The Last Coal Boss

The bosses of coal mines in Shanxi, China used to be featured with their wealth and extravagance. But now, they may be gradually fading away from the public.

Despite the -4.4% increase in GDP, the Shanxi government has made up its mind to conduct a reform to its pillar industry – the coal industry.

The reform is clearly targeted at integrating the 2598 coal mines into 1000 ones. Besides, the minimum production capital of each coal enterprise should not be lower than 3 million tons. The single well’s output should be increased from 300 thousand tons to 900 thousand tons. The integration is dominated by the large state-owned coal enterprises.

The private enterprises recede when the state-owned enterprises expand their domain. The coal bosses in Shanxi, known for their extravagance, will gradually disappear.

“The Last Coal Boss”

“Maybe we are the last coal bosses you see in Shanxi,” said a coal boss surnamed Zhang. He and several other coal bosses were being interviewed by the journalist from China Business News in a restaurant in Ningwu County, Shanxi. After taking some wine, Mr. Zhang suddenly gave out these words, in which the grief can be felt.

Mr. Zhang’s mine was established near to Ningwu County with the annual output of 300 thousand tons. During this reform his mine is integrated into Lu’an Group. “I’ve been the boss of the mine since the 1960s. I have been in the position for more than 40 years,” said he.

On the afternoon of that day, Luning Coal Industrial Co., Ltd under Lu’an Group held a meeting for coal mine integration in Ningwu to discuss and evaluate the coal mines that will be integrated.

In the first half year, Shanxi’s GDP suffered a negative increase, which was mainly attributed to the wave of integrations in the coal industry.

In this April, Shanxi provincial government made up its mind that more than 2000 coal mines will be merged or restructured by the end of next year, involving 220 million tons of production capacity.

The objectives of the mergers and restructurings are undoubtedly the small coal mines or enterprises whose number takes more than 80% of the total number. This means the coal bosses will only be seen or heard in the history of Shanxi.

Coal Bosses’ Thoughts

“The integration is the decision of the government. We have nothing to say,” said a coal boss surnamed Song.

Actually, the coal bosses knew clearly of this policy. “We can bring no alternations to the decisions of the government. We only hope that the government can repay us more money,” said Mr. Zhang.

According to the plan of Shanxi government, there will be 2012 coal mines merged or restructured by the end of 2010. Among them the five main state-owned coal enterprises of Shanxi will merge or acquire 1161 mines. The less important coal enterprises will merge or acquire 693 mines. By the end of 2010, only 479 of the 2000 more merged or restructured coal mines will be left.

“I used to think simply that I can buy some shares of Luning Coal Industrial Co., Ltd with my own coal mines,” said Mr. Zhang. “But someone advised me to sell the coal mine for money to avoid the future trouble.”

The future trouble mentioned by Mr. Zhang is that the companies conducting the integrations are the large-sizes state-owned enterprises. “We had rare opportunities to see the head of these enterprises during the process of negotiations and had to talk with their underlings. We don’t know what these heads really think of.”

Mr. Song, whose mine will also be merged by Luning Coal Industrial Co., Ltd, said: “The two sides of the negotiations are not in the same position. We don’t feel safe. Even though we are allowed to buy some shares with our mines, the shares we can buy are restricted, not enabling us to exert influence on the director boards.”

As required by the government, every the single mine with annual output less than 300 thousand tons should be integrated into the state-owned coal enterprises in Shanxi. The enterprises conducting the integrations should repay the integrated ones with 50% or 100% at a premium.

“My enterprise is worth 17 million yuan (USD 2.49 million). According to the policy, I can get 25.5 million yuan (USD 3.73 million). The added 8.5 million yuan (USD 1.24 million) can not offset the investment into the mine,” said a coal boss in Shanxi.

A director form a large-sized state-owned enterprise showed his compassion towards those coal bosses: “After all they had invested a lot of money into their mines. In addition, if their investments were put in after 2007, they had to suffer losses because of the frequent accidents. However, we can’t pay for their investment because it is hard to tell the accurate amount.”

        

Pain of GDP

An official of Ningwu County said that the government has to face serious financial problem since the integrations of coal mines. “Many people can not be paid normally.” According to the plan of Ningwu government, 5 of the 22 coal mines located there will be integrated as a county-governed coal enterprise to “guarantee the benefits of the county.”

According to the information provided by the Coal Administration Bureau of Datong, Shanxi, in the first half year the output of crude coal of Datong was 2.83 million tons, down 60% year on year. The financial income of Datong saw a year-on-year 14.63% decrease from January to May and the half year’s financial income decreased by 6.28% from the same period of last year. It’s necessary to tell that 70% or 80% of Datong’s financial income comes from coals.

Meanwhile, Shanxi’s GDP in the first half year dropped by 4.4% compared with the same period of last year. Even -8% increase can be seen in the first quarter.

Pan Yun, Deputy Head of Shanxi Academy of Social Science, thought that Shanxi government is conducting the industrial structure adjustment, which focuses on resource integration and restructurings and closures of coal enterprises.

In the first quarter, Shanxi was for the first time exceeded by Inner Mongolia in the output of coal. Before that, Shanxi had got several straight years’ champion in coal output in China. Presently only a quarter of the coal enterprises in Shanxi can stay with normal production. The proportion is much lower than Inner Mongolia.

Therefore, the National Development and Reform Commission forecasted that Inner Mongolia will replace Shanxi to take the first place of the annual coal output.

The decrease of Shanxi’s GDP reflected its single economic structure and the weaker ability of fighting the crisis.

“In the past time the light industry in Shanxi was also well developed. Our Haitang (crabapple) brand washing machine, Chunsun (bamboo shoots) brand TV used to be quite famous in China. But later, they gradually waned,” said Wu Xiaohui, Researcher of the Shanxi Academy of Social Science.

According to the public data from Shanxi government, the income from coal takes 70% of Shanxi’s GDP each year. 95% of the total industrial output value comes from the heavy industry, which focuses on the coal, electric power, coking and metallurgy.

“Coal, coking, metallurgy and electric power are four homogeneous industries and closely related with each other. During the financial crisis, if one industry made a dive, the other three can not escape from the same fate,” said Pan Yun.

Root of Integration

What made Shanxi government decide to reorganize the coal industry in spite of the economic recession?

“In many people’s eyes, Shanxi is only the province producing the largest amount of coal, not the one yielding the best-quality coal,” said an expert.

“Shanxi has a lot of coal companies, most of which are small and scatteredly distributed. Their efficiency is also quite low,” people concluded Shanxi coal industry like this. This extensive development situation and pattern have not been completely changed by now. Presently, there are 2598 coal mines in Shanxi, nearly 70% of which are the ones with annual output less than 300 thousand tons. The average annual production capacity of each kind of coal mines is only 360 thousand tons, less than the national average level. The output of the large coal enterprises only takes a half of the total number. Shanxi coal industry is featured with, or to be more exactly, haunted by the low industrial concentration degree, scattered distribution of mines, limited space for the development of large enterprises and rampant expansion of the small companies. The behindhand exploitation methods are still adopted by most small companies. Only 30% of the companies in Shanxi use special  modern machines to dig up coal.

What’s the result of this development pattern? Though once having benefited from it, Shanxi has to pay for the huge cost now and even in the future. In these years, the ecological and environmental loss caused by the extensive development pattern approached 500 billion yuan (USD 73.16 billion). The hills are infested with holes, which are actually the coal mines, making them look quite ugly. The beautiful scene has been devastated and can not be recovered. The loss is untold. Shanxi has been listed as one of the provinces devoid of sustainable development capability by the Chinese Academy of Social Sciences.

Besides, the frequent accidents of coal mines brought direct damages to people’s lives. According to the incomplete statistics, there were 4209 people dying from the coal mine accidents each year from 2001 to 2005. In September 2008, current governor Meng Xuenong had to resign for he couldn’t take effective measures to lower the frequency of coal mine accidents. In a while, people ironically said that the coal mine accidents are another “local products” of Shanxi besides the famous Xinghuacun (village full of apricot flowers) wine.

Some coal bosses themselves are hated by the other people for their extravagance. Last year, a man having a coal mine in Shanxi spent more than 6 million yuan (USD 887.94 thousand yuan) in holding a wedding ceremony for his son. Besides, some corruption cases in Shanxi are related with the coal bosses.

Coal has brought joy and pain to Shanxi. In today’s society which is featured with people-oriented development pattern, Shanxi has to make choice to deal with the problems, in order to fight against the financial crisis and to realize the sustainable development. The integration and reorganization of coal industry is necessary. Though the temporary pain can not be avoided, the result it may bring about is profitable for everyone.  ]