The authority of Shanxi Province, China's largest coal producer, has given all its private coal mines an ultimatum: agree to merge with large-scale companies, mostly State-owned, by Wednesday or face water and power shutdowns.

The order is part of the government's ambitious plan to build a few giants by combining the production capability of small coal mines in a bid to "have a bigger say"in business negotiations with buyers such as electric-power producers in the national market, industry observers said.

A number of coal-mine investors, especially those from Wenzhou, Zhejiang Province, have complained about "great losses"caused by the plan.

But government officials said they have made adequate compensation. And most of the Internet users who commented about this news expressed their support for the government.

In a blueprint disclosed last week, the Shanxi government announced that it will cut the number of coal-mining companies from about 2,200 to 100 by the end of 2010, and build several enterprises with annual productions of about 50 million to 100 million tons.

The move is also aimed at reducing the number of deadly accidents, which have been plaguing many small coal mines that often lack adequate safety equipment and procedures, officials said.

According to the timetable announced yesterday, the coal companies with an annual production of 300,000 tons must sign formal merger agreements with large companies by the end of the month, just days away. And by the end of November, all mergers should pass government approval.

"If the owners refuse to sign a contract with the relevant parties before the deadline, the government may force the coal mines to close by terminating services of water and electricity,"said Tian Yun, director of the research center of the Chinese Academy of Macro Economy.

In addition, more than 300 coal mines that have failed to meet production standards must close by end of this year, Shanxi officials also said.

So far, two-thirds of the coal-mining companies have signed official transfer protocols, while the other third has only gotten to the initial-agreement stage.

"The plan aims at controlling and changing the previous coal-development patern of too many small enterprises operating throughout the province without regulations,"Shanxi Coal Information said.

A long-term plan

The mergers and acquisitions follow a reconstruction that started in 2004, when small coal mines were a popular business that promised high-profits.

It is estimated that more than 10,000 small coal mines were in Shanxi at its peak, according to China Petroleum and Petrochemical.

However, the safety loophole has always been accompanied with the high profits from coal mines each year, and thousands of coal miners have been buried and killed in disasters.

China relies on coal to generate 80 percent of its electricity. The country's coal mines, the world's deadliest, killed at least 3,770 workers in 2007, more than 100 times the number of fatalities in the US, the second-largest producer, data says.

In order to counter the danger of small coal mines and strengthen the industrial concentration, the Shanxi government has established a series of measures to push for mergers and reconstruction within the coal industry. Coal mines whose production capacity is less than 30,000 tons, 90,000 tons and 150,000 tons were forced to close in 2004, 2006 and 2008, respectively.

Difficulties

Although the timetable had been perfectly planned, Tian expressed his doubt on whether the work could be finished in time, as many small and medium-sized mines, required to be shutdown, are located in small cities or counties.

And the governments of these districts lack executive power and may choose to close the mines just temporarily, since if the coal mines are shut, the GDP and tax will reduce sharply, and the political performance of local governments will be affected, he said.

The merger plan has drawn outcries from private mine owners, who say the compensation isn't enough.

Yan Linze, who bought two coal mines beside Fen River for 400 million yuan, had to shut down operations in May, with the compensation of 50 million per mine, according to the Southern Metropolis Weekly.

"Those two mines, and forced low-price reconstruction by State-owned companies made me lose 100 million yuan,"Yan said.

(Global Times September 25, 2009)