On May 8, a gas explosion in a coal mine in the north-eastern province of Heilongjiang killed an estimated 54 miners. The mine, in the city of Hegang, was owned by the state-owned Nanshan Coal Mine Company, which had contracted mining rights to a private interest.
One month earlier, an explosion at an illegal coal mine near Hancheng in Shaanxi province in central China killed 48 people. The mine was operating without a permit and was just one of hundreds of illegal mines in China that lack even rudimentary safety measures or proper ventilation. Many of them are worked by impoverished farmers with little or no proper training.
Central government statistics show that more than 4,800 miners died last year, many in explosions. But, according to independent sources, the real figure is thought to be nearer 10.000 deaths.
The blast in May was the sixth this year. A gas explosion in a mine in Hunan province killed 13 miners in March, while 37 miners died in a similar accident at a coal mine in Heilongjiang province in February. These incidents followed a mine flooding in Guangxi Zhuang autonomous region that killed 21 people.
China has launched a crackdown on illegal mines and ordered routine safety inspections and proper training for miners, but enforcing the rules is virtually impossible. The government plans to close thousands of mines, especially small and dangerous ones, to avoid over-production and falling prices, as well as to improve the industry's safety record. In late May, Sichuan province ordered the closure of all small mines after a weekend spate of accidents killed 51 miners. Over the past two years, the number of small coal mines has decreased sharply. However, many of them simply reopen after brief closure and continue as before.
Worsening safety record
The number of mine accidents has continued to rise this year, with considerable human and monetary cost. Coal mine accidents in the first quarter took 861 lives, 180 more than in the same period of 2000, according to Zhang Baoming, head of the State Administration of Safety Supervision (SASS).
The situation is so bad that it has persuaded the government to launch a nationwide safety check campaign. "Gas explosion remains the major killer," Zhang commented. "Of the 14 most serious accidents in the first quarter, 12 were gas explosions."
More than half of the cases in the first quarter took place in township-run coal mines. The policy here remains closure. For key coal mines, SASS will concentrate on improving ventilation systems and measures to prevent fires, the build-up of gas and floating coal particles.
"Coal mines with bad safety records must stop production and will not be allowed to re-open until their safety measures meet the required standards," Zhang said.
But safety is only one of many issues facing China's large, unwieldy and inefficient coal industry. With membership of the World Trade Organisation imminent, the need for real reform has become pressing and measures taken over the past two years are at last beginning to have an effect.
China is the world's largest coal producer, with about 11 percent of total reserves. Recoverable coal reserves are estimated at 1,145bn tonnes and verified reserves at 1,000bn tonnes. Some 70-80 percent of the recoverable coal is hard coal ?high energy coal that is relatively low polluting if burned properly. Chinese production accounted for about one-third of the world's total of 3.65bn tonnes in 1998. Production fell significantly in 2000 to 957m tonnes. This was due partly to falling productivity but largely to mine closures, industry reorganisation and a strict government policy of cutting down on domestic supply while boosting exports.
China plans to control coal output at around 950m tonnes and will continue to encourage exports this year, says Shi Wanpeng, vice-minister of the State Economic and Trade Commission. Closing small mines has reduced production by 300m tonnes in recent years. Last year China exported 58.8m tonnes of coal, a 12 percent increase over 1999. Zhang says oil price rises and the economic recovery of South-east Asia are responsible for higher coal demand. This year, China plans to export 63m tonnes.
The government is also putting more capital into the development of coal technology, including coal-liquefaction and coal vaporisation, which have been listed as priorities in the 10th Five Year Plan (2001-05). Last year, China imported 70m tonnes of crude oil, making it the third largest oil importer in the world. The use of coal instead of oil, in its vaporised and liquefied forms, should ease this situation, Zhang believes.
But despite declining output, China remains heavily dependent on coal, which accounts for nearly three-quarters of the overall energy balance. Coal generates 81 percent of China's electricity and it is expected to retain this share in the near future. Dependence on coal is exacerbated by regional variations in the distribution of both resources and markets. The more economically developed eastern provinces consume most of the coal-generated energy but hold only 11 percent of the resources. North-central and north-west provinces have about two-thirds of the resources but consume considerably less than other regions.
Declining minable reserves have led to the exploitation of deeper, lower quality and more distant coal. There have also been problems integrating the coal mining, transportation and energy sectors while maintaining environmental integrity, exacerbated by poor co-ordination and inefficient investment strategies, particularly in transportation. However, restructuring began to take effect in 2000.
The fragmented nature of the industry has exacerbated the situation. In 1998, there were 94 main state-owned coal companies, 2,500 local mines managed by provincial and county governments and 75,000 smaller mines owned by townships, villages or private owners. These smaller mines produced about 44 percent of China's total coal output.
Three years ago, the State Administration of Coal Industry announced the closure of 25,800 smaller mines, and by the end of 2000, some 430,000 had been shut. Last
January the government announced plans to reduce coal companies from 500,000 to 4,000 and merge its 520 key coal enterprises into seven big groups. The groups would no longer be controlled by a provincial government, but would have an independent management structure. Eventually, they would form larger alliances with power plant and transportation enterprises, ports and shipping companies.
The main focus of the current five-year plan, coinciding as it does with World Trade Organisation entry, is to accelerate China's move towards a market economy and to encourage foreign investment. Energy strategy is to be based on two principles – making consumption mainly dependent on domestic supply and clean energy development. The emphasis will be on the construction of coal mines and processing plants using clean coal technologies, and the development of coal liquefaction, as well as improving coal quality to reduce pollution. Power stations using poor quality coal will be upgraded.
Signs of recovery
China's coal market is now showing signs of recovery thanks to a continuous drop in production and inventories, and an increase in exports and consumption. Coal consumption went up 3.6 percent in January, 36 percent in February, and 12 percent in March compared with the same periods last year, according to the State Economic and Trade Commission. By the end of March, coal inventories were down by six percent compared with January. Coal exports in March went up 58 percent.
Large high-technology mines are the tar-get and China already has a few. Shenhua Group was founded in 1995 with some of the funds coming from Japan. It has capital valued at more than Ynl00bn. Its Daliuta coal mine, the largest in the country, produces 9m tonnes of coal a year. It has 300 employees, with fewer than 60 working in the highly mechanised mine. Xinjiang Uygur autonomous region in north-west China plans to build a large mechanised coal mine in Kuqa county costing Yn485m.
China has put a priority on developing technologies to provide greater environmental protection in its energy sector and this could have a significant impact on the coal industry. While the ninth five-year plan (1996-2000) included strong measures to reduce coal pollution with an emphasis on energy efficiency and renewable power sources, enforcement of environmental law continued to be ineffective in many areas.
However, there is evidence of a more serious approach under the current five-year plan. The State Environmental Protection Administration is considering several policies including `polluter pays' programmes in which collected funds would be used for pollution abatement. Other possible measures include raising polluter fees to discourage pollution, reformulating the tax structure to benefit the environment and making available preferential loans and subsidies to enterprises that build and operate pollution treatment facilities or that produce environmentally friendly products.
In 1998, pollution control methods began to be enforced in acid rain and sulphur dioxide control areas. New mines with sulphur content above three percent were banned and existing mines had production restricted or were asked to close. In April 2000, a revised version of the air pollution control legislation was published and has been in force since September. The law tightens control over all aspects of air pollution and allows fees to be levied for emissions. The operation of coal mines with high sulphur and gas content and power plants with high sulphur dioxide emissions are to be severely restricted.
Implementation of the law is expected to change the regional distribution of coal production. Those coal mines producing high sulphur-content coal will be closed, while mines with low-sulphur coal will increase production. If adopted, this approach should speed up the development of clean coal technology, promote coal use efficiency, further reduce coal demand and create conditions for applying market tools, such as emissions rights trading. This, along with the incentive of WTO entry, may be enough to drag China's coal industry into the 21st century.
A simplified administration
In 1998, the Chinese government embarked on institutional reforms aimed at simplifying the administration and increasing efficiency. The former Ministry of Coal Industry was reorganised as the State Administration of Coal Industry (SACI), later known as the State Coal Indus-try Bureau, under the State Economic and Trade Commission (SETC).
The main functions of SACI were to prepare strategies for the national development of the coal industry; to establish guidelines, policies and regulations for the industry; organise the sale, allocation and transport of coal from state-owned mines; improve the efficiency and technology of coal production; and co-ordinate relations between the industry and government. SACI controlled 38 percent of national production in early 1998; the rest was produced by provincial, county or collective organisations.
From 1998 to 2000, a series of reforms paved the way for further downsizing of the administrations, including separating them from public institutions and enterprises. In 1998, SACI transferred ownership of its mines to provincial authorities, becoming solely a regulatory body. By August 1998, 94 key state mines, responsible for 40 percent of national production, had been transferred to provincial authorities. Structural adjustments in the coal industry and reorganisation of coal enterprises were accelerated in 1999.
Following the transfer of mine ownership from SACI to provincial governments, the State Council also transferred their management. The direct management of 94 key coal mines was transferred along with 206 attached enterprises with total capital of Yn23.79bn, 3.2m employees and 1.33m retired employees. However, this did not solve the problems of overstaffing, low efficiency and poor productivity.
In March 1999, the China Coal Industry Association (CCIA) was established under the auspices of SACI to coordinate relations between the government and coal firms as the industry started moving towards a more market-oriented structure. CCIA had as its core the former China Coal Industrial Enterprise Management Association and was the result of a merger of 11 other associations to form a broad institution covering all aspects of the coal industry.
Further streamlining took place in February 2001 when nine state administrations, including SACI, were closed down and their functions merged into various SETC departments, pending the development of a new institutional framework with new functions. SETC announced that it would eventually transfer or loosen control on those functions of which direct administration seemed unnecessary and would leave them to intermediary organisations. SETC would focus on providing instructions and service to enterprises, gradually easing restrictions while strengthening supervision. Mean-while, the role of industrial associations would be strengthened to act as a bridge between the government and enterprises.