Quantity versus quality: China's coal industry tries to reform itself

Quantity versus quality: China's coal industry tries to reform itself

Interfax-China - http://mdn.mainichi-msn.co.jp/business/news/20060410p2g00m0bu024000c.html

10th April 2006

SHANGHAI, China (Interfax-China) -- When delegates from China's benighted coal sector get together at a conference, particularly an international conference, they are normally forced on the defensive as they try to explain why the country's coal industry has become synonymous with chaotic levels of waste and a lamentable fatality rate.

"We know there are safety risks [in China's coal industry]," Zhu Deren, vice-president of the China National Coal Association (CNCA), told Interfax, "but we have to meet annual targets. It is like the U.S. fighting Iraq. People die but we have to fulfill national coal demand."

But safety was not the only preoccupation at this week's Coaltrans China conference in Shanghai. Leaders from the country's major state-owned firms were also discussing ways in which the industry could become more efficient, sustainable and green after years of destruction.

Liu Suisheng, the president of the Datong Coal Mine Group, was frank about the impact the industry has had on the local economy. The city of Datong, in the dustbowl of Shanxi Province, has been one of China's top coal producers for several decades, but by now, half of its 49 coalmines are on the brink of complete depletion, and six have already gone bankrupt, said Liu.

The city, and the province as a whole, has paid the price for its overdependence on coal exploitation. The city's huge slag heaps grow by 80 million tons every year, Liu revealed. At the same time, overworked seams have led to the contamination of underground water tables, and the region's atmosphere has been relentlessly, chronically ruined.

Nevertheless, although coal might be unfashionable, and part of what the Chinese leadership is now describing as "the old mode of development", delegates at the Coaltrans China conference held in Shanghai this week were keen to emphasize the role that the dirtiest of fossil fuels will continue to play in China's future.

No one, not even the most enthusiastic proponent of renewable energy, is expecting the dominance of coal in China's energy industry to falter any time soon. China is doing its utmost to develop alternatives, chopping up its rivers with dams and reservoirs, building wind farms and experimental fusion reactors and biomass plants, and searching the high seas for new sources of oil, natural gas and combustible ice. But coal will remain the key form of energy for at least the foreseeable future.

"The basic solution to China's energy problems is 'diversified development with coal at the foundation'," said Wang Xianzheng, vice-head of the State Administration of Work Safety (SAWS), at the conference.

"Coal remains an important material basis for the country's economic growth and social development," said Liu Shijin, vice-President of the Development Research Center, the State Council think tank.

"Coal is the predominant primary energy for China, and determines the leading role played by coal-fired electricity," according to Xie Jin, the President of the Technical Economics Research Institute of the Huaneng Group, one of the country's biggest power generators.

The challenge, delegates to the conference agreed, is to seek new ways of using coal, and to ensure that the devastating human and environmental costs of untrammeled exploitation can be somehow mitigated. In parts of Shanxi and the industrial northeast, it might already be too late, but the authorities are hoping that the nationwide consolidation of resources to create 13 "national coal bases", as well as the closure of small and dangerous mines, will help rationalize the industry, improve safety and environmental protection, and boost efficiency.

Integration

Liu Suisheng, the Datong Coal Mine Group president, called for the construction of a super-efficient industrial chain where "every waste product from one work unit becomes the main raw material for another waste unit." Instead of just being lugged by trucks to the big consumers in the east, the coal will be processed in situ and used to galvanize entire towns and cities, he said.

This is not just pie-in-the-sky. Liu described one such integrated project at the Tashan Industrial Park in Shanxi Province. "After the coal is cleaned, it will be transported out," he said. "The coal gangue produced during the cleaning and selection process will be used to generate electricity at the industrial park, and the electricity will be one of the sources of power for the whole park. The power station will also provide heat for local residents."

Meanwhile, "the kaolinite from the coal cleaning and selection process will be deep-processed and used as raw material for paper manufacturing. Coal dust produced during the processing of kaolinite and from the power plant will be used as raw material for cement and building materials. A wastewater treatment plant will recycle the wastewater from the coalmine, and the water will be used by local residents and for the power plant."

The problems that have accumulated in the industry are severe, said Liu. "The mode of production in coalmining companies has been characterized by massive production, massive consumption and massive levels of waste," he said, "leading to serious social problems such as resource depletion and weak environmental sustainability."

Big companies like the Datong Coalmine Group are being used as the spearheads in a government-led program aimed at rationalizing the coal industry, consolidating increasingly scarce resources and alleviating the almost constant threat of mayhem in the woefully unregulated and ill-equipped pits. Like its big rivals, Datong is gobbling up smaller local mines and expanding rapidly into downstream industries to create what the government has been touting as China's "integrated coal bases". Regulations to close smaller mines will help eliminate private players from the market, allowing the state-owned giants to step in.

Shenhua, the country's biggest coal company, is also part of the campaign. Zhang Xiwu, the President of the Shenhua Group, talked about the company's plans to build integrated facilities involving coal, power generation, chemical processing and transportation. As well as being the country's biggest coal producer, it plans to run 3,400 km of rail track dedicated to coal delivery by 2010, and increase its power generation capacity to 30,000 MW. Great hopes are also being placed on Shenhua's coal-to-liquid plans. Zhang expects it to become a "new driving force" for the company.

SAWS's Wang Xianzheng said that China should continue to encourage coal enterprises to develop downstream industry, including power generation, chemicals and transportation. He also said that more downstream companies, especially power companies, should invest in coalmine construction.

Closing small coalmines

But it is at the other end of the scale that most of China's problems exist. SAWS released another policy document this week, calling for the closure of all small coalmines with an annual production capacity of less than 30,000 tons by the end of 2007. The production capacity of coalmines in the key provinces of Shanxi, Inner Mongolia and Shaanxi cannot be less than 300,000 tons, it said.

Around 70 percent of the total coalmines in China are small ones with an annual capacity of less than 30,000 tons, and two thirds of all accidents take place at mines with an annual output of below 300,000 tons.

Wang Xianzheng, the deputy chief of SAWS, said at the conference this week that China's coal industry should concentrate on improving quality, rather than merely boosting quantity. He noted that systemic problems in the industry had led to "reckless competition" among coal enterprises, causing appalling safety problems and profligate levels of waste.

As well as attempting to consolidate the industry through the creation of "coal bases" and the closure of small, dangerous and inefficient mines, the government will also give more responsibility to individual enterprises and coalmine bosses, Wang said, rather than just issuing orders from Beijing.

"They should stop thinking just about boosting output, and think more about the quality of the output," he said.

Safety is the "top priority" for the industry, said Wang, but improving matters will be easier said than done. Zhu Deren, the CNCA vice-president, told Interfax that at present there was no way of solving some of the problems in the industry.

To get an idea of the shortages, many foreign representatives at the Shanghai conference were talking up the possibility of boosting exports to China. Guangdong Province, which produces almost no coal of its own, is reliant on the country's strained transportation network, and has sought to ease that dependence by shipping in coal from Vietnam. Australia is also looking forward to greater export opportunities, said Peter Coates, the chief executive of Xstrata Coal.

Si Posen, the vice director of the legal department of the China Coal Information Institute, told Interfax that the small coalmines, the average recovery rate of which stood at below 15 percent, also caused too much waste, and their inferior facilities could not meet work safety requirements.

"And the work safety departments are short of manpower to supervise such a large number of small coalmines," Si said.

Some provinces have already released local regulations for eliminating small coalmines. Shanxi, for instance, has announced that it will gradually decommission all coalmines with an annual output less than 90,000 tons. Nevertheless, the closure campaign, even at this early stage, is not running as smoothly as it might. SAWS announced this week that several provinces had not actually met their closure targets for the year.

Wang Xianzheng talked about the need to solve the "three relationships" if the consolidation of China's coal industry is to be achieved effectively. The first, he said, was the relationship between "doing big and doing strong", the second was between "the production volume and the stockpiled volume" of coal, while the third was the relationship between various strata of the industry and the need to delegate.

But we might add a fourth relationship. In Xinjiang at the end of last year, the local authorities re-opened 123 previously condemned mines in order to guarantee demand. Safety just wasn't viewed as the main priority with coal in short supply during the harsh winter. How can the conflict between improving the industry and increasing output be resolved? Is it possible to drive at maximum speed and change direction at the same time?

Despite a relentless media campaign by the State Administration of Work Safety (SAWS), it will be some time before the majority of China's dangerous pits are finally shut down, and the reason is very clear. With shortages still prevailing in many of the country's more economically advanced regions, the country simply cannot afford to cut back.

"This has to be gradual," said Zhu Deren. "We cannot close the small coalmines completely because they produce too much coal."