China adopts preferential tax to promote coalbed methane use

Hong Kong (Platts)--2Mar2007

China has adopted new preferential tax policies for the utilization of
coalbed methane (CBM) in the course of coal mining in an effort to encourage
clean and safe production in the country, the Ministry of Finance and State
Administration of Taxation said in a joint statement this week.

Under the new policies which took effect on January 1 this year, CBM
producers will enjoy a full rebate on the value-added tax they pay for their
gas production. These producers will also enjoy corporate income tax exemption
for their incremental CBM output which arises from the application of new
technology through research and development funded by their tax rebate.

The government also allows CBM producers to adopt accelerated
depreciation methods on facilities and equipment related to CBM production.

Producers can use corporate income tax to offset 40% of the fund they
spend on investing in Chinese-made equipment related to the revamp of their
CBM exploitation technology. The government also gives other preferential tax
treatment to producers to encourage development, research and adoption of new
technologies for CBM production.

Moreover, no resources tax is levied on onshore exploitation and
production of CBM.

China exploited 3.2 billion cubic meters of gas last year, up 40% year on
year. It used about 1.2 billion cubic meters of gas, a rise of 20%.

China is estimated to hold 36 trillion cubic meters of geological CBM
reserves, according to a Eleventh Five-Year Plan (2006-2010) report released
by the country's top economic policy planner National Development Reform
Commission in mid-2006. Yet the fuel is under-exploited. Of the 3.2 billion
cubic meters of CBM produced in 2006, only 1.2 Bcm was being used for power
generation and as industrial, residential, and motor fuel.

The government plans to lift China's CBM output to 10 Bcm by 2010 and
increase the country's proven CBM reserves-in-place to 300 Bcm from about 100
Bcm last year.