Consolidating the Coalmines

Shanxi Province will readjust the structure of its coalmining industry to address a series of efficiency and environmental problems 
 
PRIMARY PRODUCER: At a railway station in Datong, Shanxi, trains transport coal out of the province. Shanxi is China's richest coal province, accounting for more than one third of the country's coal reserves (XINHUA)
 
Shanxi Province, which suffers the most serious pollution in China, has put in motion plans to reorganize its coalmining industry, seeking to reduce the number of coal companies from 2,200 to 100. The plan calls for the closing of small coalmines with backward production conditions and low productive capacities by "making the large ones acquire the small ones and making the strong ones acquire the weak ones."

Already the policy has drawn critical responses and challenges from across the country. A majority of the resistance has come from the privately owned coalmining sector, since most of the small coalmines that would be closed or merged are not state owned. The policy has been criticized as "state capitals advance but private capitals retreat." Moreover, because many of the owners of private coalmines are from Zhejiang Province, where private economy is the most active, the policy launched by Shanxi has also aroused fierce argument among economists in both provinces.

A necessary policy?

The Shanxi coalmine reorganization process can be regarded as reform strongly promoted by the local government.

Shanxi is China's richest coal-producing province, with its coal reserves accounting for more than one third of the country's total and contributing one fourth to the country's overall coal output. Nearly 50 percent of China's coal exports come from the province.

To stimulate economic development, Shanxi previously sold the rights of coalmine exploitation, resulting in mining operations of different sizes spreading across the province. The number of coalmines in Shanxi once peaked at 10,000.

While contributing significantly to local economic development, the coalmines are also responsible for some disadvantages, including low utilization efficiency of resources, serious environmental pollution and frequent accidents.

According to figures released by the provincial government in 2007, 70 percent of coalmine accidents occurred in small coalmines with a death rate 17.8 times greater than that in large coalmines. The rate of resource recovery in small coalmines is also a cause for concern, sitting at about 15 percent, one fourth of the advanced level. That is to say, if small and medium-sized coalmines produce 350 million tons of coal every year, they may waste 1 billion tons of coal resources.

These problems are not limited to Shanxi Province. On November 21, a severe mine accident occurred at the Xinxing Mine of northeast Heilongjiang Province, claiming 107 lives as of November 25.

Shanxi has put considerable effort into solving the problem, especially by closing coalmines where accidents occurred. By the end of 2008, the number of coalmines in Shanxi had been reduced to 2,598, but more than 70 percent of the existing coalmines have a production capacity of 300,000 tons or below.

The most serious matter bothering officials in Shanxi is environmental pollution—in the past 10 years, losses to the local ecology caused by extensive exploitation of coalmines has amounted to 500 billion yuan ($73.21 billion).

To redeem the coalmining industry's less-than-perfect performance record, at the outset of 2009 Shanxi Province issued a plan to readjust and revitalize the coal mining sector. According to the plan, by the end of 2010 the number of coalmining companies in the province will have been reduced from 2,200 to about 100, and the number of coal mines will be reduced from 2,598 to 1,000.

After reorganization, the annual output of each coal mining company should not be lower than 3 million tons, with the annual output of a single coal mine not being lower than 900,000 tons, a production scale the provincial government thinks is reasonable. Big coal mining companies will play a key role in the reorganization, while small and medium-sized coalmines can merge at their own will, as long as the reorganized company conforms to the scale requirements of the government plan.

FILLED WITH GRIEF: Rescuers carry a gas explosion victim out of the disaster area in Tunlan Coalmine, Shanxi Province, in February

Shanxi offers two ways to compensate the coalmines for reorganization: direct economic compensation or substituting resources for shares. To those coal mines to be merged or acquired, the government will grant compensation that is 1.5 to 2 times the resource prices they paid to buy the mining right.

Different voices

The reorganization has greatly raised the threshold of industrial access, giving companies of strength and high industrialization levels more room for development. Not all are pleased with the changes. Many coalmine bosses from Zhejiang who have invested in mining operations that are below the 900,000-ton requirement, will not be qualified to acquire other coalmining businesses. The smaller Zhejiang-owned operations will be merged with either state-owned or private coal mining companies in Shanxi.

At a seminar in Hangzhou, Zhejiang Province, on November 18, economists and lawyers discussed the reorganization policy, assuming the same views and criticizing the policy launched by Shanxi.

Shi Jinchuan, Director of the Center for Research of Private Economy at the Zhejiang University, showed particular indignation to Shanxi's practice of promoting reorganization through administrative means. "I myself think that there is a fault in this matter," Shi said, challenging the standard of annual output of 900,000 tons for single coalmines.

Fu Weigang, a researcher at the Shanghai Institute of Finance and Law, criticized the policy as retrogressive. "Restricting the normal operation of private companies by way of nationalization has undoubtedly encroached on the legitimate ownership of related companies," Fu said.

While the opposition's argument has been focused on the losses to Zhejiang businessmen, with even an early estimate on the losses unknown, few have taken the environmental side effects into consideration, not to mention the matter of resource protection and sustainable development. This lack of consideration has led many experts to side with Shanxi policy supporters.

Wang Jinhua, General Manager of China Coal Technology and Engineering Group Corp., says that the integration of coal resources in Shanxi is of significance to the optimization of the coal industrial structure and the realization of industrial upgrading.

Compared with major coal-producing nations, the coal market in China has a markedly low concentration level, Wang said. In major coal-producing nations such as the United States, Australia and India, the concentration level of the coal market is 70-80 percent, while in China the rate is lower than 20 percent. The diversified market structure and excessive market competition have seriously restricted sound development, leading to a huge waste of resources. To correct the problem, the coal industry must follow the road of intensive operation, mechanization and modernization, he said.

Liu Caiying, Deputy Director of the China Coal Industry Association, thinks that the coal industry must follow a path of high efficiency, safety, orderly development and sustainable utilization. The current structure of the domestic coal industry is extremely unreasonable, featuring a large number of companies and a small scale for many of them. For Shanxi, merging small companies with big ones may be the best way to change the existing structure, allowing more companies to gain a larger market presence.

Who advances? Who retreats?

As for the Shanxi reorganization, ifeng.com launched an online survey to gain feedback from netizens across the country. By November 16, there had been 30,831 participants, with more than 70 percent of them holding that bosses of small coal mines should quit the industry.

Concerning the biggest difficulty in the reorganization process, 47.1 percent of the participants point to the compensation standard for the reorganization agreement; 45.2 percent noted the resistance of coal mine bosses; and 7.7 percent hold it is the reorganization approval procedure.

Whether coal mine bosses should quit, 73.3 percent of the participants say "yes," because it is beneficiary to reduce coal mine accidents, environment pollution and corruption; 22.2 percent say "no," because it may cause a national monopoly of mineral resources; and 4.5 percent are not sure about the answer.

The real question is: How many state-owned companies will advance and how many privately owned companies will retreat?

Figures released by the Department of Coal Industry of Shanxi Province showed that by November 20, 2009, among the remaining 1,053 coalmines after reorganization, 198 were state-owned, accounting for 19 percent of the total. Private coalmines numbered 294, or 28 percent of the total, while 561 were joint stock coalmines, accounting for 53 percent of the total.

"The retreat of small coal mines doesn't mean that private companies will be extinguished from the coal industry," said Pan Yun, Deputy Director of the Shanxi Academy of Social Sciences.

Cui Manhong, Director of the Research Center for Economy and Management of the Shanxi University of Finance and Economics, thinks that judgment in the reorganization process should not be based on "ownership," but "productivity."

According to Cui, during the past three to five years, Zhejiang businessmen invested about 50 billion yuan ($7.32 billion) in Shanxi, but the deterioration of resources and effects on the environment left by the operations cannot be addressed even with 60 billion yuan ($8.78 billion).

Cui warns that other regions relying on resources or resource exploitation should also remember the lesson of Shanxi.

After the reorganization

Up to now, 97.9 percent of the coalmining companies in Shanxi have signed reorganization agreements.

Du Jianrong, Director of the Coal Mine Safety Supervision Administration of Shanxi Province, says that after the reorganization is completed, the losses in life for producing 1 million tons of coal will be reduced by 74 percent. Moreover, after the reorganization, the equipment quality will be improved to conform to state regulations.

According to figures released by the Shanxi Provincial Government, after the reorganization, the ecological environment of Shanxi will benefit the most. By 2015, major sources of pollution will be reduced, the disposal rate of solid waste will reach 85 percent and the reutilization rate of pit water will surpass 90 percent.

The comprehensive utilization level of coalmines will also be further improved. By 2015, the recovery rate of coalmine resources in Shanxi must reach 55 percent, in accordance with state regulations, doubling the present rate.