By Ng Tze-wei
8 December, 2009
Hailed as an unprecedented move to shed its reputation as the country's "blood-stained coal basket", Shanxi's latest coal industry reform will see the closure of more than 1,500 small coal mines, the disappearance of more than 95 per cent of its coal enterprises, and the loss of at least 140 billion yuan (HK$159 billion) of private investment, state media confirmed yesterday.
However, the pros and cons of the reform are far from clear-cut, nor has the restructuring been finalised as the government has claimed. Only one thing is certain, the most important aspect and the cited purpose of the reform - work safety - has so far taken a back seat.
Home to a quarter of the country's reserves, Shanxi has for two decades been turning out "black gold" at the price of workers who toil in dangerous, miserable conditions. Last year at least 500 workers died in 16 major accidents, a figure that showed the failure of repeated attempts to improve safety: stricter regulations, heavier penalties, high barriers to enter the industry, jailing and the sacking of officials. None proved effective.
This time, the provincial government will try a new approach - consolidating smaller, private mines into larger, state-owned entities. The theory is that large mines under direct government control will be easier to scrutinise and less likely to cut corners on safety.
According to government figures, small mines are responsible for 70 per cent of the fatalities each year - with a death rate per unit of coal four times as high as the large mines.
However, are state-owned mines really safer than private mines? Just last month a state-owned mine explosion in Heilongjiang left at least 104 people dead.
Private investors from Wenzhou have been the most vocal about their losses in the reform, and have turned their complaints into a confrontation between the Shanxi and Zhejiang governments - although news reports last week said Zhejiang officials had returned from negotiations empty-handed. The collection of 10,000 signatures for a letter challenging the legality of this reform was also called to a stop by the Zhejiang government.
The reform is also hitting Shanxi where it hurts most - its GDP. Still the yardstick to gauge the performance of regional officials, the province recorded a 4.4. per cent contraction in the first six months of this year.
However, the new governor Wang Jun , former head of the State Administration for Work Safety, said he would "rather hear criticisms than the sound of weeping", and personally led the committee that oversees the restructuring.
On paper, the plan is simple enough. The smallest mines will be shut and the bosses of those below the raised cap on minimum size must sell out to a larger venture or become a minority partner. The majority partner must be a state-owned company, or in exceptional cases a very large private company.
But as the South China Morning Post discovered, the restructuring is taking many different forms. According to the government, 97.9 per cent of restructuring deals were signed last month. However, many are framework agreements that have neither resolved the price of the purchase nor the method of payment by the state-owned partner.
Some involve a shadow contract, where the small mine in reality still holds majority ownership of the mine. Negotiations are still fervently taking place, both above the table, and under it.
One of the biggest bones of contention is the purchase price, which does not fully take into account market fluctuations. Another complaint is the constant change of policy. The increase in minimum size is not the first and owners fear it is not the last.
"First it's 90,000 tonnes [in 2006], then 150, 300, 600 and now 900,000. Every time we have followed the orders to invest," said an owner surnamed Wang who would not give his full name for fear of disrupting continuing negotiations. "If we don't follow, we will lose everything. But shouldn't they stick to what they said?"
Wang said since this reform he had reluctantly sold three of his five mines, making a loss of 100 million yuan. Now he was struggling to raise 300 million yuan to upgrade his two remaining 600,000-tonne mines to the required 900,000 tonnes.
Some coal bosses have plunged into bankruptcy, but many others are still stretching their imaginations, guanxi, and sometimes pockets, to stay in the game.
Some local governments are also eager to help, as the restructuring affects their tax revenue too.
Zhang Tuanwei , assistant chairman of Shanxi Yiyi Coal Coking Group, said his company was relatively lucky because the local government in Gujiao city had come up with an idea that largely averted the impact of the restructuring.
The city government has initiated the establishment of a private company incorporating 11 private mines, with each mine remaining under the complete autonomy of the original company. This design has already been approved by the provincial government, and Shanxi Yiyi with its 600,000-tonne mine would hold a 17 per cent share in the new company.
"It appears we are part of a new company, but for us, the only difference is now there is one extra level of management," Zhang said. "This is more pragmatic and we can start operating [sooner]. This will keep the profits in the city."
For those who have opted to sell, it is likely profits are going to leave the province. Such is the volume, economists fear "hot money" being ploughed into the already volatile stock and property markets. Some bosses indicated they would simply transfer their investments into mines in Inner Mongolia or Guizhou - areas with plenty of coal, and much less stigma attached to it.
Han Dongfang , founder of Hong Kong-based China Labour Bulletin, said that while workers' safety was touted as the main aim of the restructuring, workers' voices were absent throughout the process.
"The current decision was made in exactly the same fashion as the privatisation decision several years ago. There was no public consultation. It was like someone just made the decision after patting themselves on the head," Han said.
Han, who supports state-owned companies when it comes to work safety, said nationalisation was not a magic wand, and in the future, miners should be able to hold owners accountable for safety issues through unions independent of private owners and the Communist Party.
"Merging, restructuring and nationalising small-scale coal mines should only be the start of the process," he said. "Only when an effective system for resolving the safety problems inherent in China's public and private coal mines has been established, will safety standards actually start to improve."