In a deal expected to yield at least $600 million in annual revenue, Occidental Petroleum Corp. signed an agreement with China today to develop and jointly operate what could become the world's largest open-pit coal mine.
In agreeing to share the costs and profits of the vast mine in central China--its proven reserves are said to reach 1.4 billion tons of coal--Peking is undertaking its most ambitious joint venture since foreign investment again became a possibility here in 1979.
Western diplomats said the deal is a harbinger of possibly extensive American private investment in China's energy sector as this country moves to exploit its rich oil and hydroelectric resources.
Occidental Chairman Armand Hammer, who pioneered American business dealings in the Soviet Union decades ago, signed the coal agreement in Peking, about 300 miles east of the Shanxi Province site where the mine is located. In announcing the agreement, the state-run New China News Agency said the project will produce 15 million tons of coal yearly.
Hammer, whose firm performed a feasibility study last year, has predicted that output eventually will reach 45 million tons a year. He described the accord as interim, with final agreement expected by his board and by China's Ministry of Foreign Economic Relations. He said he hoped that would occur by July, when construction is to begin.
Plans call for production to start in 1985. Most of the coal is to be exported to Japan, with some being used by China in its domestic industries, according to officials.
In Washington, Director Joseph J. Yancik of the Commerce Department's coal export staff noted that last year about 26 million tons, or a quarter, of U.S. coal sales abroad went to Japan. "When China comes on stream with this and other mines being developed, the United States can expect a smaller slice of that pie," he said.
Yancik said the new mine's projected 45 million-ton annual output unquestionably would be the world's largest. He put the biggest U.S. mine at about 16 million tons and the largest in West Germany at about 30 million. Both offer a lower grade of coal than the bituminous at the Chinese site, he said, adding that the limiting factor on Chinese production remains transportation of the coal.
Occidental officials have estimated that on the basis of current coal prices the partnership should net annual revenues of $600 million to $750 million. They said the firm expects to invest $230 million for equipment and personnel, with most of the heavy-duty and special gear coming from the United States.
China will provide the site and construction of highways, railways, power, utilities and other infrastructure, according to the news agency report. Profits are to be divided evenly until Occidental recovers its initial investment, probably after five years. China is then to take 60 percent of the profits.
For China, the deal provides the know-how and technology to exploit its huge coal reserves for the nation's modernization. Chinese leaders have announced plans to double energy output by the end of the century and they are counting on coal as the main energy source. Only 10 percent of the current 600 million tons per year comes from the kind of open-pit mine in Shanxi.
Western diplomats say the Occidental agreement illustrates the major role that American companies are likely to play in helping China meet its energy development goals.
Sixteen American oil companies have submitted bids to drill along China's continental shelf, where potential production is set between 1 and 2 million barrels of oil daily. Last August, Arco became the first American firm to be awarded drilling rights in Chinese waters. Experts say the companies are likely to land most of the drilling rights in the southern Yellow Sea and South China Sea.
China, now ranked seventh in worldwide oil production, is counting on its offshore output to fuel its modernization and to export for needed foreign exchange.
American firms also are expected to help harness China's untapped water power, which is said to be potentially the largest in the world.
An American firm has been hired to do a feasibility study in south China, where two dams with a capacity of 2.8 million kilowatts are under consideration.