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Shanxi Begins Colliery Ownership Reform

"Is it possible for us to own a coal mine? Will the township government allow it?" Jin Yu, in a village in the Lüliang Mountains of north China's Shanxi Province, was doubtful even after her husband paid 10 million yuan to the county government to become a township colliery's owner.


An August 11 Nanfang Weekend report revealed that Shanxi is drawing up a reform plan concerning the ownership of its nearly 4,000 collieries. After paying certain mining fees, contractors would be able to acquire and transfer mining rights the state used to give to township, county or provincial governments.


China, the world's largest coal producer and consumer, is rich in deposits. Its reserves add up to 1 trillion tons, mainly distributed in the north and northwest, Inner Mongolia, Shaanxi and Shanxi in particular.


Shanxi is the country's no.1 coal producer with verified reserves of 272.5 billion tons. It is among the world's six biggest coal bases with an annual output of over 100 million tons.


Nevertheless, behind these figures are rising numbers of mine accidents with irrecoverable losses in lives and property. Reformers hope the reforms will help reduce wastage and accidents, which have been blamed on undetermined colliery ownership.


The new plan was piloted last year in Linfen City and Zhongyang County of Lüliang City, sparking widespread debate. As early as 1996, the revised Mineral Resources Law already stipulated that both prospecting and mining rights could be acquired with payment. However, in the following five years only 270 or so transfers took place.


According Shanxi Provincial Department of Land and Resources, in the first half of this year the National Development and Reform Commission, State Environmental Protection Administration, State Administration of Work Safety and ministries of finance, land and resources, and labor and social security jointly established a task force in charge of coal resources management.


It decided to continue the pilot in Datong and Yangquan in the latter half of the year, extend it next year throughout the province and Inner Mongolia and Shaanxi, and roll it out nationwide in 2007.


Pilot project in Linfen


At a working conference on July 21, 52-year-old Miao Yuanli, vice mayor of Linfen, summarized the pilot that was set up after an explosion at Liangjiahe Coalmine in Linfen's Xixian County killed 36 miners on April 30, 2004.


Besides safety problems, unclear ownership has resulted in a huge waste of resources. Shortsighted contractors often don't pay any attention to a mine's sustainable development. "We're just contractors; of course we dig where it's easy and where high-quality coal is," said one of them.


In most Shanxi collieries the rate of recovery is 30-40 percent; while in township mines it is between 10 and 15 percent, meaning 85 to 90 tons of raw coal will be lost after digging up 10 to 15 tons.


After the Liangjiahe accident, all collieries in Shanxi were ordered to stop production to improve working conditions. In May the provincial government publicized a set of reforms and chose Linfen as the place where the experiment was to be held.


The government hoped ownership transfer would encourage colliery owners to increase investment in safety production and raise the rate of recovery.


In the first two months, not one of the city's 563 collieries responded, Miao said, and coal output remained zero. Resistance mainly came from mine contractors who did not want to pay additional fees.


Miao held 14 rounds of talks with leaders of 14 coal-producing counties, and the deadlock was finally broken by the end of July when Dian'eryuan Coal Mine in Yicheng County took the lead in paying the money and resuming production, after which other contractors followed suit.


Price issue


Land and resources departments said Shanxi currently has 4,018 coal mines. Over 3,000, all township or village enterprises, were established in the 1980s. Though forbidden by law, in the past decade or so they have been contracted out by local governments for different time periods; some have been sub-contracted several times.


After weighing the odds, both Linfen and Zhongyang chose to transfer coal mine ownership. Only when contractors refused to take it over would a colliery be auctioned. This method met support from Xiao Geng, an assistant professor at the University of Hong Kong's School of Economics and Finance.


Qian Pingfan, a research fellow with the State Council's Development Research Center, questioned negotiated transfer fees, saying auctions introduce competition and attract better prices.


In the beginning, Miao Yuanli objected to fixing a high price, since contractors would either not afford it or have no more money to upgrade facilities and invest in safety production.


But many pointed out that, as mineral resources are bound to rise in value, sale at a fixed price would damage the state in the long run.


In the province's new implementation rules, the original "once-and-for-all" deal has been changed to payment by installments at an interval of five years based on a floating coal price.


"We have nothing to use as reference for the reforms. We have to take it one step at a time," said Zhu Jingxue, director of Mine Management Division of Shanxi Provincial Department of Land and Resources. "When drawing up the reform plan we must take full consideration of the interests of the country, governments at different levels, contractors, local villagers, and so on."




Many contractors remain skeptical about whether the reforms can turn them into true mine owners. They are not sure if the new methods are just an act of expediency, or herald the marketization of mine ownership.


"In this sector there have been too many things we cannot control, or even choose," sighed a 36-year-old contractor surnamed Cheng of Wenzhou in Zhejiang Province. Since 2002 he contracted four collieries in Datong and Xinzhou. Though paying over 2 million yuan for the mines in Datong, he still didn't get the promised mining rights certificate.


Sources from land and resources departments said that even in Linfen, where the project was first piloted, not a single mine ownership transfer has been concluded.


The reform's ultimate goal is to create modern coal enterprises. To achieve it, in the view of Xiao Geng, industrial restructuring is necessary, which will deal with broader fields like the transformation of government's supervisory and administrative style and the establishment of a mediating mechanism in case of disputes.


It has produced some initial encouraging effects. For example, working conditions in Shenjiao Colliery have improved remarkably, and new equipment costing 60 million yuan is expected to raise the mine's recovery rate to 70 to 75 percent.


(China.org.cn by Shao Da, August 26, 2005)

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