets in order to advance reforms toward a mixed-ownership structure. Luan Chemical is such a case. To date, Lu’an Group has made a series of significant breakthroughs in the development of new types of high-end modern coal chemical products. It has identified five different approaches for the development of high-end fine chemicals; various products such as high-end waxes, environmentally friendly solvent oils, fully synthetic lubricant base oils, and high-end lubricants have managed to break international monopolies and fill gaps in the domestic market. Luan Group is the third company in the world, and the first in China, after Sasol and Shell, to use its own technology and raw materials to produce high-melting-point FTO waxes. Its products are sold to more than 20 countries and regions including Europe, the United States, Japan, South Korea, and Southeast Asia, and it is poised to become the world’s largest supplier of high-end waxes. Lu’an Group has also collaborated with the Chinese Academy of Sciences to develop metallocene PAO production technology, becoming the second company in the world to possess this technology after Mobil. In addition, Lu’an Group has developed a method for converting coal into aromatic-free, environmentally friendly solvent oils. Once these products were introduced to the market, they replaced similar products from companies such as Idemitsu in Japan. They are sold to well-known aerosol and cosmetics manufacturers such as Gunner, Rainbow, L’Oréal, and Unilever. Around July 2018, Lu’an Group transferred the state-owned equity in its 12 subsidiaries to Lu’an Chemical in two batches, free of charge; these subsidiaries included several coal mines as well as high-quality coal chemical assets. Financial data shows that in 2018, Lu’an Chemical achieved operating revenues of 21.488 billion yuan and a net profit of 1.716 billion yuan. As of the end of April 2019, Lu’an Chemical’s total assets amounted to 78 billion yuan, accounting for more than one-third of Lu’an Group’s total assets. Adopting an international cooperation approach to advance the upgrade to version 2.0 of coal-to-oil technology: In March this year, the world’s first coal-based Synthetic III+ base oil was successfully produced by Lu’an Group, and it passed the quality tests conducted by Chevron in the United States. This oil utilizes Chevron’s new catalysts, and it will help meet the growing demand for high-quality lubricants in China’s lubricant market, as well as reduce reliance on high-end lubricants imported from abroad. In June this year, Lu’an Aspen Hydrogen Power Technology Co., Ltd., a wholly-owned subsidiary of Lu’an Chemical, was officially established, marking a key step forward for Lu’an Chemical in entering the field of hydrogen fuel cells. In the development and utilization of hydrogen energy, Lu’an Group will strengthen its cooperation with Air Products and Chemicals in the United States and Aspen Technologies in Germany. In the process of adjusting its core business and undergoing industrial transformation, Lu’an Group adheres to a path of international cooperation, strives to meet international first-class standards, elevates the level of its development through an international perspective, and accelerates its internationalization efforts with a commitment to openness. Since 2018, Lu’an Group has engaged in in-depth cooperation with 11 as well as over 20 international companies. All of its transformed industries and projects are linked to high-level research platforms, enabling the integrated planning and advancement of major transformation projects alongside these high-end, open innovation platforms. In the field of high-end coal chemical processing, Lu’an Group has successively attracted investment of $1 billion from Air Products and Chemicals to undertake a project for producing 1.8 million tons of coal-based oil per year, as well as to develop the hydrogen energy industry ； By introducing world-class technology, the world’s first 350,000 tons per year coal-based III+ lubricant base oil production facility was built ； Developing high-end wax products via Fischer-Tropsch synthesis in collaboration with German company Hansa Stahl ； Collaborating with German companies on hydrogen fuel cells, etc. The accelerated pace of internationalization, openness, and cooperation has enabled Lu’an Group to become a leading enterprise in the modern energy and chemical industry characterized by high-quality development. It has gained new advantages through rapid transformation and development, and it is also the first company in China to use both cobalt-based and iron-based catalysts for coal-based synthetic oil production, as well as the first company in the world to apply cobalt-based fixed-bed Fischer-Tropsch synthesis technology to upgrade methanol production facilities. To date, Lu’an Group has established the first of its kind in Shanxi Province and the only one of its kind nationwide – a **Coal-Based Synthesis Engineering Technology Research Center**. It is accelerating the transition from the 1.0 version of coal-based synthetic oil to the 2.0 version of coal-based synthetic fine chemicals, and has developed 54 products across five categories, totaling 270 different models of coal-based synthetic chemicals. Since the beginning of this year, Lu’an Group has put forward the preliminary strategic concept of “13865”. The “1” here refers to defining a strategic direction: to fully build a leading modern energy and chemical enterprise characterized by high-quality development. In Lu’an Group’s development plan, the modern coal chemical sector also holds significant importance. “During the 13th Five-Year Plan period, Lu’an Group will establish a high-end fine coal chemical industry base with a total production capacity of nearly 6 million tons of petroleum products and over 200 types of high-value-added chemicals.