September 28,2009

Shanxi's Nationalizing of Coal Mines Riles Zhejiang Investors, Government

By CSC staff, Shanghai

In April, Shanxi Province, known as

China's "coal capital," announced it would nationalize 2,840 registered coal mines and finish signing the agreements with newly nationalized mines by the end of September, retaining only 1,000 open mines by 2010.


And Zhejiang Province is not happy about it. Private Zhejiang entrepreneurs have investments totaling 50 billion yuan in more than 450 mining companies in Shanxi employing more than 10,000 workers. The province is conducting an investigation into the losses of Zhejiang-invested mining firms in Shanxi due to M&A.


According to Zhejiang officials, many businessmen from the province, attracted by Shanxi's preferential investment policies, have gone there to invest but have been limited to holding no more than 30% of the shares. Compensation for their original mining exploring rights will be determined by the Shanxi provincial government, not based on law, which is in conflict with the coal industry policy set by the State Council.


Wang Xiaojun, director of the Mining Rights Trading Center of the Zhejiang Assets and Equity Exchange, is leading the investigation and has appealed to the central government to pay attention to local protectionism of Shanxi in the course of coal mine nationalization. He called for legitimate rights and interests of private enterprises from Zhejiang and Fujian in Shanxi to be protected.


Many people from Pingyang County of Zhejiang's Wenzhou City went to Shanxi to invest in coal many years ago. Among them was Huang Yidiao. In 1996, Huang's father-in-law and several friends became contractors at a coal mine in Ningwu County of Shanxi. At that time the price for coal plummeted to 10 yuan per ton, resulting in losses of four million yuan in less than two years, and they were forced to transfer the coal mine to someone else.


After 2000, with a coal market rebound, Shanxi introduced a series of preferential policies to attract private capital back to small coal mines, and there was an influx of capital from Wenzhou. Investment from Pingyang County alone reached more than 30 billion yuan in more than 260 coal mines.


Since 2005, Huang Yidiao has invested 500 million yuan in three coal mines with annual output of 150,000 tons. By last March, Huang had finally got all relevant mining and exploring documents. But the Beijing Olympics forced the closure of all small coal mines in Shanxi, and Huang's mines have not reopened.


Early this year, Shanxi Province mandated that "the number of mines across the province will be reduced to 1000 by 2010, and the annual production of a single well must be 900,000 tons. Three large-scale coal enterprises with 100 million tons production and four 50 million-ton firms will be established by 2011, whose production will account for more than 75% of the province's output."


In April, Shanxi again stated that only 1,000 coal mines will be retained in 2010, and the annual production of coal enterprises after M&A must be no less than 3 million tons and that of single well will be no less than 900,000 tons.


Huang said the main state-owned enterprise taking part in the coal mine consolidation in Ningwu county is Fenxi Coal Mine Group, and governmental officials call him every day, urging him to participate in negotiations and finish M&A earlier.


Since the coal mine reform in 2005, many Zhejiang businessmen have obtained mining exploration licenses and industrial, commercial, taxation, and other related certifications after fair competition, signed resources transfer agreements, and paid money, as well as having invested much money to improve the production environment and increase productivity.


However, in less than four years, Shanxi Province has issued regulations three times raising the access standard: annual production of the single well increased from 90,000 tons to 300,000 tons and then to 900,000 tons; annual production scale of enterprises must reach 3 million tons; the total number of mines will be reduced from the original 2840 to 1000.


The vast majority of Zhejiang-owned mines are small and medium mines, facing unconditional merger or closure. A lot of money invested in them comes from relatives, classmates, friends, and colleagues of those private businessmen, as well as private loans. The huge losses involved in the M&A will affect many enterprises, institutions and banks, causing a chain reaction.


Shanxi coal from Zhejiang-invested mines accounts for 30% of the total consumption in Zhejiang. Energy tension in Zhejiang will appear once the supply is cut off. At present, 50 million tons of coal is controlled by Zhejiang investors, of which 30-35 million tons are sold directly or indirectly to Zhejiang.

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