Technical Assistance Consultant’s Report
Project Number: 37616 (TA 4566-PRC) December 2006
People’s Republic of China: Poverty Reduction in Coal Mine Areas (Financed by the Poverty Reduction Fund)
Prepared by ESSA Technologies Ltd. 1765 West 8th Avenue
Vancouver BC. V6J 5C6
For Shanxi Provincial Development and Reform Commission and Asian Development Bank
This consultant’s report does not necessarily reflect the views of ADB or the Government concerned, and ADB and the Government cannot be held liable for its contents. For project preparatory technical assistance: All the views expressed herein may not be incorporated into the proposed project’s design.
Toward Poverty Reduction in Coal Mining Areas in Shanxi Province
ADB TA: 4566-PRC
Final Report
Submitted to:
Director, Foreign Capital Utilization Division Shanxi Provincial Development and Reform Commission No. 21 Donghouxiaohe Street, Taiyuan, Shanxi, PRC
and
Asian Development Bank P.O Box 789 0908 Manila
by
ESSA Technologies Ltd., 1765 West 8th Avenue Vancouver BC. V6J 5C6
December, 2006 CURRENCY EQUIVALENTS (as of 20 December 2006)
Currency Unit – YUAN (CNY) CNY 1.00 = $ 0.1276 $1.00 = CNY 7.812
ABBREVIATIONS
ADB Asian Development Bank ALC Administration of Land Resources BT Billion Tons CMADP Coal Mine Area Development Project CNNC China National Nonferrous Corporation CNPC China National Petroleum Corporation EA Executing Agency EIA Environmental Impact Assessment EIS Environmental Impact Statement EPB Environmental Protection Bureau JMDRC Jincheng Municipal Development and Reform Commission KSOCM Key State Owned Coal Mine MMI Metallurgical Industry MGMR Ministry of Geology and Mineral Resources MOLAR Ministry of Land and Resources NDRC National Development and Reform Commission NPC National Peoples Congress NSPS National Safety Production Administration Bureau PPMS Project Performance Management System PRC Peoples Republic of China SOCM Local State Owned Coal Mine SPC State Planning Commission ToR Terms of Reference TVCM Town and Village Coal Mine VAT Value Added Tax
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ACKNOWLEDGEMENTS
Many people were instrumental to the success of this project. On behalf of the project team and ESSA Technologies Ltd., I warmly thank Madame Wang Hong Ya; Director of the Foreign Capital Utilization Division of the Shanxi Development Reform Commission, and her staff for the extensive support and guidance provided throughout the project. Madame Wang's keen interest contributed greatly to the project. Special thanks goes to Mr. Wang Weizhong of the SDRC for his unfailing logistical support and keen insight into project issues.
I gratefully thank Mr. Maihui Shen and his staff of the Jincheng Municipality Development Reform Commission for the full support and generous hospitality during the field missions to Jincheng municipality. Ms. Xiafang Ren and Mr. Jianfeng Yang of the JMDRC made each mission a great success as a result of their careful and thorough attention to the logistics, organization, and facilitation of the stakeholder meetings. Their assistance with data and information collection was most helpful.
The project could not have been completed without the valuable input provided by the different stakeholders of the coal mine industry on the issues surrounding the closure of small coal mines. I thank the following provincial and municipal stakeholders whom provided their valuable time and assistance to the project team during all field visits to Taiyuan and Jincheng city.
Land Resource Bureau Coal Mining Bureau Environmental Protection Bureau Coal Mine Safety Management Bureau Statistical Bureau Labour and Social Security Bureau Bureau of Civil Affairs Poverty Reduction Bureau Price Bureau
I express sincere gratitude to Mr. Edu Hassing, Dr. Bo Q. Lin, and Mr. Teruhisa Oi for support and guidance throughout the project. The complexities of the scope of the project necessitated their careful eyes. The project is indebted to Ms. Lorna Enjaynes who provided key administrative direction and contract support throughout the project.
Last, but definitely not the least I thank the national and international project team whom have worked hard on a challenging assignment. The intertwined social, economic, and institutional issues underpinning the difficulties with closing small coal mines are not trivial, and are very important to resolve.
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EXECUTIVE SUMMARY
1. The Chinese government has implemented a policy to close small coal mines (< 90,000 tons annually) to consolidate and develop larger mechanized mines. The target mines for closure fall within the town and village level mines (TVCM) category. The small TVCM has shown too often to be inefficient, and operationally unregulated which has lead to safety and lingering local environmental impacts issues. These factors are the reasons the Chinese government is working toward closing these mines. The Asian Development Bank in consultation with the Chinese government has agreed to provide assistance to Shanxi province to alleviate poverty in coal mining areas that stems from the displaced miners whom lose their jobs with mine closures. Shanxi province was selected as the study area for assistance because of the high socioeconomic dependence on coal mining in that province.
2. The economic, institutional, and social implications of the closure of the many thousand small coal mines in Shanxi province are significant due to the importance of the small coal mine industry that has emerged over the last 10-20 years. This report presents the results of an analysis of the economic, institutional, environmental and social impacts of small mine closures in Shanxi province. The report prescribes two options for reducing unemployment caused from mine closures: a) re-employment and vocation redevelopment; and b) development of alternate coal-based industries in the province.
3. The management of small coal mines in China has experienced a history ranging from initial, active encouragement to restrictions and ultimate shutdown. Development of small coal mines occurred during the period of the sixth five-year plan (1981-1985) when coal production could not meet the demand, which became the key constraint to the country’s economic development. However, random and excessive coal exploitation which ensued also brought negative effects such as coal mines operating without licenses and sufficient regard for worker safety, and adverse impacts caused to the community and environment.
4. A series of laws and regulations were implemented starting in 1997 to eliminate the negative effects of small coal mines which focused on shutting down and reducing the production from small coal mines. Though not 100% implemented the closure laws have had an effect on the industry. Unfortunately the trend of mine closure did not continue as a result of the rise in coal prices and lack of coal market support in recent years, which provided the stimulus for the re-opening of many small mines that were closed. However, the central government’s intention of closing down small coal mines in China has not changed.
5. Prior to 2005, the closure of small coal mines in Shanxi province served the national policies and regulations for mine closures. In 2005 the central government appointed Shanxi as the pilot province to combine the closure of small coal mines with the integration of coal resources. As a result, some new policies and regulations were issued and adopted. The key directives of the new policies fall under the umbrella program of: "Implementation of Coal Mines Resources Integration and Reimbursement for the Right of Coal Resource Mining in Shanxi Province", which regulates the procedures of coal resource integration and reimbursement for coal mining rights in Shanxi. iv
6. There still exist problems with the current policies for closing down small mines in Shanxi province as summarized below: (i) Lack of policies to assist economic development in the areas affected by small coal mine closures. (ii) Lack of policies for compensation of small, legal coal mines that are forced to close. (iii) Lack of policies for resettlement of unemployed coal miners. (iv) Weak administration of industry and interacting functions among the relevant government departments. (v) Impracticality of totally closing down all coal mines with an annual production below 90,000 tons pursuant to current policy.
7. The following recommendations are put forward: 1. Boost industrial diversification of local economies affected by small coal mine closures. 2. Design support mechanisms for individual entrepreneurs and small-medium enterprise development. 3. Design compensatory mechanisms for different stakeholders. 4. Combine mitigation action with national development and assistance strategies. 5. Establish a mitigation fund to relieve some of the negative impacts of small coal mine closures.
8. The economic impacts of small coal mine closures in Shanxi province stem from: 1) coal supply reductions; 2) reduction of local fiscal income; 3) political impacts arising from social instability and unemployment; 4) coal resource waste; and 5) cumulative environmental impacts.
9. Using a multivariate econometric model and a time series model, we show that coal demand in China will increase constantly over the next few years. The multivariate econometric model shows that coal demand is statistically related to GDP, price of coal, price of alternative fuel, growth of steel and metallurgy industries, electricity demand, and construction materials. Though closure of TVCMs may undermine the total coal output, the amount is insignificant. The national and Shanxi provincial governments have plans to increase coal production from large mines to offset production lost from TVCM closures, and to meet coal demand increases.
10. Local governments’ fiscal income will be reduced. A panel data econometric model is used to establish the relation between coal mine closure and local fiscal income at the county level in Shanxi province. The results show that complete closure of TVCMs will result in a total fiscal income decrease of 8%. However, because TVCMs are unevenly distributed geographically some counties such as Zezhou county could experience an estimated decrease in fiscal income of 35%.
11. Closure of TVCMs will also adversely affect the local unemployment situation. Incremental unemployment will result from direct layoffs by the TVCMs and byproduct industries, and from the slowdown of physical infrastructure development and the service sector. Given that essentially there is no unemployment insurance for the miners in TVCMs, many displaced miners will be pushed into poverty. Although emigration may help to alleviate an increase in local poverty, resident miners that lack expertise and other skills will have to decrease their living standard. The impact will extend to the community level v because communities will lose the compensation they enjoyed from TVCMs that operated within their territories.
12. The indirect socioeconomic effects of a decrease in coal production were assessed using computable general equilibrium (CGE) modeling and social accounting matrix (SAM) techniques. The results indicated that if coal output declined 10%, employment in the coal industry, construction industry, information technology industry, commerce industry, and services industry would decrease 12.3%, 1.69%, 2.31%, 1.71%, and 1.85% respectively.
13. The CGE and SAM analyses indicated that a reduction in coal output would reduce household consumption, and would decrease enterprise revenue, household income, and government revenue. Overall a decrease in coal output due to closing small coal mines has a negative effect on poverty reduction and the economy in the short-term.
14. The environmental impacts of production activities of small coal mines are similar to but significantly smaller in scale than the impacts of the larger underground mines (e.g., > 500,000 tons). The impacts of individual small mines that have been noted in Shanxi province consist of dust production from coal storage areas, sedimentation of surface waters from erosion, contamination of groundwater, land subsidence, and lost agriculture production. However, more significant are the cumulative effects of mines that are clustered in a small area in the same drainage basin. An example of a significant, indirect cumulative impact of small coal mining is the ultimate negative effect on regional air quality from coal combustion.
15. The closure of small coal mines in principle is good for the environment because it marks the end of the unregulated and inefficient production activities characteristic of the small mines. The environmental impacts of mine closures stem from residual operations impacts that result from incomplete and inadequate site remediation and restoration procedures. China's relatively extensive regulatory framework for environmental protection for different industrial sectors including the operation of large coal mines, excludes regulations governing the closure of small coal mines. Inadequate closure procedures for small mines prevail because of the absence of complete and clear closure procedures and responsibilities, the absence of a formal budgetary mechanism, and because many small coal mines are "unlicensed", and therefore invisible to regulation. Improving the regulatory framework for small mine closures represents the focal point for reducing the environmental impacts of mine closures.
16. The owners and operators of small coal mines, such as the local Coal Mining Bureau, must become responsible for closing mines properly and completely according to promulgated procedures. Owners must be required to identify and allocate a budget from production profits that is dedicated to mine closure. The owners must work with the provincial and local Environmental Protection Bureaus to assist with regular environmental monitoring and reporting of the impacts of mine production and closure phases.
17. Because small coal mines are major contributors to the local economy in Shanxi province, they are also key to lifting rural people out of poverty and absorbing surplus labor. The recent closure of small coal mines in the province has resulted in an estimated total of 47,000 redundant miners. If Shanxi provincial government fully implements its policy to close small coal mines, it could result in the redundancy of a predicted additional 184,000 miners, which in turn will create significant unemployment and increased poverty in the province. As a result of the small-scale coal mine closure, at least the following three parties suffer from economic loss: i) the owners of the mines lose their investment and future cash-flow; ii) the local government loses tax revenue; and vi
iii) the workers lose their livelihood, whether they are local residents or immigrants.
18. In response to the unemployment situation various preferential policies of re- employment, re-training and vocational re-development have been developed by the Shanxi provincial government for the laid-off coal miners, such as developing new projects, arranging business premises, reducing or waiving taxes and fees, granting loans, and developing business startup training programs. However, the Shanxi provincial government has not developed a formal job and vocational re-development program for the displaced coal miners.
19. Existing training is limited to basic education, and skills development in agriculture or animal husbandry provided to some unemployed miners by local Poverty Reduction Bureaus as part of assistance to the poor. Budgets for existing re-training and vocational development programs are insufficient, and the focus of existing programs is inappropriate. Most displaced miners do not receive any assistance and are vulnerable to accept work in other small and often non-recognized mines. The Shanxi provincial government cannot fully support the potential widespread requirement for re-training and vocational development of displaced miners from planned mine closures. Based on the current situation, the Shanxi government is proposing the development of a number of alternative coal-based energy production industries to seek ADB financing as a means to provide new employment and retraining opportunities for displaced miners in addition to the existing re-employment and re-training opportunities. The Coal Mine Area Development Project (CMADP) represents a group of coal-based industries that could be developed in Shanxi province.
20. The CMADP will consist of effective and efficient coal mine methane (CMM) and coal-based methane (CBM) production activities. The new industries will capture and utilize the latest technologies to produce energy, and to reduce environmental pollution. The CMADP will include: (i) transmission and distribution of CMM for residential, commercial and industrial use; (ii) methanol production by CBM; and (iii) drilling and CMM drainage including a CMM-based 120 MW power generator using combustion gas engines.
21. The CMADP components will not only display sound financial gains such as power generation and methanol production, but will also create new jobs for groups affected by TVCM closure, increase coal mine safety, and provide environmental and health benefits from avoided emissions from the “without project” scenario. In addition to producing cleaner energy, the CMADP exemplifies an alternative to burning coal produced from small mines which means that coal production lost from small mine closures would not simply be replaced with increased production from consolidated or larger mines.
22. The economic internal rate of return (EIRR) and financial internal rate of return (FIRR) for the entire CMADP are 41.06% and 21.94%, which are significantly higher than the Bank’s hurdle levels. The sensitivity analyses conducted show that the project is also robust to external shocks such as 20% capital cost overrun, 20% benefit reduction, a 1 year implementation delay, or a combination of the above. vii
CONTENTS
Page ACKNOWLEDGEMENTS...... I EXECUTIVE SUMMARY ...... III LIST OF FIGURES ...... IX LIST OF TABLES ...... X I. INTRODUCTION AND BACKGROUND ...... 1 A. SCOPE OF STUDY ...... 2 1. Goal of Project...... 2 2. Approach to Project ...... 2 B. OBJECTIVES OF STUDY ...... 3 C. STRUCTURE OF REPORT ...... 3 II. NATIONAL CONTEXT...... 5 A. OVERVIEW OF ECONOMIC AND SOCIAL IMPORTANCE OF SMALL COAL MINES ...... 5 B. INSTITUTIONAL FRAMEWORK FOR SMALL COAL MINES AND MINE CLOSURES ...... 6 1. Institutional Structure Governing Small Coal Mines in China...... 6 2. Re-organization of Agencies Governing the Mineral Industry...... 7 3. Institutions Related To Small Mine Closure ...... 8 C. EVOLUTION OF POLICIES AND REGULATIONS FOR SMALL COAL MINES...... 9 D. LAWS, REGULATIONS AND POLICIES FOR SMALL COAL MINING AND MINE CLOSURE ...... 11 1. Acceleration of Closure of Small Coal Mines ...... 11 2. Intensive Rectification of Small Coal Mines: ...... 13 E. BACKGROUND TO 1998 SMALL MINE CLOSURE CAMPAIGN...... 14 1. The Failure of Early Closures...... 15 III. CURRENT SITUATION IN SHANXI PROVINCE ...... 17 A. ECONOMIC IMPORTANCE OF SMALL COAL MINES...... 17 1. Economic Development...... 17 2. Employment, Income and Standard of Living...... 19 B. INSTITUTIONS RELATED TO MANAGEMENT OF COAL MINES ...... 28 1. Shanxi Coal Mines Safety Supervision Agency ...... 28 2. Shanxi Coal Industry Bureau...... 29 3. Shanxi Land and Resources Department: Coal Industry Management...... 30 C. INSTITUTIONAL AND REGULATORY FRAMEWORK FOR MINE CLOSURE...... 31 1. Mine Closures in Shanxi Province...... 31 2. Project Stakeholder Views of Issues of Small Coal Mine Closures ...... 33 3. Institutional Arrangements...... 34 4. Operational Policies and Regulations ...... 35 5. Policies and Regulations for Poverty Reduction ...... 40 6. Policies and Regulations for Re-training and Re-employment...... 48 7. Environmental Regulations and Procedures for Small Coal Mine Closure...... 54 8. Conflicts, Inadequacies, & Barriers with Existing Policies...... 59 D. EXISTING RETRAINING AND JOB CREATION PROGRAMS...... 63 1. Re-employment and Training ...... 63 2. Development of Vocational Education ...... 65 3. Re-employment and Training in Demonstration Area, Jincheng City ...... 69 viii
IV. IMPACTS OF SMALL COAL MINE CLOSURES ...... 73 A. COAL PRODUCTION AND CONSUMPTION...... 73 B. THE COAL DEMAND FORECAST FOR CHINA ...... 74 1. Multiple Regression Model of Coal Demand - I...... 74 2. Multiple Regression Model of Coal Demand - II...... 76 3. Further Statistical Analyses...... 76 4. Impact on Local Government Financial Revenue ...... 78 C. POLITICAL IMPACTS RELATED TO SMALL COAL MINE CLOSURE...... 81 1. Assurances of Economic Development and Fiscal Income ...... 81 2. Social Stability and Large-scale Unemployment...... 82 3. Potential Waste and Technological Innovation ...... 82 4. Closure of Small Collieries and Legal Problems...... 82 D. IMPACTS ON EMPLOYMENT ...... 82 1. Impact on Local Workers...... 83 E. IMPACT OF COAL MINE CLOSURE ON ENVIRONMENT ...... 85 1. Mine Operation Impacts ...... 85 2. Mine Closure Impacts...... 87 3. Cumulative Impacts ...... 88 V. INTERNATIONAL EXPERIENCE...... 89 A. PROCESSES, & POLICIES FOR POVERTY REDUCTION AND ENVIRONMENTAL PROTECTION...... 89 1. Systems Processes and Procedures for Mine Closure Laws and Regulations...... 89 2. Socioeconomic and Sustainable Development Policies and Experiences from Russia, Romania, Ukraine, and Poland...... 97 B. SOCIAL MITIGATION...... 102 VI. PROPOSED IMPROVEMENT TO POLICY, REGULATIONS, AND MITIGATION ...... 105 A. POLICIES, REGULATIONS, INSTITUTIONAL ARRANGEMENTS, AND MANDATES ...... 105 1. Boost Industrial Diversification of Local Economy in Small Coal Mine Closure...... 105 2. Design Support Mechanisms for Individual Entrepreneur SME Development...... 105 3. Design Compensatory Mechanisms for Different Stakeholders...... 105 4. Combine Mitigation Action with National Development & Assistance Strategies...... 106 5. Establish a Mitigation Fund for Negative Impacts Small Coal Mine Closure. ....106 B. DEVELOPMENT OF NEW INDUSTRIES ...... 106 1. Industry Selection for Small Mine Closure Areas...... 107 2. Policies for Other Industrial Development in Jincheng...... 108 C. POVERTY REDUCTION ...... 112 1. Difficulties Faced by Development-Oriented Poverty Alleviation ...... 113 D. ENVIRONMENTAL PROTECTION ...... 114 1. Technical Directives for Mine Closure...... 115 2. Institutional Mandate and Budget Allocation ...... 115 E. CGE MODELING METHODOLOGY ...... 116 1. Overview...... 116 2. Simulating Results...... 117 3. Counterfactual Policy Experiments ...... 118 4. Quantitative Impact of Coal Output Changes...... 118 5. Conclusion...... 120 VII. ASSISTANCE PROGRAM FOR THE STUDY AREA IN SHANXI PROVINCE...... 123 A. TRAINING PROGRAM ...... 123 ix
1. Training Program in the Study Area, Jincheng City ...... 123 2. Projects of Coal Refuse Generate Electricity in Jinchen Area ...... 124 3. Report Seminar and Training Plan ...... 128 B. COAL MINE AREA DEVELOPMENT PROJECT...... 129 1. The Rationale ...... 129 2. The Proposed Project...... 131 3. CBM/Coal Gas Transmission and Distribution...... 131 4. Methanol Production...... 133 5. Economic Internal Rate of Return (EIRR) ...... 139 6. Financial Internal Rate of Return (FIRR)...... 142 7. Employment Opportunities of Projects ...... 143 8. Willingness to Convert the Use of Coal to Gas ...... 144 9. Synergistic Environmental Benefits of CMADP and Small Mine Closure...... 144 VIII. MONITORING INDICATORS OF ASSISTANCE PROGRAM ...... 147 A. DRAFT INDICATORS OF SUCCESSFUL ASSISTANCE PROGRAM ...... 147 B. DATA COLLECTION & REPORTING PROTOCOLS...... 147 REFERENCES...... 149 APPENDIX 1: MULTIVARIATE MODEL OF COAL DEMAND - I ...... 151 APPENDIX 2: MULTIVARIATE MODEL OF COAL DEMAND - 2 ...... 153 APPENDIX 3: STATISTICS OF WHITE HETEROSCEDASTICITY TEST...... 155 APPENDIX 4: COMPUTABLE GENERAL EQUILIBRIUM MODEL (CGE) ...... 157 APPENDIX 5: RESULTS OF EIRR ANALYSES ...... 193 APPENDIX 6: RESULTS OF FIRR ANALYSES...... 201 APPENDIX 7: MINUTES OF TRIPARTITE MEETING IN BEIJING MAY 19, 2006 ...... 205 APPENDIX 8: TERMS OF REFERENCE FOR TA 4566: PRC ...... 207
LIST OF FIGURES
Figure 1. GDP and its growth rate of Shanxi Province...... 18 Figure 2. Household Income from Different Sources...... 23 Figure 3. Actual and Forecasted Coal Consumptions...... 78 Figure 4. Illustration of CBM Transmission Pipelines...... 133
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LIST OF TABLES
Table 1. Coal Production from Three Types of Coal Mines (1990-2004)...... 6 Table 2. Laws, Regulations and Policies for Small Coal Mining and Mine Closure In China...... 12 Table 3. Economic Forecasts for 2006-2010 period...... 19 Table 4. Contribution to GDP by Small Coal Mines in Shanxi...... 19 Table 5. Year-end Employment Statistics from 1995 to 2005 in Shanxi...... 20 Table 6. Total Financial Revenue in Shanxi from 1995 to 2005...... 21 Table 7. Local General Budgetary Financial Revenue in Shanxi from 1995 to 2005...... 21 Table 8. Local Financial Revenue in Zezhou County from 1995 to 2005...... 22 Table 9. Employment Incomes in SCMs Compared with Other Industries in Jincheng...... 22 Table 10. Per Capita Annual Income of Rural Households by Source...... 24 Table 11. Total Income Per Capita and Composition of Urban Households...... 25 Table 12. Per Capita Net Income of Rural Households...... 26 Table 13. Per Capita Living Expenditure of Urban Households...... 26 Table 14. Per Capita Living Expenditure of Rural Households...... 27 Table 15. Unemployment Rate in Shanxi Province and Jincheng City...... 28 Table 16. National Environment Protection Laws and Regulations...... 57 Table 17. Shanxi Provincial Environment Protection Regulations and Bylaws...... 58 Table 18. Available Environmental Standards for China...... 59 Table 19. Unemployment insurance receivers in Jincheng between 1995 and 2005...... 69 Table 20. Major Vocational Training Schools in Jincheng City...... 70 Table 21. Major Chinese Industrial and Coal Demand Time Series Data...... 75 Table 22. Summary of Breush-Godfrey LM Test...... 77 Table 23. AR(i) Estimation of Coal Demand...... 77 Table 24. Summary of Co-integration Test...... 78 Table 25. Panel Regression of County Fiscal Income in Jincheng...... 80 Table 26. Panel Unit Root Test for County Fiscal Income...... 81 Table 27. Provisions in laws, implementing rules and regulations of select countries for coal mine closure...... 96 Table 28: Structure of the Shanxi Economy, 2002, the Base year for Modeling...... 118 Table 29: Change Rates in Employment due to Coal Output Decline (unit: %) ...... 119 Table 30: Sectoral Output (Domestic Production) due to Coal Output Decline...... 119 Table 31: GDP Results ...... 120 Table 32: Quantitative Impact on Other Macroeconomic Variables ...... 120 Table 33. Major training contents for the employees of coal gangue power plants...... 127 Table 34. Proposed Reporting Seminar and Training Plan ...... 128 Table 35. Investment for Each Component of the 120 MW Gas-Fired Power Plant...... 136 Table 36. Economic indices and electricity consumption growth in Shanxi...... 137 Table 37. Least Cost Comparison for CMM-fired vs. Coal-fired Power Plant...... 138 Table 38. Choosing between Power Project Alternatives through the Equalizing Discount Rate...... 139 xi
Table 39. Sensitivity Analysis of EIRR for the Whole Project...... 141 Table 40. Calculation of the Weighted Average Cost of Capital (WACC)...... 142 Table 41. Financial Sensitivity Analysis for the Whole Project...... 143 Table 42. Draft indicators for success of assistance program...... 148
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I. INTRODUCTION AND BACKGROUND
23. Coal mining in Shanxi province and throughout China is undertaken in three types of mines: (i) key state-owned coal mines (KSOCMs), (ii) local state-owned coal mines (SOCMs), and (iii) town and village coal mines (TVCMs). The Peoples Republic of China (PRC) is giving priority to the development of large, mechanized mines along with the modernization of existing large and medium coal mines. The PRC is implementing a policy to close small coal mines that have an annual production less than or equal to 90,000 tons, have failed to demonstrate required worker safety practices, are relatively inefficient, or lack proper certification and licensing and deemed illegal.
24. In Shanxi Province, there are an estimated 84 KSOCMs, 448 SOCMs, and about 4,000 small coal mines, including TVCMs and non-recognized mines that employ an estimated 290,000 persons. Pursuant to the national policy, the Shanxi Provincial Government has decreed that all new and modernized coal mines must have an annual production of more than 300,000 tons. During one of the project stakeholder workshop in Jincheng on December 5/2005 the Jincheng Land Resources Bureau identified approximately 369 mines that will be either closed or merged to produce the required minimum 300,000 tons per year.
25. The mine closures that have occurred in Shanxi province and throughout the PRC since 1999 have created significant unemployment situations in different areas. Recent closures of approximately 448 small mines producing less than 90,000 tons in Shanxi province has resulted in an estimated total of 47,000 redundant miners. If Shanxi Provincial Government fully implements its policy to close small coal mines it could result in the redundancy of a predicted additional 184,000 miners and reduce annual coal production by an estimated 72 million tons.
26. The Shanxi Provincial Government has not developed a formal job and vocation re- development program for displaced coal miners as a means to offset the increase in local poverty that is expected to occur as a result of the small coal mine closures. Existing training is limited to basic education, and skills development in agriculture or animal husbandry provided to some unemployed miners by local Poverty Reduction Bureaus as part of assistance to the poor. For employment in larger coal mines technical training is provided by provincial branches of the National Coal Administration Bureau including mandatory safety training for workers before they begin work underground.
27. In addition to existing re-employment opportunities the Shanxi government is also examining the development of alternate coal-based industries as the means to improve the local economy, provide employment and retraining opportunities for displaced miners, and to indirectly improve the local environment through cleaner energy production. A number of different industries are being considered.
28. The existing institutional and economic framework in Shanxi Province cannot fully support the potential widespread requirement for re-training and vocational development of displaced miners from planned mine closures. Similarly, the development of alternate coal- based energy production requires external support. Budgets for existing re-training and vocational development programs are insufficient, and the focus of existing programs is inappropriate. Most displaced miners do not receive any assistance and are vulnerable to accept work in other small and often non-recognized mines.
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29. Shanxi province needs the capacity to be better able to manage the effect of mine closures on community livelihoods. Retraining and vocation re-development programs, and new employment opportunities created from the development of alternate coal-based industries would enable Shanxi province to more effectively address unemployment from the closure of small coal mines.
A. Scope of Study
30. The Terms of Reference (ToR) for TA 4566 is presented in Appendix 8. The technical scope of the study was delimited by analyses of the institutional, economic & financial, social impact, training requirements, and environmental issues associated with the closure of small coal mines in Shanxi province. As confirmed during project inception1 the study area was designated broadly by Jincheng municipality with small coal mines defined by mines with an annual production of less than 90,000 tons. Underground coal mines as opposed to open pit mines were the focus of the study because the former mine produces over 95% of coal in the PRC.2
1. Goal of Project
31. The ultimate goal of the project was assistance with ongoing poverty reduction activities in small coal mining areas. The Shanxi Development and Reform Commission (SDRC) was the executing agency (EA) for the project with the Jincheng Municipal Development Reform Commission (JMDRC) acting as the Implementing Agency (IA).
2. Approach to Project
32. The project was executed with the following primary activities: (i) individual and group consultative meetings between the coal mining stakeholders of Shanxi province and Jincheng municipality and the multidisciplinary project team; and (ii) independent data & information analyses, and literature review.
33. The stakeholder meetings were convened to understand the key economic, institutional, social/employment, and environmental issues surrounding the closure of small coal mines, and to obtain and clarify information and data required to implement the project. Information and data obtained from the stakeholders were used in the analyses of impacts and solutions to alleviate poverty created by the small mine closures.
34. In a tripartite (EA, consultant team, ADB) project review meeting in Beijing in May the EA indicated that a poverty reduction assistance program should be focused on a training program for agencies responsible for employment and re-training of workers, and not on re- training of unemployed miners that would be demonstrated in specific small coal mine communities in the Jincheng municipality. The objective rationale for the shift to the responsible agencies was that the capacity for re-training and vocation re-development programs must first be established within the responsible agencies, and that displaced miners normally leave the area quickly after a small mine is closed, which would make them generally unavailable within the timeline context of the project.
1 ESSA Technologies Ltd, 2006. Poverty Reduction in Coal Mine Areas in Shanxi Province – ADB TA 566: PRC; Inception Report, submitted to SDRC and ADB, 32pp + 3 Annexes. 2 Huang Shengchu Personal Communication, 2006. 3
35. The EA also identified the importance of the development of new employment opportunities for displaced miners from alternate coal-based industrial development in the area to supplement existing re-employment opportunities. To this end the EA provided descriptions of a set of potential industries for future development in Shanxi province for the project team to assess economic, social, and environmental benefits. The minutes of the tripartite meeting are found in Appendix 7. Key outcomes of the meeting are as follows: (i) The technical scope of the study would not change. (ii) Instead of an assistance program for individual miners demonstrated at one or more mine closure areas, a training program would be developed for selected coal mining agencies and stakeholder groups in workshop setting. (iii) The project would assess alternate coal-based energy projects for future development as the means to provide local employment opportunities, and direct and indirect benefits to the economy and environment.
B. Objectives of Study
36. To reach the goal of assisting poverty reduction in small coal mining areas, the primary objectives of the project were as follows: (i) assess the institutional, economic & financial, social, employment, and environmental issues and impacts associated with the closure of small coal mines; (ii) identify retraining and vocation re-development program ultimately for displaced coal miners; and (iii) to supplement (ii) assess specific alternate coal-based industries for the benefits to local unemployment and environmental quality.
The study area was broadly defined by Jincheng municipality of Shanxi province due to the extensive coal mining in the area.
C. Structure of Report
37. The report consists of seven chapters which follow the scope and format defined by the project ToR inclusive of the changes to the project described above. The report represents a compilation of individual analytical reports on the institutional, economic, financial, social, and environmental implications of small coal mine closures.
38. Chapter II provides an overview of the national context for the closure of small coal mines, which, inter alia, addresses the evolution of policies and regulations for coal mines in the PRC, and the onset of the relatively recent decision to close small coal mines.
39. Chapter III presents the current situation of small mine closures in Shanxi province which focuses on economic importance of small mines, the institutional and policy/regulatory framework for small coal mines, and a summary of existing retraining and job creation programs in Shanxi Province.
40. The impacts of small coal mine closures on social welfare, the economy, policy, and the environment are presented in Chapter IV.
41. Chapter V presents a brief review of how other countries address coal mine closures, which is followed by Chapter VI which discusses the proposed required changes to existing policy an regulations governing the closure of small coal mines. 4
42. Chapter VII outlines the assistance program developed by the project which is defined by: 1) training program for responsible agencies to be better able to provide employment for displaced coal miners; and 2) the evaluation of potential coal-based industries that should be developed to further offset unemployment created by the closure of small coal mines.
43. The report concludes with chapter VIII which briefly draft indicators to monitor the progress and effectiveness of the assistance program for reducing un-employment and alleviating poverty in small coal mining study areas.
44. Appendices 1 – 8 provide details of economic statistical analyses that are reported in the main body of report, as well as the ToR of the project and the minutes of the tripartite meeting. 5
II. NATIONAL CONTEXT
A. Overview of Economic and Social Importance of Small Coal Mines
45. Coal plays an important role in China’s economy. China’s production and consumption of coal was the largest in the world during the 1990s. Between 1995 and 1997 annual production lay in the range 1350 to 1400 million tons. Approximately 45% of this production came from 75,000 to 80,000 TVCMs (Table 1). Thus the economic, institutional, social, and environmental implications of the closure of these small mines could be significant.
46. The substantial minority of small mines are privately owned. Others are owned by a variety of state companies and agencies, including the army and prison service. The average annual output of these coal mines varied from 25,000 tons to as little as 4,000 tons with the TVCN mines producing approximately 100,000 tons. Smaller still are the thousands of artisanal mines with annual outputs of a few hundred tons per year. The TVCMs were actively encouraged by all levels of government from the early 1980s when China faced a coal supply shortage.
47. Mine closures result in significant reduction of revenue, and high unemployment rates of miners who are unable to resume employment in former vocations such as farming. Consequently, if alternative livelihood options are not created, poverty and social instability are likely to increase to high levels. Also, in the absence of alternative job opportunities, displaced miners may seek employment in the small, illegal coal mines that are also to be closed by the government.
48. The cities experiencing mine closures are gradually experiencing: (i) annual reductions in income from coal mining and decreasing funds for safety expenditures; (ii) increased need for government support to provide social welfare and pension payments to laid-off miners; (iii) difficulties in continuing coal production in accordance with government regulations and standards; (iv) uncertainty for the concerned local government as to how to gradually wind down coal mine operations and abandon the mines safely; and (v) increasing demands for environmental rehabilitation, maintaining social stability, and reducing poverty in their cities following closure of coal mines.
49. In this context the National People’s Congress (NPC) of the PRC has expressed its concern that four major problems in the PRC’s mineral sector need to be urgently addressed to ensure sustainable further development. The problems centre on: (i) restructuring of the coal mining industry; (ii) development of additional coal mines; (iii) safety of coal miners; and (iv) economic restructuring of cities that are largely dependent on coal mining for their revenues.
6
Table 1. Coal Production from Three Types of Coal Mines (1990-2004).
KSOCM SOCM TVCM Total Output Quantity Percentage Quantity Percentage Quantity Percentage (million (million of Total (million of Total (million of Total Year tons) tons) Output (%) tons) Output (%) tons) Output (%) 1990 1,079 480 44.49% 205 19.00% 394 36.51% 1991 1,085 481 44.33% 204 18.80% 400 36.87% 1992 1,115 483 43.32% 203 18.21% 429 38.47% 1993 1,151 458 39.78% 204 17.72% 489 42.50% 1994 1,230 469 38.12% 206 16.75% 555 45.13% 1995 1,292 482 37.32% 213 16.51% 597 46.17% 1996 1,374 537 39.10% 222 16.16% 615 44.74% 1997 1,325 529 39.93% 226 17.03% 570 43.04% 1998 1,252 503 40.18% 213 17.01% 536 42.81% 1999 1,044 513 49.13% 214 20.50% 317 30.37% 2000 1,250 536 42.88% 194 15.52% 520 41.60% 2001 1,310 630 48.09% 220 16.79% 460 35.12% 2002 1,392 711 51.08% 263 18.89% 418 30.03% 2003 1,658 808 48.73% 283 17.07% 567 34.20% 2004 1,956 919 46.98% 295 15.08% 742 37.94%
* Data Source: Coal Industry Association of China.
According to NPC these problems are directly related to the prospects of the PRC for successful industrialization, modernization, and urbanization, and to the welfare of millions of urban residents.
B. Institutional Framework for Small Coal Mines and Mine Closures
1. Institutional Structure Governing Small Coal Mines in China
50. The following five departments are involved in the implementation of specific laws and regulations governing the small-scale mining industry in China: (i) The Ministry of Land and Resources and its subordinate agencies at provincial, prefecture and county levels are responsible for overseeing the exploration and development of mineral resources. In collaboration with the government agencies in charge of environmental protection, they are also responsible for daily inspection and management of the mining environment, particularly the small-scale mining environment. (ii) The State Bureau of Environmental Protection and its subordinate agencies at provincial, prefecture and county levels, is responsible for overseeing the review and approval of Environmental Impact Statements (EIS) for coal mines, and for monitoring and supervising the discharge of pollutants from mining operations. 7
(iii) The State Bureau of Safety Supervision and its subordinate agencies at provincial, prefecture and county levels, is responsible for overseeing mine safety and handling accidents at mines. (iv) The Ministry of Labour and Social Security and its subordinate agencies at provincial, prefecture and county levels, is responsible for the management of labor and social security affairs. They currently focus on resolving problems with unemployment and social security that occur at large and medium-scale State Owned Mining Enterprises. However, less attention has been placed on small-scale mines. Prior to 1998, the former Ministry of Labour was in charge of mine safety supervision. Since 1998, the responsibilities related to mine safety have been reassigned to the State Bureau of Safety Supervision. (v) The State Tax Administration, and its branches at various levels, is responsible for collecting corporate income tax, value added tax, and resources tax.
2. Re-organization of Agencies Governing the Mineral Industry
51. During the past two decades significant changes have taken place in the regulation of mining activities. Under the traditional economic system, the former State Planning Commission (SPC) had an active role in setting priorities for the mining industry, approving minerals and energy exploration activities, and promoting operations in conjunction with various mineral-related ministries and provincial governments.
52. Between 1950 and 1982, most mineral exploration and exploitation projects were organized and funded by the State. Certain mineral-related ministries were responsible for controlling the exploration and exploitation of specific minerals, energy development, and production. These included (for ferrous metals) the Ministry of the Metallurgical Industry (MMI); (for nonferrous metals) the China National Nonferrous Corporation (CNNC); and (for petroleum on land territory) the China National Petroleum Corporation (CNPC).
53. Finally, the Ministry of Geology, which in 1982, was renamed the Ministry of Geology and Mineral Resources (MGMR), became responsible for organizing mineral exploration nationwide. More than ten ministries and national corporations were engaged in minerals and energy development activities.
54. Since early-1998, all functions in relation to mineral resources management have been concentrated within the Ministry of Land and Resources (MOLAR). MOLAR was established in March 1998 in accordance with the Program on Reorganization of the State Council's Agencies as approved by the 1st Session of the 9th National People's Congress and the Notification of the State Council on the Establishment of the Organizational Structure.
55. The MOLAR, as one of the member departments of the State Council, is in charge of the planning, management, protection and rational utilization of land resources, mineral resources, and marine resources. The Ministries of the Metallurgical Industry, Chemical Industry, and Coal Industry were abolished in 1998, and limited ranges of functions on industrial management were reallocated to the newly established State Bureau of Coal Industry. Further reorganization occurred in 2001, which effectively abolished the State Bureau of Coal Industry, replacing it with the State Bureau of Safety Supervision. The MOLAR has assumed the functions of the following agencies: (i) former State Bureau of Land Management; (ii) former Ministry of Geology and Mineral Resources; 8
(iii) former State Oceanographic Bureau; (iv) former National Commission of Mineral Resources and its sub-agencies; (v) territory land planning, integral planning for land use assumed by the former State Planning Commission; and (vi) functions related to mineral resources management of the former Ministries of Metallurgical Industry, Coal Industry, Chemical Industry, the former China Nuclear Industry Corporation, and the former China National Nonferrous Corporation.
56. The restructuring of resident mineral industries occurred concurrently with the reorganization of government agencies. Almost all state-owned exploration units and mining enterprises, apart from the three national petroleum corporations and the national aluminum industrial corporation, have since been localized to provincial governments.
57. The Central Government funds national geological surveys for which the China Geological Survey, under MOLAR, is responsible. It has also adopted a mineral policy to promote and enforce mining legislation in order to regulate the commercial exploration and development of mineral resources based on market mechanisms.
3. Institutions Related To Small Mine Closure
58. According to the Circular; "Instructions on Establishing Three-year Program For the Closure of small Coal Mines’ issued in June 2006 by Safety Production Committee Office of the State Council (see Table 2 below), the following institutions are designated related to small mine closures: (i) Land Resource Administrative Agencies are responsible for the identification of illegal mining, unauthorized resumption of production after closure, irrational location, near depletion of coal resources, mines with overlapping resources. They should provide lists of mines to be closed, due to the lack of safe production conditions, to the local government. Also the agencies should temporarily detain the mining certificate of the mines to be closed, and according to the law, revoke the mining certificates of the mines that are to be closed by the local government. (ii) Administrative Agencies of the Coal Industry are responsible for controlling the scale of newly setup mines, identifying illegal certifications, use of a single certificate within several mines, mines with low productivity or inconsistent with industrial policy. They should also provide lists of mines to be closed, due to the lack of safe production conditions, to the local government. Also the agencies should temporarily detain the mining certificates of the mines to be closed, and according to the law, revoke the mining certificates of the mines that are to be closed by the local government. (iii) Industry and Commercial Administrative Agencies are responsible for temporarily detaining the business certificates of the mines to be closed, and according to the law, revoke the business certificates of the mines that are to be closed by the local government. (iv) Labor Safeguard Agencies, according to the Labor Law and Labor Injury Insurance Regulations, are responsible for examining the illegal employment of the colliery enterprises, supervising the contracts between the enterprises and the workers, and buying injury insurance for each worker, reinforcing management of labor organizations, realizing and protecting the rights of the 9
laborers, prohibiting production with more staff than regulated numbers, prohibiting overtime work and underground work of women. (v) Police Agencies are responsible for gathering the fire equipment from the mines to be closed by the local government, revoking certificates of civil explosive devices, and keeping the spots of closure in order. (vi) Power Supply Agencies are responsible for switching off the power supply of the mines to be closed, uninstalling power supply devices, and investigating power supply by local power agencies to illegal collieries. (vii) The Administration Supervising Agencies are responsible for the supervision of the duty implementation of related agencies during the cleanup and closure of collieries, granting administrative sanctions to major leaders at the level of county and town governments who did not take effective measures to prohibit illegal mining, investigating those staff of national agencies and leaders of state-owned enterprises who invested in the mines.
C. Evolution of Policies and Regulations for Small Coal Mines
59. The management of small coal mines in China has experienced a history ranging from initial, active encouragement to restrictions and ultimately shutdown. Development of small coal mines occurred during the period of the sixth five-year plan (1981-1985), when coal production could not meet the demand and became the key factor in restricting the country’s economic development. Therefore China broadened the policy of building mines and the State Council carried out policies to encourage township and village coal mines to develop quickly in order to meet the coal demand. Because the investment of small mines was low and the benefit came quickly, the policy played a significant and active role in managing the severe coal demand situation.
60. However random and excessive exploitation also brought some negative effects. The lack of government supervision and control allowed the number of TVCMs 1998 to reach 80,000 with an output representing 43% of the country’s output. Heavy investment engaged untrained coal miners at low cost to pursue high profits. This lead to some small coal mines operating without licenses, without regard the safety, laws and rules of coal mine exploitation leading to adverse impacts to the community and environment.
61. The attractive, high cumulative production and short development time of the TVCMs have come with many difficulties. Key problems with the small coal mines are: 1) unsafe and unregulated working conditions that lead to many accidents; 2) inefficient production methods with high waste coal generation; and 3) cumulative environmental impacts. Additional manufacturing and operational problems that have arisen from the proliferation of the TVCM include: (i) too many, small, individual coal mines; (ii) low industry centralization; (iii) single product structure; (iv) low percentage of deep machining, automation, and local processing; and (v) illegal exploitation and disruption of the coal supply market.
62. In order to eliminate the bad influence brought about by small coal mines, a series of measures were implemented starting in 1997 to shut down and reduce the production of small coal mines. The measures are summarized below. 10
(i) In 1997, in order to implement the "Coal Law of People’s Republic of China", the work of legally building mines and rectifying the coal industry was carried out, resulting in some privately owned coal mines that were illegally operated to be shut down. (ii) In 1998 the "Circular on Closing Illegal and Irrationally Located Coal mines" was declared by the State Council of China. This document declared that illegal and small mines within the area of KSOCMs must be shut down. (iii) In June 2001, as a means to limit the increasing frequency of coal mining accidents, the "Urgent Circular on The Closure of Small Coal mines Within The Areas of State Owned Coal Mines and Rectification of Township and Village Mines" was promulgated by the Office of the State Council. The circular specified more accurate and material requirements for the closure of small coal mines. (iv) In June 2006, the Safety Production Committee Office, which is under the State Council, released Instructions on Establishing a Three-Year Program for the Closure of Small Coal mines, and brought forward that since July of 2005, the rectification of coal industry and closure of small coal mines will be finished within 3 years.
63. Coal mine closures once again became a political campaign in China’s coal industry. The former Committee of Foreign Trade & Economic and National Coal Industry Bureau (both organizations now abolished) made concerted efforts to spread this policy. In September 1998, the National Coal Industry Bureau declared that 25,800 small coal mines of different types should be shut down from 1998 to 2000 and 250 million tons of output from illegal and irrational coal mines should be reduced. Later this objective was advanced to the end of 1999 by the decision of National Coal Industry Bureau.
64. Subsequently, the Coal Industry Bureau decided to reduce coal output by another 160 million tons in addition to the 250 million ton reduction in 1999. The official quota for total, raw coal output in 2000 was 870 million tons, among which 470 million tons were from key state owned coal mines, 180 million tons was from local state owned coal mines, and 200 million tons from township and village coal mines. These indices were considered to be impractical by many within the industry and some levels of the local governments didn’t agree with this. However, local governments had to officially support the shutdown. So the hidden report of coal mines amount and output was common in some places3, where the output level in 2000 was 1,250 million tons, with all 3 classes of coal mines producing over the official quotas (Table 1).
65. Though not 100% implemented, the closure laws did have their effects on the industry. For example, the number of small coal mines had been reduced from approximately 80,000 in 1998 to 60,000 by the end of 2001. This was mainly because of the pressure for safe production. Local governments had to shutdown small mines and build large ones, expanded output of single mines, which not only reduced the amount of mines, but also improved the level of safe production. Generally speaking, shutdowns resulted in dramatic contributions to rectification of the coal industry, environmental remediation, and improving levels of safety.
66. Unfortunately this trend did not continue as the rise in coal prices and the lack of coal market support in recent years provided stimulus for the re-opening of many shutdown small coal mines, while other open small mines enlarged their output. Adding to the difficulty of enforcing small coal mine closures is the issue of local governments in some areas that are
3 Huang Shenchu et al., 2004. Coal Industry Development Report of China, Coal Industry Publishing House. 11 not willing to shut down small coal mines because of their dependence on fiscal budgets and revenues generated by these small coal mines. As a result of these factors, the output of small coal mines suddenly increased to 567 million tons in 2003 and 742 million tons in 2004.
67. The central government’s attitude towards closing down small coal mines in China hasn’t changed and has been trying to reinforce its efforts. In February 2006, the National Land and Resources Department declared that the number of small coal mines in large coal bases will be reduced by 70% by the year of 2010, and small coal mines will be disappear by the year of 2015.
D. Laws, Regulations and Policies for Small Coal Mining and Mine Closure
68. There is now a substantial body of laws and regulations that both directly and indirectly govern small coal mining and mine closures. The basic laws are delimited by: (i) Law on Mineral Resources; (ii) Law on Coal Industry; (iii) Law on Environmental Protection; and (iv) Law on Mineral Resources Conservation.
69. Table 2 summarized some of the important laws, regulations and policies in effect for managing small coal mining, and mine closures at the national level in China.
70. The "Circular of Further Strengthening the Work of Rectifying and Closure of Small Coal Mines" promulgated September 2001 (Table 2) embodies key operational policies for the closure of small mines that are relevant to Shanxi province and TA 4566.. The key relevant points underlying the policies for mine closures are summarized as follows:
1. Acceleration of Closure of Small Coal Mines
71. All small coal mines4 satisfying the following criteria must be closed as soon after promulgation of Circular as possible: (i) operated by state-owned coal mines or located in the state-owned coal mine areas; (ii) lack basic production safety conditions or procedures; (iii) lack any required certifications: coal mining permit, coal production permit, business license and/or mine superintendent qualification; or (iv) small coal mines whose ash content is higher than 40% or sulfur content is higher than 3%.
4 For TA 4566 small coal mine is defined as an underground mine with annual production less than 90,000. tons. 12
Table 2. Laws, Regulations and Policies for Small Coal Mining and Mine Closure In China.
Promulgation Domain / Title Issuing Body Date Safety, Production, and Closure of Small Coal Mines Oct. 1, 1986 Law On Mineral Resources State Council Implementation Measures For Safe Production Certification For State Council June 8, 1990 Township And Village Coal mines Circular Of Suggestions For Refraining From Excessive Mining Of State Council Jan. 3, 1993 Small Coal mines And Guaranteeing Coal Mining Safety Sept. 30, 1993 Circular On Rectifying Small Coal mines Ministry of Coal Industry Regulations On The Management Of Township And Village Coal State Council Dec. 20, 1994 mines March Implementation Measures For The Regulations On The Management Ministry of Coal Industry 29,1995 Of Township And Village Coal mines July 12, 1996 Circular On Issuing Of Safety Regulations For Small Coal mines Ministry of Coal Industry Dec. 1, 1996 Law On Coal Industry Of PRC State Council Circular Of Strengthening The Mine Safety Of Township And Village Labor Ministry, Ministry of Feb. 5, 1997 Coal mines Coal Industry, etc. Dec. 12, 1998 Circular On Closure Of Illegal And Irrational Located Coal mines State Council Circular On Further Strengthening Of Safety Production Of Coal Ministry of Coal Industry Jan. 15, 1999 Industry Dec. 1, 2000 Regulations On Coal mine Safety Supervision State Council Circular On Further Strengthening The Work Of Rectifying And General Office of State Sept. 16, 2001 Closure Of Small Coal mines Council State Administration of Nov. 1, 2001 Regulations On Coal Mine Safety Coal Mine Safety Nov. 1, 2002 Law On Safety Production Of PRC State Council State Administration of May 23, 2003 Basic Conditions For Coal mine Safety Production Coal Mine Safety Imperative Circular On Further Strengthening Of The Safety State Administration of Oct. 21, 2004 Production Of Coal mines Coal Mine Safety Suggestions About Strengthening Coal mine Safety Production and State Council Nov. 18, 2004 Closure And Rectifying Of Small Coal mines Sept. 16, 2005 Special Regulations For Preventing Coal mine Accidents State Council Imperative Circular On Determinedly Rectifying And Closing Of Illegal Office of State Council Sept. 16, 2005 Coal mines And Coal mines Which Lack The Conditions For Safe Production Instructions On Establishing A Three-Year Program For The Closure Safety Production June, 2006 Of Small Coal mines Committee Office Coal Resource Utilization And Environment Protection Oct. 1, 1986 Law On Mineral Resources Of PRC State Council Dec. 26,1989 Law On Environment Protection The National People’s Congress Dec. 1, 1996 Law On Coal Industry Of PRC State Council
13
Table 2 continued.
Nov. 2, 1997 Circular About Issuing Of Regulations On Strengthening The Work Of State Administration of Environment Protection Of Township And Village Coal mines Environment Protection, Ministry of Coal Industry Jan. 1, 1998 Law On Energy Conservation Of PRC State Council March 20,1998 Implementation Measures On The Law Of Prevention And Control Of The National People’s Water Pollution Congress Sept. 1, 2000 Law On Prevention And Control Of Air Pollution Of PRC The National People’s Congress Jan. 1, 2003 Law On Boosting The Clean Production Of PRC The National People’s Congress
Data Sources: http://www.chinacoal.gov.cn, http://www.sxcoal.com.cn
72. Closed small coal mines must satisfy the following requirements: (i) the closed small mines must have their certifications cancelled, (ii) their mines must be exploded and filled. (iii) land affected by mine must be restored to pre-mining vegetation or cultivation state
73. For unauthorized reopened small coal mines provincial governments must recruit local departments of the coal management bureau, land resources bureau, industrial and commerce administration, police bureau, environmental protection bureau, and coal mine safety supervision bureau to enforce the re-closure of these mines according to the related laws and regulations.
74. Management actions for social and employment problems arising from small coal mine closure by local authorities are as follows: (i) affected miner workers who are urban citizens and have unemployment insurance must be compensated for their forced unemployed status; (ii) urban mine workers whose household income is under the lowest living guarantee line must be compensated for their low income. (iii) affected rural mine workers must be compensated for the closure of mines. (iv) affected rural mine workers whose units have already paid insurance premiums for them should receive one-off living subsidies. (v) affected mine workers who have signed labor contracts with state-owned mines must be re-settled by state-owned mines if their contracts do not mature.
75. Social costs for small coal mine closures should be undertaken by the local government in principle. The central budget will give suitable subsidies to those provinces whose local budgets actually have difficulties in compensating the costs of mine closures.
2. Intensive Rectification of Small Coal Mines:
76. Mine rectification is the process by which the problems of a small mine are remediated enabling the mine to satisfy criteria for continued operation. Mine reactivation is a strategy that would positively affect employment in mining communities in Shanxi province. 14
However, only a brief summary of supporting policies are provided here because the focus of TA 4566 is on reducing unemployment created by mines that are closed not rectified. The key points of mine reactivation are summarized as follows:
77. Criteria for successful small coal mine reactivation include: (i) satisfactory ventilation, use of safety equipment to protect against gas, dust and fire; (ii) ensuring the safety standards of coal production conform to the coal mine safety regulations and technology standards; (iii) ensuring the mine superintendent has the specialized security and safety knowledge; (iv) ensuring specialized workers have the necessary professional certification; (v) ensuring mining processes conform to environmental protection requirements; (vi) ensuring pollutants from mining processes meet the environmental protection standards. (vii) ensuring that resources are being used efficiently and properly; and (viii) ensuring that the mining industry is kept in good order.
78. After remediation small coal mines will not resume production until the mine and operations are inspected and approved by local coal mining authorities identified by provincial government according to the standards set out by the following laws and regulations: (i) Mineral Resources Law of the People's Republic of China; (ii) Coal Law of The People's Republic of China; (iii) Law of the People's Republic of China on the Prevention and Control of Atmospheric Pollution; (iv) The Law of The People's Republic of China on Safety in Mines; and (v) Related Coal Mine Safety Regulations and Requirements.
The approved small coal mine can return to production after the responsible people and all levels of government officers have signed, approved and issued required certifications.
79. The last set of policies of the Circular prescribe the requirements for the development of new coal mines. The extensive regulations, directives, and procedures for new mines represent the corollary of the issues that have lead to the closure of small coal mines. The requirements for new mines guard carefully against problems of unemployment, inefficient production and high waste generation, and environmental damage.
E. Background to 1998 Small Mine Closure Campaign
80. The Chinese government treats coal as a strategic resource and places high priority on the security of energy supply. However, from 1998-2001 the country realized a sudden drop in demand for energy, and the coal industry was most heavily affected. Coal inventories grew drastically, and prices in the domestic market plummeted. In spring 1998, production from the state-owned coal mines (SOCMs) was suspended for two months to solve the oversupply problem. Nevertheless, it became apparent in late 1998 that this was not a 15 temporary phenomenon and that urgent action was required to protect the interests of the SOCMs because large amounts of state investment had poured into these enterprises.
81. In the first half of 1998, the key coal firms reported aggregate deficits of 1.75 billion yuan (US$210.8 million). The formidable losses were resulted from a flagging market caused by massive oversupply of coal. Many attributed the serious glut to rampant production by small coal mines. Some small mines have become black sheep or scapegoat in the sector because they disrupt the market, squander resources and bring about numerous fatalities.
82. A steep price fall in first half of 1999 made 80.8% of the China’s 94 key State coal mines were operating in the red with a combined loss exceeded 2.28 billion yuan. Large amount of stockpiled coal would exacerbate the situation. The central government, facing such a difficult scenario, ordered 25,800 small coal mines closed in November 1998 to prevent a waste of resources, to curb coal mine accidents, and to cut annual national output by about 250 million tons by the end of 1999.
83. As a result, the Chinese government announced a radical reform policy on closing the TVCMs and restricting the yield, as well as closing up and making bankrupt a number of SOCMs. China closed more than 25,300 small, illegally operated or poorly distributed coal mines by the end of 1999. It was reported that in a 6-month period, the mine-closing campaign had cut coal production by 100 million tons (MT). By July 2000, the target number of 25,800 mines apparently had already been closed, resulting in an effective reduction of less than 200 Mt. In addition to the TVCMs, a number of larger mines near the end of their lives were also closed and some enterprises made bankrupt. The central government’s aim was to reduce coal output to under 1.03 billion tons in 2000 compared to the 1999 target of 1.1 billion tons.
84. Redundant workforces were laid off from the coal sector. The number of laid-off workers was expected to reach 400,000 in 1999. Workers laid off as a result of the closures will be transferred to other industries and services. The 1998 closure campaign resulted a total of 12,257 small coal mines shut down by mid-2001, reducing the total number of small mines from 82,000 in 1997 to 23,000.
85. During the period 1998–2002, the government of China ran a campaign to close tens of thousands of small-scale coal mines across the country. The closure program was carried out in such haste that no plans to address the socio-economic impact could be drawn up in advance. Hundreds of thousands of people lost their jobs and many local governments saw an immediate decline in revenue. The situation in China therefore provides a case study of how local governments have responded to a closure campaign driven by higher levels of government with little support from the higher levels of government to mitigate the negative economic and social impacts.
1. The Failure of Early Closures
86. Despite enforcement of the closure policy in 1998, the coal glut in China still lingers, though the actual number of closed TVCMs exceeds the planned target of the central government. There were still 38,900 SCMs in 2000 with less than half had both mining and production licenses but were still continuing to produce coal illegally.
87. The reasons why the closure policy failed are complex. The difference in objectives between the central and local governments may result countermeasures against the policies of the central government taken by the lower levels of authorities. The more fundamental reasons may lie in issues of the property rights, coal pricing, mine ownership, and enterprise objectives. 16
88. For China's TVCMs in the 1980s, access to coal mining was completely unrestricted. Free access to coal resources created two kinds of externalities: a contemporaneous externality and an intergenerational externality (Tietenberg, 1992). This illustrates the basic tradeoff between current and future profit streams, separated by different generations. Nonexclusive access to the coal reserves for SCMs would cause over-exploitation of coal.
89. Free access to coal resources also violates both efficiency and sustainability criteria. Economic theory assumes that if resource markets are competitive, resource owners will deplete the resources at a socially optimal rate. If this is the case, the only reason why governments intervene in resource markets would be as follows (Pearce and Turner, 1990): (a) if social rates of discount are different than the private rate of discount used by the resource owner; (b) if there are externalities from resource use; and (c) if markets are not competitive. The lack of clear and exclusive property rights made the TVCMs scenario similar to the “Tragedy of Commons”.
90. The second reason is considered as the dual price system with fixed price set by the authority and a floating price determined by the market. It is argued that pricing has been the most contentious problem, and the failure to solve it has been a major factor why closure campaign was not successful (Thomson, 1996). The distortion in sale prices made over 90% SOCMs lose money and even become bankrupt in the late 1990s when there was a sudden drop of coal demand in the national level. In contrast, only half the TVCMs were losing money, as they were able to sell much of their coal at higher market prices (and partly sold to the SOCMs) due to their low cost in part because they were not burdened with the same level of social and environmental costs. An estimate shows that the direct costs per ton of coal for SCMs and SOCMs in 1997, for example, were less than RBM 30 and RMB 18, respectively. However, SOCMs additionally had to pay for other indirect costs and their total costs amounted to RMB 72 per ton, which was almost level with the RMB 80 to 120 per ton average pit head coal price (He, 1999).5
91. The third reason is difference in nature of SOCMs and TVCMs in terms of social and environmental duties. Because SOCMs have a complex and blurred goal structure and an unclear relationship between top management and ownership, they behave with a bureaucratic tendency and not operate on a profit-maximizing or cost-minimizing point. The TVCMs are presumed to satisfy the local need for production and distribution of coal products in an economically ‘efficient’ way. Much coal from the illegal TVCMs was sold actively on the black market (Huang, 1999). Coal to be sold at floating prices (when it was under dual price system before 2006) was like rampant price extortion and increased the TVCMs profitability eventually.
92. In addition, the SOCMs still bear the responsibility of social stability and labor employment and thus direct their efforts primarily to earning social benefits, irrespective of production costs. In contrast, the TVCMs maximize their profits at the cost of environmental damage and resource wastes.
5 The cost of coal production varies considerably among various mines and types of coal. In general, the lowest production costs occur in the TVCMs because of use of basic mining methods; absence of proper safety, coal mine methane (CMM) drainage, and air ventilation facilities; and the employment of low-wage miners. The large KSCOMs have considerable economies of scale in comparison with the small TVCMs but also higher costs because of safety, environmental, and social welfare concerns, which they more adeptly address. 17
III. CURRENT SITUATION IN SHANXI PROVINCE
A. Economic Importance of Small Coal Mines
93. In Shanxi province the TVCMs were developed in the early-1980s as a result of the implementation of economic reforms and the advent of PRC's open door policy. The TVCM has realized rapid growth over the last two decades, and has played a significant role in Shanxi provincial and national coal economies.
94. Small coal mining activities in Shanxi, which constitute one of the important branches of Shanxi provincial coal industry, have helped the province meet its national demands for coal. Moreover, small coal mines provide employment for local people; effectively facilitates local economic development; and relieves poverty in the areas in which the coal mines located. Besides, it has directly precipitated the development of transportation, commercial services, and improvements of local infrastructure.
95. Coal output in Shanxi Province is predicted to fall by more than 100 million tons in 2006 as a result of mine closures. About 1,200 registered mines in the province, or around 30% of the total number of mines are expected to be shut down by mid 2007. The government is determined to shut down another 3,100 illegal excavation pits to curb excessive exploration, which involves the production of 30 million tons.
96. There will also be curbs on over-production that surpasses capacity of legal mines, which will reduce production by a further another 10 million tons. A production decrease in Shanxi is believed by the authorities to be good for the healthy development of coal mine industry and optimizing natural resources as a whole.
97. Only around 40% of the mines on the government's 2005 closure list had stopped mining by the end of 2005, or only 2,157 out of the planned 5,001 mines, according to statistics released by the National Development and Reform Commission (NRDC). Shanxi Province planned to close 1,200 mines, but only 276 had been shut down by the end of January 2006.
1. Economic Development
98. The total area in Shanxi province is 156,600 square kilometers which is about 1.63% of the national area. The total population of the region was more than 30 millions at the end of 2005. Shanxi Province is a major mineral resourced-based province in China, with more than 120 varieties of mineral ores found.
99. The provincial coal reserves account for one third of the national’s total. The output and transportation volume of coal rank the first in the country, making up one- fourth and four- fifths of the national total. Shanxi is the key coal production and distribution province with coal industry and electric power industry as the pillar industries for the province.
100. It is estimated that the gross domestic product (GDP) in 2005 in Shanxi province was 412.12 billion yuan, up by 12.5 percent over the previous year at comparable prices. The value-added of the primary industry was 25.79 billion yuan, down by 6.3 percent for the reduction of grain’s output. The value-added of the secondary industry was 230.7 billion yuan, up by 15.9 percent. The value-added of the tertiary industry was 155.54 billion yuan, up by 11.6 percent.
18
101. The contribution of the primary and secondary and also the tertiary industries toward the growth of the GDP were -3.6 percent, 67.4 percent, 36.2 percent, respectively. The average annual growth rate of GDP was 13.1 percent during the tenth-five years, 5 percent higher as compared with that was planned. The province’s GDP and annual growth rate is shown in Figure 1.
102. Tax income for the whole year reached 75.79 billion yuan (excluding tariffs and agricultural taxes), up by 40 percent than that in the previous year. The total value-added of the industrial sector was 207.3 billion yuan, up by 16.9 percent over the previous year. The value-added of industrial enterprises above designated size was 171.2 billion yuan, up by 19.3 percent .The sales ratio of industrial enterprises was 96.97 percent, or 0.2 percentage points lower than that in the previous year.
103. The profits generated by industrial enterprises above designated sized stood at 26.49 billion yuan, an increase of 19.3 percent over the previous year. Among the industrial enterprises above designated size, the value-added of state-owned and state-controlled enterprises stood at 37.94 billion yuan, up by 15.6 percent; that of the collective enterprises was 12.48 billion yuan, up by 12.6 percent.
104. In 2005, the per capita annual net income of rural households in Shanxi province was 2,890.7 yuan, up by 11.6 percent. The per capita disposable income of urban households was 8913.9 yuan, a real increase of 12.8 percent. The Engel coefficients, which refer to the proportion of expenditure on food to the total expenditure of households, were 44.2 percent for rural households and 32.4 percent for urban households.
Billion Yuan % 450 16 400 14 350 12 300 10 250 GDP 8 200 Growth Rate 6 150 100 4 50 2 0 0 Year 2001 2002 2003 2004 2005
Figure 1. GDP and its growth rate of Shanxi Province.
105. It is possible that the economic growth rate in Shanxi province will fall but the magnitude of the decrease is not expected to be too large. The main reasons are the province’s industrial production will maintain the inertia and the demand of energy, especially coal and thermal power etc., will still bloom. It is expected that the real prices of steel, coke, cement and a part of colored metal will be affected by the nation’s macroeconomic policy and consequently will decrease, and the growth rate of the price of coal will be slowed down. Thus, the growth rate of coal industry - the pillar industry for the province - will also slow down, and the drive by the coal industry for economic growth in the province will be weakened.
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106. Total factors analysis shows that the province’s economic development is expected to remain on a stable but moderately fast track in the short to mid-run. The economic growth index of the province forecasted in the next five years is shown in Table 3. Table 4 shows the estimated contribution of small coal mines in Shanxi province to the GDP.
Table 3. Economic Forecasts for 2006-2010 period.
Per Capita Investment in Retail Prices of General Level of Index GDP GDP Fixed Asset Commodities Dweller’s Consumer
% 10 9.6 20 13 3
Table 4. Contribution to GDP by Small Coal Mines in Shanxi.
GDP (1) The Added Value Proportion The Added Value of Proportion Year billion of Coal Industry ( (2) to (1) ) Small Coal Mines (3) ( (3) to (1)) yuan (2) billion yuan (%) billion yuan (%) 1995 103.45 15.63 15.11 5.38 5.20 2000 164.38 17.53 10.66 3.23 1.96 2001 177.46 17.66 9.95 3.24 1.83 2002 200.18 16.90 8.44 6.66 3.33 2003 244.56 27.02 11.05 6.19 2.53 2004 304.24 97.03 31.89 14.78 4.86 2005 412.12 150.09 36.42 27.95 6.78
Source: Shanxi Statistic Bureau
107. The total area of underground coal mines in Shanxi province is approximately 62,000 km2 or 40.4% of total area in the province. Coal mines are geographically distributed in Datong, Ninwu, Hedong, Xishan, Qinshui and Huoxi. The estimated coal reserve of the province is 281.9 billion tons (BT), which amounts for 27.02% of the nation’s total identified coal reserve, and the estimated coal reserve is 655.2 BT, or roughly one third of the nation’s reserve. Among the current reserve 115.1 BT are in production or in mine construction. In 2004 Shanxi produced a total of 0.496 BT of coal, accounted for 25.4% of the national coal output.
108. The output of KSOCMS was about 0.222 BT (44.76% of the province’s total), the SOCMS about 0.085 BT(17.13% of the province’s total) and the TVCMS about 0.189 BT(38.11%). Shanxi province provides coal to the consumers of 28 provinces in China by surface transportation, and plays a key role in the export market. In 2004, the province completed an inter-province transfer volume of 0.35654 BT, of which 0.26518 BT was transported by rail, and 0.09136 BT by road. The total export was 0.0392957 BT.
2. Employment, Income and Standard of Living
109. As demonstrated above coal dominates the energy sector in Shanxi—accounting for some 80-85% of primary energy production. The other main indigenous sources of primary 20 energy within Shanxi are coke and coal thermal electricity. Coal being the major contributor to Shanxi provincial economic development is also key to lifting rural people out of poverty and absorbing surplus labor. In addition to providing much-needed energy for national economic development, the small-scale coal mines provided a basis for local development. The contribution of small coal mines to GDP shows the important role of small coal mines in Shanxi provincial economic development (Table 4).
110. Table 5 provides an estimate of the number of workers in small coal mines. The employees in small coal mines accounted for approximately 4% of all employees from 2003 to 2005. This represents a proxy of the proportion of the rural economy. Further, from the late 1970s to 2004 the proportion of Shanxi’s agricultural population fell steadily from about 70 to 80%.
111. The fiscal revenue from the coal industry in Shanxi from 2001 to 2005 amounted to 57.888 billion yuan, about 16.96 billion yuan In 2004 and about 27.06 billion Yuan in 2005. The rapid growth of financial revenue from the coal industry in 2004 and 2005 was mainly attributed to the soaring coal’s price. Table 6 shows that the proportion of financial revenue obtained from small coal mines to the total of financial revenue was 12.02% in 2004, and 13.67% in 2005.
Table 5. Year-end Employment Statistics from 1995 to 2005 in Shanxi.
Employees in Total Employees in coal small coal Ratio of Ratio of Employees(1) Ratio of (2) Year sector(2) 10,000 mines(3) (3) to (2) (3) to (1) 10000 to (1) % persons 10000 (%) (%) persons persons 1995 1424.5 57.5 4.0 65.6 48.9 4.6 1999 1402.2 89.4 6.4 36.8 35.6 2.6 2000 1392.4 84.8 6.1 32.1 37.9 2.3 2001 1399.5 86.2 6.2 33.8 39.2 2.4 2002 1403.3 87.8 6.3 34.9 39.7 2.5 2003 1469.5 92.5 6.3 58.1 62.8 4.0 2004 1474.6 101.2 6.9 60.7 60.0 4.1 2005 1500.0 95.0 6.3 66.2 69.7 4.4 Source: Shanxi Statistic Bureau
112. It is noted that a tax-sharing system has been conducted since 1994 in China. The value added tax rate (VAT) is 13% for all solid mineral products, including coal, metals and non-metals. Some 75% of VAT is distributed to the Central Government with the remainder to the local government.
113. The general budgetary financial revenue of local government in Shanxi from 1995 to 2005 is shown in Table 7. The local general financial revenue obtained from small coal mines accounted for 11.31% and 12.66% of the total in 2004 and 2005. Because small coal mines were operated by private parties or local governments in townships and villages, 25% of VAT from small coal mines was collected by the county’s governments instead of either by the provincial government or the municipal government.
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Table 6. Total Financial Revenue in Shanxi from 1995 to 2005.
Financial Financial Revenue Over Financial Revenue of Ratio of (2) from Small Coal Ratio (3) to Year Revenue(1) Coal Sector(2) to (1) % Mines(3) billion (1) % billion yuan billion yuan yuan 1995 12.94 2.72 20.99 1.33 10.26 1996 15.02 3.27 21.75 1.64 10.90 1997 16.82 3.49 20.76 1.63 9.69 1998 18.22 3.75 20.56 1.80 9.87 1999 18.15 2.97 16.37 1.06 5.83 2000 19.46 3.11 15.98 1.09 5.62 2001 22.95 3.79 16.49 1.17 5.08 2002 29.24 5.53 18.92 2.12 7.27 2003 37.96 7.28 19.17 2.95 7.76 2004 53.63 16.96 31.63 6.45 12.02 2005 75.81 27.06 35.70 10.37 13.67
Source: Shanxi Provincial Finance Bureau, figures are current prices..
Table 7. Local General Budgetary Financial Revenue in Shanxi from 1995 to 2005.
Local General Total Local General Local General Budgetary Financial Budgetary Financial Ratio of (2) Budgetary Financial Ratio (3) Year Revenue from Coal Revenue(1) billion to (1) (%) Revenue from SCMs to (1) (%) Sector(2) billion yuan (3) billion yuan yuan 1995 7.22 1.22 16.95 0.60 8.29 1996 8.42 1.47 17.48 0.74 8.76 1997 9.67 1.57 16.24 0.73 7.58 1998 10.41 1.69 16.21 0.81 7.78 1999 10.92 1.34 12.24 0.48 4.36 2000 11.45 1.40 12.23 0.49 4.30 2001 13.28 1.71 12.85 0.53 3.96 2002 15.08 2.49 16.50 0.96 6.34 2003 18.61 3.28 17.61 1.33 7.13 2004 25.64 7.63 29.77 2.90 11.31 2005 36.83 12.18 33.06 4.66 12.66
Source: Shanxi Provincial Finance Bureau
114. One of the most coal productive counties in Shanxi province is Zezhou county of Jincheng municipality. Zezhou county obtains a significant proportion of local fiscal revenue from the rapidly growing small mine sector. Table 8 shows the proportions of the local fiscal revenues gained in Zezhou county from small coal mines compared with the totals from 1995 to 2005. The highest proportion reached 70.68% in 2005, and the lowest proportion was 32.51% in 2000 after the 1998 closure campaign. Therefore, such local governments are unwilling to close small mines in order to maintain revenues.
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Table 8. Local Financial Revenue in Zezhou County from 1995 to 2005.
Total Local Financial Proportion of Local Financial Revenue from Year Revenue (million Financial revenue from SCMs (million yuan) yuan) SCMs against the Total (%) 1995 118.10 47.26 40.02 1996 156.57 64.24 41.03 1997 189.01 76.47 40.46 1998 214.56 92.45 43.09 1999 238.00 85.73 36.02 2000 242.93 78.98 32.51 2001 252.51 148.02 58.62 2002 287.14 179.45 62.50 2003 368.86 227.6 61.70 2004 552.02 355.03 64.31 2005 677.04 478.55 70.68
Source: Jincheng Municipal Finance Bureau
115. The general local population also achieved considerable prosperity from the mining sector. Table 9 shows that the average incomes of miners per year in Jincheng increased from 10,756 yuan to 19,684 yuan in 2004 which were all much higher than that incomes of workers in other industries
Table 9. Employment Incomes in SCMs Compared with Other Industries in Jincheng.
Units 2001 2002 2003 2004 Average incomes of small coal miners yuan/per capita 10756 12876 14481 19684 Average incomes of workers in the other yuan/per capita 8790 10321 11735 14472 industry
Source: Jincheng Municipal Finance Bureau
116. The geographical distribution of coal resources in Shanxi province allowed many counties to become prosperous which previously been below the poverty line. Significant employment for otherwise under-used labor was the vehicle to the acquired prosperity. In some counties small coal mines have been crucial in bringing prosperity to rural households allowing some to “embark on the path of leaving poverty behind and becoming rich.” In this province one quarter of the villages which have reached “comfortable standard of living” and this has been achieved from coal mining.
117. With the labor in the agricultural sector turning from farming to coal production, the level of rural dweller’s income improved from 1991 to 2004 in the coal producing area. Table 10 shows the per capita annual income of rural households by source from 1991 to 2004 in Jincheng.
118. Figure 2 and Table 10 show that the percentage per capita annual net income of rural households from small coal mines increased from 1991 in Jincheng municipality. It is obvious that small coal mines became an important source of the income of rural 23 households in Jincheng. Other benefits from the growth and geographical spread of small coal mines included the following: (i) The exploitation of small, complex, remnant or otherwise economically- marginal coal deposits which were of no interest to the state-owned mining companies; (ii) A diminished need for coal transportation as coal was now exploited closer to the centre of demand; (iii) The substitution of coal for firewood reduced the destruction of forests in areas where coal had not been available previously; and (iv) Small coal mines provided economic competition to the larger state-owned coal mines.
100.00 90.00 Percentage of 80.00 Income from 70.00 TVCMS to Total 60.00 Net Income(%) 50.00 Percentage of 40.00 Income from the 30.00 other ways to 20.00 Total Net Incomes(%) 10.00 0.00 1 3 5 7 9 11 13
Figure 2. Household Income from Different Sources.
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Table 10. Per Capita Annual Income of Rural Households by Source.
(RMB Yuan)
Percentage of Per Capita Percentage of Income from Income from Annual Net Income From other Income Years the other TVCMS to Income of Rural TVCMS(TVCM) Total Net Sources (OS) Total Net Households (NI) Incomes (%) Income(%) 1991 758 50 708 6.58 93.42 1992 943 66 876 7.04 92.96 1993 1173 86 1087 7.33 92.67 1994 1459 123 1335 8.45 91.55 1995 1552 152 1400 9.77 90.23 1996 2009 207 1830 10.31 91.10 1997 2393 266 2040 11.13 85.24 1998 2582 317 2265 12.28 87.72 1999 2576 355 2221 13.79 86.21 2000 2629 546 2083 20.76 79.24 2001 2594 629 1965 24.24 75.76 2002 2707 749 1958 27.66 72.34 2003 2942 947 1995 32.17 67.83 2004 3278 1241 2037 37.85 62.15
Source: Jincheng Municipal Finance Bureau
119. Migrant rural workers formed a major proportion of the TVCM labor force in Shanxi Province, and thus were susceptible to losing their jobs. The general view of government officials in Jincheng city appears to have been that these people are not their responsibility and that they should return to their villages.
120. According to the Chinese statistical classification coal miners are classified as urban people. However, because most TVCM miners are from rural areas coal miners experience the double livelihood features of both rural and urban populations.
121. The living standard of the coal miners can be described from their income and living costs, and from the features of rural and urban residents. Tables 11 and 12 present the per capita income of the rural and urban households, while Tables 13 and 14 provide the living expenditure of rural and urban population in different years.
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Table 11. Total Income Per Capita and Composition of Urban Households.
(Unit: CNY yuan) Item 1995 2000 2004 Total Income 3,302.57 4,727.15 8,428.81 Disposable Income 3,301.89 4,724.11 7,902.86 Income of Pay 2,670.78 3,300.46 6,338.81 Wage and Subsidy 2,622.72 3,120.64 6,005.64 Other Income 48.06 179.82 333.16 Net Income of Business 29.83 108.69 335.91 Property Income 54.74 50.94 141.19 Interest 49.62 24.52 17.13 Dividend and Bonus 2.28 6.94 24.86 Other Investment Income - - 35.15 House Rent - - 56.81 Transfer Income 547.21 1,267.06 1,612.91 Pensions of Old People and Retired Veterans 429.14 1,108.37 1,250.04 Social Relief - - 17.68 Dismiss Pensions - - 4.37 Old Alimony 38.07 46.62 60.87 Contribution Income 59.95 82.56 191.61 House Accumulation Fund - - 20.75 Composition of Total Income (%) 100.00 100.00 100.00 Disposable Income 99.98 99.94 93.76 Income of Pay 80.87 69.82 75.20 Wage and Subsidy 79.41 66.02 71.25 Other Income 1.46 3.80 3.95 Net Income of Business 0.90 2.30 3.99 Property Income 1.66 1.08 1.68 Interest 1.50 0.52 0.20 Dividend and Bonus 0.07 0.15 0.29 Other Investment Income - - 0.42 House Rent Income - - 0.67 Transfer Income 16.57 26.80 19.14 Pensions For Old People and Retired Veterans 12.99 23.45 14.83 Social Relief Income - - 0.21 26
Item 1995 2000 2004 Dismiss Pensions - - 0.05 Old Alimony 1.15 0.99 0.72 Contribution Income 1.82 1.75 2.27 House Accumulation Fund - - 0.25
Source: Shanxi Statistical Yearbook (2005).
Table 12. Per Capita Net Income of Rural Households.
(Unit: CNY yuan) Net Income Basic Laborers' from Transfer Property Year Net Income Income Remuneration Household Income Income Business 1985 358.32 329.91 100.52 229.39 22.31 6.10 1990 603.51 567.44 159.56 407.88 28.17 7.90 1995 1,208.30 1,148.03 367.19 780.84 37.39 22.88 2000 1,905.61 1,839.61 726.05 1,113.56 46.30 19.70 2001 1,956.05 1,873.74 789.84 1,083.90 60.04 22.27 2002 2,149.82 2,076.81 866.47 1,210.34 57.78 15.23 2003 2,299.40 2,214.40 913.35 1,301.05 60.85 24.15 2004 2,589.60 2,484.71 987.52 1,497.19 69.34 35.55
Source: Shanxi Statistical Yearbook (2005).
Table 13. Per Capita Living Expenditure of Urban Households.
Unit: CNY yuan Item 1995 2000 2004 Total Living Expenditures (CNY yuan) 2,640.73 3,941.87 5,654.15 Food 1,271.23 1,400.56 1917.75 Clothing 473.46 511.19 747.43 Household Facilities, Articles and Services 169.77 268.05 314.82 Medicine and Medical Services 84.59 300.81 401.74 Transportation and Communications 99.08 333.27 587.01 Education, Culture and Recreation Services 265.84 549.37 901.40 Residence 176.79 431.03 614.20 Miscellaneous Commodities and Services 99.97 147.59 169.79
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Table 14. Per Capita Living Expenditure of Rural Households.
Unit: CNY yuan
Household Year Expenditure Food Clothing Residence Facilities, Articles and Services 1980 134.38 80.48 20.81 24.35 4.98 1985 272.74 148.13 39.88 37.67 21.81 1990 487.65 257.87 60.71 75.68 33.39 1995 927.99 586.03 103.02 77.62 42.95 2000 1,149.01 558.86 113.37 143.90 48.77 2001 1,221.58 580.92 118.15 171.52 51.05 2002 1,354.64 594.20 137.93 171.22 64.64 2003 1,430.18 616.40 149.73 169.55 55.03 2004 1,636.46 748.90 171.69 179.22 59.27
a. Unemployment in Shanxi Province and Jincheng
122. By the end of 2005, the total employed people in Shanxi numbered 14.751 million. Of this total, 4.394 million were employed in urban areas. About 0.407 million new jobs were provided to urban residents, and 0.161 million laid-off workers were re-employed.
123. The registered urban unemployment rate was 3.1 percent at the end of 2005. It is noted that the unemployment ratio in Shanxi province was increasing with the changing economy, the reform of state-owned enterprises, and the small coal mine closures. It is estimated that the total of unemployed population in Shanxi province increased from 291,900 in 1995 to about 710,800 in 2004.
124. The unemployment rates in Jincheng city from 1997-2005 are shown in Table 15. Among the total number unemployed, the number of people who have never been employed and are looking for jobs accounts for 69.62%, while the number of laid off workers accounts for 30.38%. In 1995 those two proportions were 85.22% and 14.78%, respectively which indicates that after 1995 the unemployed population was shifting from people who have never worked to laid off workers.
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Table 15. Unemployment Rate in Shanxi Province and Jincheng City.
Unemployment Jincheng Unemployment Reemployment Rate in Shanxi Unemployment (10k) Rate (%) (%) Rate (%) 1997 1.92 10.26 1998 2.15 9.96 1999 2.10 9.50 42.2 2000 2.20 9.70 1.3 36.0 2001 2.50 12.23 1.2 32.7 2002 3.40 14.52 1.3 27.1 2003 2.99 13.05 1.6 2004 3.10 13.68 1.5 2005 3.20 14.28 2.1
Source: Jincheng Labor Bureau
B. Institutions Related to Management of Coal Mines
125. There are three key institutions related to coal mine management in Shanxi province. Their functions and duties can be summarized as follows:
1. Shanxi Coal Mines Safety Supervision Agency
126. This agency is the administrative institution that implements the national supervision function over coal mine safety which is led by the National Safety Production Supervision Administration Bureau (NSPS). The National Safety Supervision Bureau on Coal Mine Safety is responsible for the business administration. According to the principle that the national level supervises, local government manages, and enterprise is in charge - the major duties of the Shanxi Coal Mines Safety Supervision Agency is as follows: (i) Implement national policies, laws, and regulations on coal mine safety; study and analyze the situation of coal mine safe production, and bring out suggestions on safe production plans and targets. (ii) According to the law, supervise the conditions that enterprises implement regulations, laws, safety devices and sanitation in production. Supervise special and regular inspections of the safety of coal mines. Make decisions or implement administrative sanctions against illegal actions that break production safety laws. Inspect and punish the collieries that do not meet the criteria of safety in production. (iii) Inspect and guide the local administrative work on coal mine safety. Supervise the implementation of regulations and criteria for safety in coal mine production, close mines without safe production conditions, inspect coal mine safety, implement special actions on coal mine safety and check and review potential accident situations, and identify the responsible persons for coal mine accidents. Provide advice and suggestions to local governments and related agencies. (iv) According to the law, organize or participate in the investigation of coal mine accidents, and supervise the implementation of accident inspections. Be 29
responsible for the inspections and statistical work of coal mine safety. Issue safe production information, such as coal mine accident and career injuries. (v) Guide the scientific research and provide results summarizing safety in coal mine production; bring out suggestions on scientific plans for safety in coal mine production. Organize safety inspections on the devices, materials, meters, safety symbols, and occupational safety tools used in the coal mine. (vi) Monitor the quality of administration and inspection of the social intermediary institutions that conduct business related to safety examination, evaluation, training and consultation. (vii) Issue and administer certificates of coal mine production safety, guide the safety evaluation of the collieries. (viii) Train and examine chiefs in charge of safety, and issue certificates to special staff (including operators of special devices) in the collieries. Be responsible for the administration of registered safety engineers in the coal industry. (ix) Organize inspection of the design of the project safety devices and final acceptance. Supervise and examine the safety of the construction companies and that of the dressing & washing companies. (x) Guide, coordinate, and participate in the rescue work of coal mine accidents. (xi) Be responsible for the personnel, salary, and financial administration of the agencies, inspection branches, and affiliated units.
2. Shanxi Coal Industry Bureau
127. The Shanxi Industry Bureau belongs to the Shanxi Economic Trade Committee. The Industry Bureau is responsible for the following: (i) Research and formulate development strategies and industry plans for the coal industry, make recommendations on reasonable mining and comprehensive utilization of coal resource, accelerate adjustment of industry structures and lead scientific management of the industry. (ii) Research and develop policies and regulations for the coal industry, inspect the implementation of industry law/regulation/technical criteria/procedure by the enterprises. (iii) Research and bring out sales strategies for coal throughout the province and give policy suggestions for cooperation between the production, transportation, and sale. Participate in the organization of the annual coal ordering of the province, assist in the coordination of the cooperation between railway/ports and major clients. Keep fair competition, order, and lead toward united competition of the enterprises. (iv) Formulate policies and measures for system reforms of the coal industry, guide the reforms and innovation of state-owned coal enterprises. Establish modern enterprise regulations, prompt the state-owned coal enterprises to change deficits, close bankrupt operations, shift production and implement re- employment programs. (v) Close illegally opened or operated collieries. Be responsible for the issuance/administration of coal production certificates, and the initial inspection of business certificates. (vi) Control the gross amount of coal production in the province, organize the implementation for closure and shutdown of mines, and examine and approve newly opened collieries. 30
(vii) Understand and analyze the operational status of the coal industry’s economy, and summarize, analyze, and issue information on the coal technology and market. (viii) Analyze and review new technologies in the industry, guide the enterprises to modernize the traditional industry with high technology. Be responsible for approval of scientific results in the industry; organize international exchanges of technology in the trade. (ix) Be responsible for central administration of production allowances and special maintenance fees to ensure healthy development of the coal industry.
3. Shanxi Land and Resources Department: Coal Industry Management
128. The management responsibilities of the Land Resources Department for coal mining are described below. (i) Plan, manage, protect, and utilize responsibly natural resources such as land and minerals. (ii) Develop and publicize the local laws and regulations on land and minerals resources. Develop the provincial policy for management, protection, and utilization of land and minerals resources. (iii) Develop and implement the provincial land plan, overall plan for utilizing land, overall plan of minerals resources and other special plan. Participate in the examination of city plans to be approved by the provincial government and the State Council. Guide and examine the draft plans for land utilization and minerals resources in townships, counties or districts (Cities). Develop and assign annual plans for land utilization. Develop plans for investigations, evaluations and explorations for geological minerals, plans for utilization and protection of minerals resources, plans for ecological and environmental protection of mines, plans for the prevention of geological disasters and plans for the protection of geological traces. Establish information systems for land and minerals resources and provide relevant information services. (iv) Supervise the fulfillment of the law on minerals resources and the plans for mineral resources. Supervise the administrative enforcement of departments of land resources under the provincial level. Safeguard lawful rights and interests for owners and users of mineral resources. Investigate major illegal cases. (v) Be in charge of the approval, issuance of certificates and transfer management for prospecting rights of minerals resources. Standardize the market for mining industry rights. Supervise exploration activities. Mediate dispute on major prospecting rights. Be in charge of the management of geological exploration qualifications. Manage the provincial level geological exploration funds. Organize the fulfillment and management of geological exploration projects invested by the provincial government. (vi) Approve and issue certificates, transfer, and rental management for prospecting rights of mineral resources. Supervise the development, utilization, and protection of mineral resources. Organize annual examinations of minerals development and utilization for mining enterprises. Impose and manage the compensation fees for mineral resources according to stipulations.
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C. Institutional and Regulatory Framework for Mine Closure
1. Mine Closures in Shanxi Province
129. The TVCMs were overtly encouraged by all levels of government from the early 1980s when China faced a crisis of energy supply. Laws and regulations were ignored by government agencies and flouted by miners in the interest of economic growth and profit, respectively. Even new laws and regulations drafted in the 1980s and 1990s to cover safety, environmental protection and licensing were not implemented widely in the small-scale coal mining sector until the late 1990s.From the early 1980s to the late-1990s, the central government's attitude towards TVCMs may be characterized as encouraging, yet ineffective.
130. Production grew at a prodigious rate but legal, technical, environmental, and safety requirements seemed to be ignored in most mining areas. Short-lived and half-hearted rectification campaigns failed to make any significant impact on the behavior of miners or local governments. As a result some 30% or more of the TVCMs were illegal in the sense that they lacked the full suite of necessary approvals and licenses. However, many of these mines might have been considered ‘legitimate’ because they received tacit or substantive support from one or more government agencies, and operated in a regulatory twilight zone.
131. Such a failure to adequately regulate small scale mines is typical of many developing and transition economies. In the case of China, the failure to adequately regulate the TVCMs can be traced to two main causes. The first was the excessive load of laws and regulations which accrued in an ad hoc manner during the 1980s and 1990s. Legal instruments governing mineral resources, land management, environmental protection and coal mining operations were developed and promoted by institutions with quite different agendas, with little or no coordination. The result was duplication and inconsistency. Second, the multi- layered and multi-stranded nature of China's government rendered effective implementation of national policy at township and village level very difficult if the lower levels of government were determined to resist. Rivalry and overlapping responsibilities between government agencies further diluted the impact of central government policies and complicated the task of the mine owner.
132. In the autumn of 1998, a plan was announced by the central government to close some 25,800 illegal and ‘irrational’ mines (mainly TVCMs) by the middle of 2000 in order to reduce output by 250 million tons per year. It was reported that 33,000 mines had been closed by the end of 1999, reducing annual output by 300 million tons. By late 2001 the total number of TVCMs had reportedly been reduced to 23,000, resulting in a reduction in annual production from 620 million tons in 1997 to 200 million tons. As well as TVCMs, a number of larger mines (near exhaustion) have been closed and some enterprises made bankrupt.
133. In November 1998, Shanxi province carried out the following requirements of the State Council: (i) 1998, Banned 1,453 illegal mines and reduced 26.79 million tons of coal production; (ii) 1999, Closed down 1,565 irrationally-distributed mines and reduced 43.99 million tons of production; (iii) 2000, Closed down 1,033 irrationally-distributed mines and reduced 11 million tons of production; (iv) 2001, Closed down 1,034 irrationally distributed town and township mines (including 139 small mine-administrated pits and 65 small illegally-resurgent mines) and reduced 8.02 million tons of production. 32
(v) 2002, The provincial government launched the special rectification for mine safety and carried out shutdown rectification for all town and township mines in the province according to the requirements of the State Council, and accepted the reopening of mines according to the national standards. Eventually 909 small mines without passing the requirements for reopening were thoroughly closed down and in total 5,929 mines shut down from 1998- 2002. (vi) 2003, The provincial government had approved 4,127 town and township mines for resurgence: 342 mines with an annual output below 30,000 tons, 1,353 mines between 30,000 and 60,000 tons, 926 mines between 60,000 and 90,000 tons, 607 mines between 90,000 and 150,000 tons, 275 mines between 150,000 and 210,000 tons 138 mines between 210,000 and 300,000 tons and, 51 mines over 300,000 tons6.
134. Official figures indicate that coal output from small coal mines fell from 570 million tons in 1997 to a low of about 250 million tons in 2001. It then doubled to more than 500 million tons in 2003, equivalent to the reported TVCM output in 1998, in the early stages of the closure campaign. Over the period 2000–2003 official statistics state that the total national output of coal increased from about 1000 to 1600 million tons. This growth in total coal production was due to the soaring domestic demand for energy as the economy grew at a rate of about 10% per year, with heavy industry playing a major role in this growth. In order to meet this demand, output from remaining small coal mines was raised and ‘closed’ small coal mines were re-opened.
135. The small coal mines have not only caused resource waste with an average low rate of recovery of between 10 percent to 15 percent, but also local pollution and higher incidence of accidents. An official total of 3,341 coal mine accidents were reported in 2004, killing 5,986 people. The small coal mines have become the root of coal mines disasters. Statistics show that 70% of coal mines accidents including 80% of the major disasters, occurred in these coal mines each year. The death rate per million tons produced in TVCMs has been about two times greater than the death rate in larger state-owned mines.
136. In 2005, a plan was again announced by the central government to shut down 4,000 small legal and ‘irrational’ mines annually with annual production capacity under 30,000 tons by the end of 2007. It was reported that Shanxi Province has shut down more than 2,203 small coal mines, and stopped the running of 4,578 small coal mines with low productivity, high energy cost and serious safety problems, and 1,200 coal mines without the production safety permits issued by the provincial government will be closed down in 2006. Official documents clearly identified and categorized the small coal mines targeted for closure. There were 748 mines in Jincheng city by the end of 2004, including 569 coal mines and 178 sulfur-iron mines (in conjunction with excavating coal). After closure campaign, 252 mines were reduced, including 88 coal mines and 164 sulfur-iron mines.
137. The available evidence suggests that the potential negative socio-economic impact of the small coal mine closure campaign did not feature highly in the list of priorities for the higher levels of government and that few or no systematic support or mechanisms were put
6 Data source in this section comes from website of Coal Industry Bureau of Shanxi Province. 33 in place to deal with the inevitable impact on communities. Indeed it was the lack of attention to these issues which led to the formidable and sustained resistance to the closure policy by local governments and communities.
138. The closure of the small coal mine closure was taking place against a background of rising rural unemployment and migration to the cities. From the mid-1990s the rate of growth of rural employment in non-agricultural activities declined sharply. From 1996 to 2004, China's total rural population declined whilst total urban population rose by some 130 million. This reflected both movement from the countryside to the cities as well as the progressive urbanization of the countryside. Further, these figures do not include the floating population of about 100 million peasants who work in the cities but are officially rural residents.
2. Project Stakeholder Views of Issues of Small Coal Mine Closures
139. The information obtained from the consultation meetings with the project stakeholders in Jincheng city in December and in May and from information from other sources, indicated that the county level of local government is deemed responsible for the implementation of the small coal mine closure campaign. These county governments faced a conflict of interests because closure of some small coal mines reduced the root of coal mines disasters closure also removed an important source of employment and revenue from taxes and fees.
140. At least three parties suffer economic loss when a small-scale coal mine is closed. The owners of the mines lose their investment and future cash-flow. The local government loses tax revenue. Finally, the workers lose their livelihood, whether they are local residents or immigrants. The challenge is greatest for those local governments which lose revenue from these mines and find themselves with an enhanced level of unemployment.
141. Local governments are more inclined to close small or illegal coal mines if the economic and social impacts of such closure can be mitigated by the opening of new and larger coal mines that would provide alternative or replacement sources of revenue. Another determinant of the decision to close small mines is the existence of job creation programs to reduce social deprivation for the redundant miners who do not have the skills, aptitude, and knowledge to work in modern and mechanized coal mines.
142. The general view of the government officials in coal mining areas indicated that they are not responsible for the small coal miners and that these miners should return to their original villages for farming. Their general views of small mine closures are summarized as follows: (i) Local governments experience a decline in revenue which reduces the capacity to invest in new infrastructure and facilities to generate employment for these miners. (ii) Mine owners including local government owners receive little or no compensation for lost assets and are only entitled to compensation if deemed a wholly legal operation. The potential loss of all assets is a deterrent to investment in improvements in remaining small mines. (iii) Redundant mine workers have few opportunities to find sustainable, alternative employment. (iv) Local farmers are not compensated for the use of land by TVCMs, or for costs of reclamation or rehabilitation of polluted land and water. (v) Local energy consumers in the absence of locally available low-cost coal may be tempted to cut down trees for firewood and damage the environment. 34
3. Institutional Arrangements
143. The institutional responsible for the closure of small coal mines are summarized below.
a. Land Resource Agency
144. The Land Resource Agency is responsible for. (i) the integration of coal resources and coordination of paid work; (ii) the verification of coal resource/deposits; (iii) the registration of mining rights transfer; and (iv) the collection of mining rights fees.
b. Coal Industry Agencies
145. The Coal Industry Agencies are responsible for. (i) verifying the production abilities of the collieries; (ii) the initial design verification and final acceptance of the mine construction after integration, (iii) management of coal production certificates.
c. Coal Mines Safety Inspection Agencies
146. The Coal Mines Safety Inspection Agencies are responsible for. (i) verification of safety devices of the construction project after integration and for the final acceptance, (i) verifying conditions of safe production, and (ii) management of safe production certificates.
d. Industrial and Commercial Agencies
147. The Industrial and Commercial Agencies are responsible for verification the changed share structure of the coal enterprise after integration, and for pre-verification and registration of enterprise name.
e. Financial Agencies
148. The Financial Agencies are responsible for inspecting and gathering mining rights fees and verifying the mining right fees to transform into state-owned shares and state capital.
f. Inspection and Administration Agencies
149. The Inspection and Administration Agencies of State-Owned Assets are responsible for inspecting the state-owned stock rights formed by state-owned shares and state capitals transferred from the mining right fees. 35
g. Administrative Inspection Agencies
150. The Administrative Inspection Agencies are responsible for inspecting the duty implementation of administrative staff during the integration and paid use of coal resource.
h. Environmental Protection Agencies
151. The Shanxi provincial and Jincheng municipal EPBs are responsible for environmental monitoring and enforcement of industrial compliance with national and provincial laws, regulations, and standards for environmental quality (see Table 16 below), which includes coal mines. However, the responsibility for the implementation regulations and guidelines for environmental protection for coal mines lies with the owner/operator of the mine which normally is the local Coal Mine Bureau7.
152. Implementation and enforcement of environmental protection at small coal mines is essentially non-existent because of the lack of clear mandate and budgetary allocation. While the EPB provides the environmental protection regulations and standards that are applicable to small coal mines, the Shanxi and Jincheng Coal Mine Bureaus who own and operate the majority of mines do not have budget or sufficient training to apply them.
153. Exacerbating the lack of environmental protection for small coal mines is the existence of the non-certified "illegal" mines which cannot easily be officially policed for environmental compliance. The unofficial existence of some small coal mines also inhibits formal human resource and operating budget allocation for environmental management of these mines.
4. Operational Policies and Regulations
154. Prior to 1995 the closure of small coal mines in Shanxi province served the national policies and regulations for mine closure. In 2005 the central government appointed Shanxi province as a pilot province to combine the closure of small coal mines with the integration of coal resources. As a result some new policies and regulations were issued and adopted along with the national policies and regulations summarized in Table 2 above for the closure of small coal mines.
155. The key directives of the new policies are fall under the following umbrella program:
"Implementation of Coal Mines Resources Integration and Reimbursement for the Right of Coal Resource Mining in Shanxi Province."
The main components of the program are summarized below.
7 Shanxi provincial EPB, personal communication, 2006 36
a. Coal Resource Integration and Reimbursement for Coal Mining Rights
156. Resource integration should be based on the coal mines presently reserved in the counties (cities). By combining wells between coal mines and integrating remaining resources of closed mines and sporadic coal resources the following will occur: (i) The production of single wells will be increased. (ii) The mining technology of single wells will be improved. (iii) Capital property right will be clearly stated in accordance with the demands of a modern corporate system.
157. State-owned key coal enterprises of the province, local state-owned backbone coal mines, and other large-scale and medium coal deep processing enterprises should be encouraged to conduct joint management, mergers and acquisition, equity participation, and stock control on local small and medium coal mines. This consolidation effort should be conducted to facilitate reform and resource integration to realize low-cost expansion and construct large-scale coal enterprise groups.
158. Resources integration is limited to the joint reconstruction, merger and acquisition, between two or more coal mines. Any coal mine with less than 300,000 tons of annual production in the key coal counties is not allowed to integrate closed coal mine resources and other unexploited coal resources.
159. For state-owned coal mines that acquired mining right for free in the past via administrative approval, the mining right may be transferred into government capital after being approved according to relevant regulations. For the mining rights of other coal mines that were acquired in the past for free via approval by related administrations, if the coal mines have abundant resources, or can be integrated, all or partial amount of the fees of reimbursement for mining rights can be transferred into capital assets.
160. The latter would be based on the negotiation and approval of the government and the investors to form state-owned stock control or equity participation shareholding enterprises. If the coal mines have few coal resources, are small in scope, and are hard to be integrated, fees of reimbursement for mining rights shall be collected in cash.
161. All coal mines lacking the conditions for improving the mining technology, mines with less than 90,000 tons of annual production in key coal producing counties, mines with incomplete certificates and licenses, and mine resources restricted by special state regulations cannot be transferred and should be shut down within a specified time period. After the coal mines are shut down, if their coal resources need to be integrated, the charges for mining rights will be collected based on newly added resources.
b. Coal Resources Integration
162. The following four component objectives underpin the intent of Coal Resources Integration.
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i. Number of coal mines.
The following schedule of mine reduction was proposed: (i) By 2005 the number of coal mines in each city will be reduced by over 30%, among which all the small coal mines with less than 90,000 tons/year of production in key coal producing counties should be eliminated. (ii) By 2010 the number of small coal mines in large-scale coal bases should be reduced by 70%, and the production of coal mines with at least 300,000 tons of annual production should account for over 90% of the total production. (iii) By 2015 all small coal mines will be eliminated, and the number of coal mines in the province will be less than 2,000.
ii. Area of Newly Added Coal Resources.
163. In coal resource integration, newly added resources mainly refer to the residual resources of the coal mines already shut down along with sporadic, unexploited coal resources to be integrated. After resource integration the area of newly added resources shall not exceed 10% of the total resources area already occupied by the coal mines in the whole county (city) before integration and shutdown.
iii. Newly Added Production.
164. After resource integration, the newly added production shall not exceed 10% of the total productivity of the whole county (city) before the integration and shutting down.
iv. Coal Mining Technology and Coal Recovery Rate.
165. For all coal mines being integrated wall-type exploitation should be adopted to realize one face for one mine, two safety exits, and fully induced ventilation. The corresponding installation and improvement of production systems and equipment, such as coal mine hoisting, transportation, ventilation, water drainage, and power supply equipment should increase the coal recovery rate to the following levels: (i) 75%, for thick coal beds, (ii) 80%, for medium coal beds, and (iii) 85%, for thin coal beds.
v. Procedures for Coal Resource Integration
166. Based on each county (city), county-level people’s government shall organize local land resources, coal, work safety administration, and industrial and commercial administration departments to: (i) conduct practical measurements on the exploitation conditions of the coal resources to be integrated; (ii) conduct unified planning based on the coal mines presently reserved in each county (city); (iii) follow the principle of resource integration and reduction objective for the number of coal mines in each county (city), decided by the municipal government; 38
(iv) create a scientifically-based unified plan that reasonably defines mines types; and (v) formulate a resource integration program which should include the description of resource reserves and production of individually reserved coal mines.
167. County or city-level people’s government shall report the program, level by level, to the Office of Provincial Government Leading Team for Boosting Coal Resources Integration and charge for the mining rights which are consistent with the Provincial Department of Land and Resources, Provincial Coal Industry Bureau, and Shanxi Coal Safety Supervision Bureau. The Office shall organize relevant units and expert teams to examine the program, and report to the Leading Team for approval; then each county and city shall organize to carry out the program.
vi. Time Schedule
The following schedule of activities and milestones was proposed. (i) September 2005. Each municipal people’s government should make an official report to the Office of Provincial Government Leading Team for Boosting Coal Resources Integration. The complete situation of the coal mine quantity reduction objective as well as the list of coal mines being integrated and shut down should be indicated. (ii) November 2005. Compile, report, and deliver objectives for coal resources integration programs of 60 coal producing counties (cities); (iii) February 2006. Examine and approve tasks for the programs. (iv) June 2006. Complete the resource integration objectives in the whole province for the first batch of 60 coal producing counties (cities), including 36 key coal producing counties; (v) December 2006. Conduct general check and acceptance, and try to complete the report and deliver objectives of the programs of other coal producing counties (cities).
vii. Strengthen Organization and Leadership, Intensify Coordination between Departments, and Boost the Scientific and Orderly Implementation of Resources Integration
Establish Leading Team for Boosting Coal Resources Integration.
168. The people’s governments at various levels should consider implementing coal resources integration and boosting the charge for the mining rights as an important move to boost the overall competitiveness of the coal industry of the province. The leading team for Boosting Coal Resources Integration should be established, for which a governmental leader should be the head. The team members are made up of the main leaders from the following organizations: (i) Administration of Land and Resources, (ii) Coal Dept, (iii) Coal Supervision Dept, (iv) Industrial and Commercial Administration Bureau, (v) Development and Reform Commission, 39
(vi) Economic Commission, (vii) Finance Department, (viii) SASAC, and (ix) Administrative Supervision Dept.
169. The leading team for Boosting Coal Resources Integration and Paid Use Office is located at and initiated by the Administration of Land and Resources, and other departments should offer close cooperation with the team. Guidance, supervision, and management of coal resources integration should be strengthened for equity, openness, and transparency. The process should be strictly enforced and standardized as follows:
viii. Each Department Defines Duties and Coordinates
170. The Administration of Land and Resources shall be responsible for the field measurement of mine, strictly verifying resources reserves, strictly following standards for collection of mining right funds, compiling resources integration implementation program with Coal Dept, and examining and approving the alteration of registration of mining right.
171. Coal Dept shall be responsible for the design, examination and approval of the coal mine after integration, production verification, and registration of license alteration. Safety Supervision Dept shall verify the safety condition of the mines after integration.
172. Industrial and Commercial Administration Bureau shall verify the stock composition situation of the coal enterprises whose mining right persons are changed, and conduct pre- verification of corporate names and industrial and commercial registration. Finance Department shall supervise the profit sharing of mining right funds, and co-verify the state capital transferred from mining right funds with the Provincial Department of State Land and Resources.
173. The SASAC shall consider the state-owned shares or state-owned capital formed by coal resources as important supervision content, and prevents the loss of state-owned assets. Administrative supervision organization should supervise the whole process of coal resources integration, and strictly investigate and punish illegal behaviors or misconduct.
Strengthen Supervision and Management of Resources Integration.
174. Governments and functional departments at all levels should supervise and manage the coal mine resources integration strictly in accordance with the design and production approved. Only one set of production systems is kept in one mine after the coal mines being integrated. Production of multiple mines by one license, cross-layer, and cross-boundary exploitation are strictly prohibited. Coal mines exploited illegally or not in accordance with design should be strictly investigated and punished based on related laws. Coal mines severely violating laws should be shut down based on laws; the government should reclaim the mining right and re-transfer it publicly.
175. In accordance with the policies of Shanxi province, Jincheng city also issued its own policies for integration of coal resource. But the main principles are the same as that of Shanxi province.
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5. Policies and Regulations for Poverty Reduction
a. Rural Poverty Reduction – Shanxi Province
176. The poverty of China's rural areas, such as in Shanxi province, arose over many years. Based on the understanding of national conditions and the reality of the poverty- stricken areas and people, the Chinese Government has formulated a policy for development-oriented poverty alleviation that conforms to the needs impoverished areas. It sets solving food and clothing shortages of the rural poor as its basic objective and central task, starting from the most urgent problems, acting according to its capability, giving priority to key areas, and advancing step by step.
i. Defining the Standard of Poverty in Conformity with National Conditions
177. China is a developing country with a large population, a meager heritage, and an underdeveloped economy in the rural areas. In poverty-stricken areas of China the under- development is mainly reflected by weak infrastructure, a rapidly growing population that is not supported with education and basic social services, and thirdly by poor agricultural production.
178. In impoverished areas like the western region, the relative presence of railways, highways and civil aviation facilities are relatively low. Typical of poverty areas are rapidly growing populations without adequate education, public health and other basic social services. Due to the poor conditions for running schools and backward education facilities, a great number of school-age children are unable to go to school or obliged to discontinue their studies, resulting in a high illiteracy rate of the young and middle-aged. These areas are also characterized by a very low level of health care work.
Poor agricultural production conditions, low revenue, and seriously inadequate public input often are other characteristics of impoverished areas. In 1986, the per-capita motive power of agricultural machinery in the counties on the state's priority poverty relief list accounted for only 50 percent of the national average. In 1993, the per-capita revenue in these counties was CNY 60 yuan, only about 30 percent of the national average.
179. In accordance with the above conditions, it is necessary to fix a realistic standard of poverty for Shanxi province and throughout China's help-the-poor work. The earliest standard was calculated by the relevant government departments in 1986, on the basis of the investigations of the consumption expenditures of 67,000 rural households, i.e., the standard of CNY 206 yuan in per-capita net income in rural areas in 1985. It was equivalent to CNY 300 yuan in 1990 and CNY 625 yuan in 2000.
180. Shanxi provincial standard of poverty reflects the national standard which is the standard of the lowest expense to maintain one's basic subsistence. It guarantees the basic living needs of the rural poor in China, and therefore, is an objective standard and one that conforms to the reality in the province and throughout China.
ii. Defining the Key Poverty-stricken Counties to be Aided by the State
181. To use poverty relief funds in a unified way and effectively aid the poor and needy, the Chinese Government has formulated the standard of the key poverty-stricken counties to be aided by the state, and identified a number of such counties.
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182. The Chinese Government defined the standard of the key poverty-stricken provincial counties to be aided for the first time in 1986. That is counties with a net yearly income of less than CNY 150 yuan per capita of rural residents in 1985. Subsequently, the standard has been adjusted in keeping with the economic development, especially the constant improvement of the economic conditions of the poverty-stricken areas. The readjusted standard in 1994 was less than CNY 400 yuan in per-capita net income in 1992. So all those counties originally on the priority list where the per-capita net income had exceeded CNY 700 yuan in 1992 were taken off the list.
183. According to a typical calculation at the time, the problem of food and clothing shortage with over 90 percent of the poverty-stricken people in the counties with the per- capita net income of more than CNY 700 yuan had been basically solved. According to this standard, 592 counties in 27 provinces, autonomous regions, and municipalities directly under the Central Government were listed as the key poverty-stricken counties to be aided in the Seven-Year Priority Poverty Alleviation Program, covering over 72 percent of the rural poor across the country. The series of policies and measures for development-oriented poverty relief work adopted by the Central Government in subsequent years were mainly centered on solving the problem of food and clothing of the people in the counties on the state priority list.
184. The state has driven forward the solution of poverty in the rural poverty-stricken areas across the country through concentrated and effective aid to the impoverished counties. The state has explicitly demanded that all aid-the-poor funds must be used in the poverty-stricken counties. In 1996 the Central Government further set the minimum proportion of supportive poverty relief funds (30-50 percent) for the provinces, autonomous regions and municipalities to guarantee the local supportive funds to be used in the key counties.
185. The Chinese Government started to readjust the regional structure of the allocation of the state poverty relief funds in 1994. Adjustments to the relief credit funds of the Central Government in the coastal economically developed provinces began to favor the worst provinces and autonomous regions in the central and western regions, and earmarking the new relief funds from the central budget only for poor areas in those provinces and regions. Keeping the overall situation in mind, the state has formulated preferential policies to actively promote a horizontal union between the eastern and western regions, and the aid-the-poor cooperation between similar departments of different institutions.
186. Over the past year, China has started to carry out the strategy of large-scale development of the western region to accelerate its development and narrow the gap in development between regions. The state has arranged preferential construction projects of infrastructural facilities, ecological environment and resource development in the western region, steadily increasing its investments and its financial transfer payments to the western region. All these have contributed a great deal to promoting the development of the western region and the solution of the food and clothing problem of the poverty-stricken there.
iii. Increasing Capital Input for Poverty Reduction
187. Over the past 20 years, with the augmentation of the state financial resources , the special aid-the-poor funds arranged by the Chinese Government have constantly increased. In 2000, such funds totaled CNY 24.8 billion yuan, or 31 times as much as in 1980. The accumulative total of such funds have reached over CNY 168 billion yuan, of which more than CNY 80 billion yuan was from financial funds (including over 39 billion yuan of work- relief funds). and CNY 88 billion yuan from credit funds. Local governments have also 42 increased the aid-the-poor funds according to the proportion of supportive funds set by the Central Government (30%-50% since 1996).
188. The special aid-the-poor funds of the Chinese Government are comprised in two forms: financial and credit. The former includes funds to support the development of the underdeveloped areas, the new financial aid-the-poor funds, and work-relief funds. To tighten the control of the aid-the-poor funds and improve their utilization benefits, the State Council formulated the unified Measures on the Management of the State Poverty Relief Funds in 1997. The funds explicitly provide for the objects and conditions of the aid, with special emphasis on the requirement that these funds should be used complementarily according to the overall objectives and requirements of the Seven-Year Priority Poverty Alleviation Program to form a concerted effort enabling the funds to generate overall benefits.
189. The financial funds are to be mainly used in the construction of basic farmland, small irrigation works and country roads, providing drinking water for people and livestock, technical training and the popularization of practical agrotechniques. The credit funds are to be used in assisting the poverty-stricken households in crop cultivation and aquiculture and poultry raising projects to increase their incomes of the same year.
190. At the same time, the special relief departments at all levels are required to strengthen the inspection and supervision of the management and use of the funds. Auditing departments are required to strictly audit the use of the funds and promptly deal with and problem once found. These measures have played a key role in improving the utilization benefits of the aid-the-poor funds and in realizing the objective of basically solving the problem of food and clothing of the poor according to the required schedule.
iv. Formulating Preferential Policies to Support the Development of the Poverty-stricken Areas and Peasant Households
191. China's preferential policies for the development-oriented assistance to the poverty- stricken cover helping the poor households to solve the problem of food and clothing, and supporting the economic development of the poor areas.
192. The preferential policies for helping the development of the poverty-stricken peasant households include: 1) waiving the mandatory state grain procurement quotas of households whose problem of food and clothing has not been solved; 2) appropriately prolonging the utilization time limit of aid-the-poor loans and softening the terms of mortgage and guarantee according to the actual situation; and 3) reducing or remitting agricultural taxes and taxes on special farm produce according to the relevant provisions of the regulations on agricultural taxation.
193. The preferential policies to support the economic development of the poverty-stricken areas include: 1) gradually strengthening the financial transfer payments to poverty-stricken areas by the Central Government; 2) establishing a secondary transfer payment system by the relevant provinces, autonomous regions, and municipalities to offer financial support to those areas; 3) remitting income tax for three years for new enterprises in the poverty- stricken counties and enterprises established there by people from the developed areas; and, 4) according to the principle of " who benefits bears the expense," duly raising the standards of the construction and maintenance funds in the reservoir regions and earmarking these funds specially for solving the problem of food and clothing of the reservoir regions' relocated people.
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v. Conducting Responsibility System for Poverty Relief Work.
194. To effectively implement the development-oriented aid-the-poor work, the Chinese Government established a Leading Group of the State Council for the Economic Development of Poverty-stricken Areas in June 1986 (renamed Leading Group of the State Council for Development-oriented Poverty Relief in 1993), to be responsible for the organization, direction, coordination, supervision and examination of the work in this regard. The governments of some provinces, autonomous regions, municipalities, prefectures (cities) and counties have also established corresponding organizations in charge of the local poverty reduction drive.
195. China practices the level-by-level responsibility system, with the provincial authority as the main player, in its administrative leadership of the poverty reduction work. The provinces, autonomous regions and municipalities, especially provinces and autonomous regions with large numbers of poverty-stricken areas, have put development-oriented poverty relief high on their agendas, and formulated concrete local implementation plans in line with the state's poverty relief program. The principal leaders of the provinces, autonomous regions and municipalities are required to personally supervise the work and assume overall responsibility.
196. The Central Government issues the relief funds in one lump sum to the provinces, autonomous regions and municipalities at the beginning of every year, and accords the "four assignations" of funds, powers, tasks and responsibilities to the provinces, autonomous regions and municipalities. All funds assigned to the provinces are to be arranged and used by the people's government at the provincial level, which shall organize the relevant departments to plan and implement the development projects.
vi. Strengthening the Building of the Primary Organizations
197. The rural primary organizations in China have an important role to play in mobilizing and organizing the people to participate in the development-oriented poverty reduction work aimed at reshaping their own destiny. The Chinese Government has stressed improving the rural organizations at the village level in its poverty reduction drive, in order to enhance the degree of self- organization of the peasant households and guide them to bear an active part in the drive. In the past year, the Chinese Government has vigorously carried out the direct election system of villagers' committees in rural areas, so that people who are really supported by the masses and are able to lead them to reduce poverty can be elected as village cadres according to the principle of openness, fairness and justice. At the same time, a policy has been strictly carried out , whereby village affairs, such as revenue and expenditure , the distribution and use of the poverty relief funds , and the conclusion and alteration of contracts are left open to the villagers for their examination and supervision.
b. Main Policies and Effects of Development-Oriented Poverty Alleviation in Shanxi Province
198. According to the actual conditions of Shanxi province, the leader group office of poverty alleviation department in the Shanxi State Council put forward the following four major measures of poverty alleviation: Measure 1: Migration for poverty alleviation Measure 2: Poverty reduction within the whole village 44
Measure 3: Training of transferred labor Measure 4: Poverty alleviation through industrialization
i. Migration for Poverty Alleviation
199. The impoverished population in 57 counties of Shanxi province which lives in the mountain villages of less than 100 people is 10% of the entire impoverished population. These people should be able to get out of poverty through migration. Shanxi province started to make the pilot project of migration for poverty alleviation in 1993. Through several years, the migration project has gained the big social and economic benefits. As the main task of development-oriented poverty alleviation, Shanxi government has paid great attention to the migration projects. So, the migration projects have achieved remarkable success and well satisfies the people.
200. In 2001 and 2002, the total floating migrant population was 70,000. Since 2003, Shanxi province has implemented the migration project in large scale, and plans to migrate 50,000 annually and to realize the task that the total floating migrant population can lift out of poverty stably within 5 years. The main measure is to give one migrant CNY 2,500 yuan for housing subsidy and CNY 500 yuan for public facility subsidy.
201. In the past 3 years, the migration project for poverty alleviation was continuously listed as “governor project”, and was one of the ten actual tasks of Shanxi government. In 2003 and 2004 the total floating migrant population was 0.1 million, 80% of that moved into new houses in migration villages. The migration plan was issued in March 14, 2005, 20 days earlier than that was issued in 2004. So the migration project was started ahead of time, and progressed smoothly. The migration task was completed at the end of 2005. The main works, which have done, are as follows:
202. First is to formulate the plan scientifically. The plan needs to target poverty villages where there are less than 100 people. The migration mode is to move the whole poverty village. The newly built village should accommodate more than 500 people. It needs to take into account the scientific principle and practical considerations on the arrangement of migration villages, the resettlement mode chosen by the migrant, and the layout of the villages. It should lay out completely the infrastructure of migration villages, including water, electricity, road, communication, school, clinic, and so on.
203. Second is to practically strengthen the management of migration project for poverty alleviation. The measures that needs to be done are as follows: 1) implement the straight subsidy management of migration funds; speed up the process of rendering the account; strengthen the supervision and the inspection; 2) implement strictly the regulations of project acceptance; 3) advocate building houses by migrants; 4) carry out strictly the tendering and bidding system of the project under the participation of migrants if it needs to build the uniform houses; and 5) strictly control the quality of the building projects.
204. Third is to foster the industries with great efforts. It needs to combine the migration with the training of transferred labor, the industrialization, poverty alleviation within the whole village, urbanization, and the ecological construction. These are called “Five Combinations” to make the migrants lift out of poverty stably and realize the sustainable development. It is necessary to analyze especially the issue on the stable development of migration villages and to formulate the special measures.
205. Fourth is to solve the difficulties during the migration. One difficulty issue is the house sites. Another issue is the agricultural land. These are the key issues on how to solve 45 in terms of complying with the laws, such as Land Administration Law and Contracting of Rural Land Law, when the land is allocated to migrants. According to the survey, it needs 0.12 ha land to accommodate one migrant. This includes the land required for providing public facilities, such as school, road and clinic. It will need 6,000 ha land if it plans to migrate 50 thousand poor people. This type of land use plan, which had been approved by the provincial government, is being implemented under the cooperation of Shanxi Office of Land and Resource. The last difficult issue is the construction of public facilities by using various funding resource. Because there are not sufficient public facilities in migration villages, it is necessary to construct additional facilities with funds supported by the departments of irrigation, transportation, electricity, land, health and education.
206. Fifth is to replicate the experience. In 2003-2005, Shanxi migration conference for poverty reduction was convened in Datong, Yuncheng, and Xinzhou, respectively. The conference summarized the experience with the desire to replicate it, and recommended solutions to the problems.
ii. Plan on Poverty Alleviation Within Entire Village
207. After the pilot projects in 2001 and 2002, the plan on poverty alleviation within the whole village started to be implemented comprehensively in Shanxi province in 2003. This plan was implemented in 263 villages in the 57 poverty counties in 2004, covering 0.12 million people. According to the standard of subsidy at CNY 1,000 yuan per capita, the total investment will reach CNY 100 million yuan to benefit 0.1 million people. All the 263 villages will be laid out and invested once. This will be completed within 2 years. It plans to plant 50 thousand ha meadow, feed 0.3 million goats, cultivate 1,000 ha farm, control 9,000 ha bottomland, and plant 20 thousand ha economic crops. About 80% of all projects had been finished at the end of 2004. The plan is progressing smoothly. The government invests CNY 102 million yuan for additional 278 villages in the 57 poverty counties again in 2005, covering 0.14 million people. The plan and the fund budget were issued in April 7, 2005, 20 days earlier than that were issued in 2004. The main measures are as follows:
208. First is to aim at the targets and pay more attainment on the priority projects. The super poverty is the first priority target as the beneficiary. The project needs to have more focus on improving the production and living conditions of farmers and increasing their income. The emphases are as follows: first, constructing the primary farmland to guarantee enough crops and to solve the basic life problem stably; second, developing the characteristic industries, such as breeding animals or planting economic crops to increase the income; third, enlarging the infrastructure construction of water, electricity, road, school, etc. to improve the living conditions of the poor and to increase the potential of economic development of poverty villages.
209. Second is to plan scientifically. A comprehensive plan, which has been reviewed by experts and takes into account the economic development and locality factors, should be used.
210. Third is to encourage the wide participation. It’s the farmers who can decide democratically the methods of farmers’ classification and fund assignment following the principle of encouraging the actives and pushing the laggards so that the poorest farmers can benefit from the projects.
211. Fourth is to set up supervision mechanism that is effective in the long term. It will take about 10 years to completely reduce the poverty within the whole village. After the initial support by the government, the poverty reduction project should be managed and 46 supervised according to the market force to make sure that the project can sustain in the long term.
212. Fifth is to establish the periodic development mechanism. The farmers who have been supported by the government can assist in many ways the ones who have not. While these in the new phase can be assisted through “circular livestock”, that is to give the calf and to free the cow. It plans to select one county per city to implement the pilot projects this year. By this way, it can not only save the fund and increase the efficiency, but also help the poor to set up the market consciousness.
213. Sixth is to check and acceptance of the poverty alleviation project by the whole village. The standard for whole village poverty alleviation projects has been issued to Offices of Poverty Alleviation at prefecture, county and township level. This standard will take effect in 2006 and the government should check the acceptance of the projects according to this standard.
214. Seventh is to convene the exchange conference. Exchange conferences should be conveyed to summarize the experience, analyze the situation, examine the standard, and solve the problem to promote further poverty reduction.
215. The two main tasks described below difficult and require the support by various departments. That is the fund investment and the construction of leading groups at village level.
216. First is to assemble the resources of poverty alleviation. The poverty alleviation fund is very limited and distributed to many departments. According to the Central Committee in Shanxi, the use of fund needs to concentrate on constructing poverty and migration villages and to enhance feedback communication channels. The fund used for paying wages rather than giving subsidies and loans must be invested mainly for the construction of poverty and migration villages. The funds available from inter-related departments such as irrigation, transportation, health, and education, should also be invested in these activities. All the uses of these funds need to be well coordinated. The assembly and coordination of funds are usually at the county level, usually the responsibility of the manager of County Leading Group of Poverty Alleviation. At present, the leaders at all levels of departments have already formed the mutual recognition and assembled the resources positively.
217. Second is to pay special attention to the formation of the leading groups at village level. According to the request made by the Central Organization Department and the State Council Leading Group Office of Poverty Alleviation and Development, leaders of the migration villages in Shanxi province must form "two committees" to solve problems regarding organization and management of the farmers in the new migration villages, respectively.
iii. Training of Transferred Labor
218. This is a direct way to increase the income to facilitate surplus labor force to move out of poverty. In 2004, Shanxi province invested CNY 6 million yuan in setting up 44 "transferred labor’s training bases” with 19,000 rural laborers completed the course in these bases and 13,000 succeeded in transferring out after the training. Encouraged by these bases, 189,000 rural laborers in poverty regions was trained in the training bases at provincial level, in the poverty alleviation offices at prefecture level, and in the poverty alleviation work teams at township level. Resulted from the training, 134,000 laborers were employed in 2004. The employment rate of the transferred laborers was 70%. 47
219. In 2005, CNY 15 million yuan was invested in the training task and 30 additional training bases at provincial level were set up. With 74 bases in total, there are training bases in each poverty counties. It is expected that 220,000 rural laborers can be trained in these bases and the employment rate of transferred labor will be 70%. The main measures implemented are as follows:
220. First, pay special attention to the instruction and the management of the base. Poverty alleviation offices at all levels have promoted the bases vigorously, paid attention to the employment of transferred laborers. The poor bases were reorganized or abolished.
221. Second, establish the specialty skill gradually. According to the actual situation and characteristics of different regions, various bases selected the popular profession and built up the special skills accordingly and gradually.
222. Third, carry out the labor export correctly. The labor export was conducted as follows: setting up an information center for labor force resources in each poverty region and connecting it with on-line occupation introduction website to carry out the online export; providing the information to laborers to ensure their trained skill can fit and satisfy the demand; exporting the labor according to the market economics; implementing the two-way job selection.
223. Fourth, make sure the training duty would complete on time. All kinds of training programs are being carried out as scheduled at present.
iv. Poverty Reduction Through Industrialization
224. In this measure, the industry structure in impoverished areas is adjusted to increase the local income. There are some local specialties in many poverty areas of Shanxi province, such as unique food grains and traditional Chinese herb medicines. The income level can increase significantly if these local specialties are transformed into economic activities.
225. As a pilot project enacted by Shanxi Office of Finance in 2003, the leading enterprises promoted to reduce poverty received subsidy on the interest for loans borrowed from financial institutions. In 2003, CNY 10 million yuan was used to subsidize interest. This was increased to CNY 13 million yuan in 2004. There have been 155 leading enterprises getting more than CNY 460 million yuan loans in this fashion. More than 60,000 poor farmers developed their characteristic business in the past two years. The following four works have been done:
226. First, identify the leading enterprise, which can provide poverty-alleviation, at national level and then at provincial level.
227. Second, provide support to the leading enterprises. This is to lighten their burden and mitigate their risk for the leading enterprises to help train the poor farmers, identify feedstock sources, purchase test equipments, and develop new products.
228. Third, make full use of the local specialties to develop unique industry. And fourth, help poverty-alleviation enterprise solve actual problems. The help will require the government to improve investment environment, make favorable policies, offer information service, and establish loan mechanism.
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c. Integrated Use of the Four Measures
229. The migration, training of transferred labor, and stimulation of the leading enterprises must be combined with the poverty reduction within the whole village to get out of poverty stably. Through the transferring labor, the adjustment of the industry structure, and the stimulation by the leading enterprises, the migration can increase the income and realize the stable transfer.
d. Improve the System and Enhance the Effect of Poverty Alleviation
230. First, establish a good accounting system for poverty alleviation fund. And second, establish a project library.
231. Third, establish the show system. Shanxi province has required all poverty alleviation funds must be publicized at prefecture, county, township, or village level to show fairness and transparence.
232. Fourth, establish the tendering and bidding procedure. The middle and large scale projects of poverty alleviation within the whole village and migration for poverty alleviation must follow the tendering and bidding system in order to reduce the cost.
233. Fifth, establish the inspection system of poverty alleviation fund. The inspection mechanism that is effective in the long term has been established gradually, which involve the following: a self-inspection in each city/county and a joint-inspection by departments.
e. Assemble the Fund
A World Bank loan and Sino-Germany fund have been extensively used to finance poverty alleviation projects and to construct required infrastructure. A full use of social force is also made to alleviate the poverty. In Shanxi province, there are nearly 20,000 officers working in poverty villages annually.
6. Policies and Regulations for Re-training and Re-employment
a. Re-training and re-employment
i. Adopting active employment service measures
234. Re-employment service centers have been established for all state-owned enterprises that have laid-off workers and staff members. After they have registered with the centers, public government employment service organizations will provide them once with occupational guidance, with employment information and free job training, all on a six-month basis.
235. In 2003, Jincheng municipality published "the notification on establishing post responsibility system of increasing new employment", and each year reviewed the post responsibility of increasing new employment. From 2003 to 2005, an accumulative total of 85,000 employment posts were increased. In the year of 2002, Jincheng municipality subscribed the objective of rural surplus labor development and in-situ transfer with each county and district. By 2005, accumulatively 300,000 rural surplus labors in total were transferred.
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236. By mobilizing all the training forces in society, employing the beneficiaries of training and other effective measures, the government has convinced laid-off and unemployed persons to participate in reemployment training. From 1998, thousands of laid-off and unemployed persons nationwide had taken part in retraining, and the reemployment rate after six months of training had reached 60%.
237. In 2005, Jincheng municipality once again published "execution opinion on developing ‘starting a business’ training" so that the objective "by the training promoting the start of a business, by starting of a business promoting the training" can be achieved. Such "starting a business" training program, can offer training to laid-off and unemployed persons who wish to establish small businesses, help them register with the industrial and commercial administration authorities and acquire small loans after the completion of training, thereby to increase their reemployment opportunities through the establishment of small businesses.
ii. Improving and implementing preferential reemployment policies
238. By simplifying the procedures of registration with industrial and commercial administration authorities, arranging business premises, reducing or waiving taxes and fees, and granting loans, the government helps laid-off and unemployed people set up economic entities or labor organizations to support themselves, seek reemployment or otherwise to find their own means of livelihood.
239. Taking employment in community services as the main orientation of the reemployment efforts, the government has spared no pains to develop those small enterprises and employment service enterprises that can provide more employment opportunities. In Shanxi province, accumulatively 406 thousands of laid-off and unemployed persons in total have acquired preferential reemployment certificate, and 210,000 people of individual proprietors has enjoyed tax reliefs, which can reach to CNY 302.37 million yuan, meanwhile CNY 12.08 million yuan of administrative fee was debited. In total CNY 163 million yuan of petty loan guarantee fund was established, and CNY 48.45 million yuan was provided to the laid-off and unemployed people as petty loan.
240. For the province, 111,500 people have enjoyed social insurance subsidy policy, the total social insurance subsidy reaches CNY 66.85 million yuan, and 76,000 persons has enjoyed commonwealth post subsidy policy, and total commonwealth post subsidy reaches CNY 111.96 million yuan. All kinds of vocational institutions and training institutions provided free vocational training service for 209,000 laid-off and unemployed persons, and offered free reemployment training to 191,000 laid-off and unemployed persons. About 167,000 persons have enjoyed CNY 24.84 million yuan of occupational training subsidy, and 158,200 persons have enjoyed CNY 39.74 million yuan of reemployment training subsidy.
iii. Unfolding the "Reemployment Assistance Action":
241. To appropriately resolve the practical difficulties that laid-off employees face after they leave reemployment service centers, the government has organized a "Reemployment Assistance Action" drive to extend prompt and effective service to guarantee their basic livelihood, reemployment and social insurance through various assistance measures.
242. In addition, the government has established an employment service system for the jobless urban residents, and laid-off and unemployed elders. It seeks to arrange jobs for poor persons by providing funds to support community welfare-type employment organizations, developing community environmental protection, hygiene, security and other 50 services, and providing free employment services. All these measures have achieved the desired effects.
243. For several years, Shanxi provincial government and Jincheng municipality principally implemented preferential reemployment policy of laid-off and unemployed persons, and provided petty loan for laid-off and unemployed persons, and purchased commonwealth posts to provide jobs to 40 to 50 persons. Since 1998, in Jincheng city, of the 15,000 laid-off and unemployed persons, 13,000 persons obtained the reemployment. Taking into consideration of other factors (e.g. natural spontaneous reduction of staffs members, etc.), all laid-off and unemployed persons basically realized the reemployment. In Shanxi province, of the total 1.1 million laid-off workers of state-owned enterprises, 780,000 persons have realized reemployment.
iv. Employment and re-employment target during “Eleventh Five-year” period
244. In March 14, 2006, Shanxi provincial government issued the “Opinion of Shanxi Municipal People’s Government about Implementation of the State Council on Further Strengthening Employment and Re-employment (thereafter referred to as “Opinion on Implementation”), which advanced the target of employment and re-employment of Shanxi province during the “Eleventh Five-year” period. New 1.75 million urban employment positions in the province will be added, and urban registered unemployment will be controlled within 4%, and 1.5 million rural surplus labor forces will be transferred.
245. In 2006, 0.4 million urban employment positions were added in Shanxi province and 0.15 million laid-off workers have found their jobs again, of which 40,000 are the so-called “4050” (namely, women above 40 years old, men above 50 years old). The deadline of the date for calculation of age will be determined by local authorities, and it will be no later than the end of 2007. The registered urban unemployment rate is controlled within 4%.
v. Scope of granting of “two certificates”
246. According to the “Opinion on Implementation”, the target of “Certificate of Unemployment” are: registered unemployed people and rural labors who are seeking jobs in the city. The certificate holders could enjoy the stated re-employment supporting policies.
247. The “Opinion on Implementation” expanded the scope of “Re-employment Preferential Certificate” to “unemployed workers of large collective enterprises established by factories and laid-off workers of other urban collective enterprises”. From March 24, 2006, people who belong to one of the following five categories could apply “Re-employment Preferential Certificate”: (1) Laid-off workers of state-owned enterprises. The laid-off workers of the state- owned enterprises whose agreement with the center has been expired but do not terminate the labor relation with former enterprises and who have not been employed. The laid-off workers of former state-owned enterprises who are enjoying the unemployment insurance and who have not found jobs, and the laid-off workers of state-owned enterprises who have terminated the labor relation with the enterprises but have not found jobs. (2) Workers of state-owned enterprises who need to be arranged due to the closure or the bankruptcy of the enterprises. Employees of the bankrupted state-owned enterprises who have been paid the arrangement fee in full, have not found the jobs. 51
(3) Laid-off workers of collective enterprises run by state-owned enterprises. The employees of collective enterprises established by state-owned enterprises (thereafter called the large collective enterprises) who are laid-off accumulatively for 6 months or 3 consecutive months. (4) Laid-off workers of the large collective enterprises, and laid-off workers of other urban collective enterprises. The laid-off workers of other urban collective enterprises (same as above prescribe), and the large collective enterprises established after 1998, and laid-off workers of other urban collective enterprises who have terminated the labor relation with the enterprises but have not been reemployed. These laid-off workers could not enjoy preferential policy on tax. (5) Other urban unemployed people who are enjoying the urban basic cost of living allowances, and who have registered for unemployment over one year.
248. When laid-off workers apply the “Re-employment Preferential Certificate”, they should submit the certificates issued by labor security administrative departments and the certificate documents issued by community neighborhood committees (laid-off workers of urban collective enterprises are only required to provide certificate documents issued by community neighborhood committee), to related labor security units of enterprises or street administrative authorities.
249. After checked and publicly declared by the labor security units of enterprises or street administrative authorities, the applications with related materials should be submitted to the same level labor security administrative departments for approval (Street administrative authority should submit the application to county level or above labor security administrative departments). If the applications satisfy the requirement, the labor security administrative departments will issue the “Re-employment Preferential Certificate” within 7 days.
250. The “Opinion on Implementation” emphasized that the cities and independent industrial mining areas, which mainly involve resource mining should reconstruct and improve their traditional industry and develop sustainable industries and high-tech industries based on the market requirement. In virtue of the advantages of tourism resources, develop tourism industry and related industries so as to increase employment opportunities.
vi. Preferential policy to self-employment and those who find jobs on their own
251. Those people who hold “Re-employment Preferential Certificate” and who start their own business (except the industry restricted by the state), their business tax, city maintenance and construction tax, education surcharge, and individual income tax could be reduced and exempted within certain prescribed scope; and administration fees related to some management, registration, and certificates and licenses will be exempted, and the exemption period will be no more than three years. For the people who were approved to enjoy the tax and charge reduction and exemption before the end of 2005, they can enjoy this policy in their remaining period.
252. Related government departments at all levels should help those self-employment persons to solve their places of business. The newly constructed business places are mainly used for re-employment arrangement and business start-up training for those laid-off workers.
253. For those “Re-employment Preferential Certificate” holders, urban demobilized servicemen and other urban registered laid-off workers who hold the “Certificate of Unemployment”, when they involve in individually-owned business and if they don’t have 52 sufficient funds, small guarantee loan could be provided, and the loan is usually controlled at about CNY 20,000 yuan, the time limit of the loan should be no less than 2 years. After the loan is due, they could extent the period of the loan one time.
254. For those partnership businesses or organized employment, the loan scale could be expanded according to the number of employees and the business contents. Utilization of the above two types of loans to involve the projects with small profit could enjoy fiscal interest subsidy (the concrete items which could enjoy the fiscal interest subsidy will be determined by other provisions, and the extended period of loan could not enjoy the subsidy), of which, full amount interest subsidy will be given by the central government to those “Re-employment Preferential Certificate” holders (not including laid-off workers of collective enterprises established by state-owned enterprises, and laid-off workers of other urban collective enterprises) and urban demobilized servicemen; 50% of interest subsidy will be given to other registered unemployed people with “Certificate of Unemployment” (25% from the central government and 25% from local government).
vii. Preferential policies for the enterprises which employ the people with “two certificates”
255. When trading enterprises, service oriented enterprises (except for the industries restricted by the state), processing oriented enterprises of labor employment service enterprises and small processing oriented enterprises of the communities recruit the “Re- employment Preferential Certificate” holders and sign over one year labor contract with them and pay the Social Insurance Premiums for them, they could enjoy the deduction and exemption of business tax, city maintenance and construction tax, education surcharge, and enterprise income tax based on the number of the certificate holders, and time limit should be less than 3 years. For the enterprises which were approved to enjoy the tax and charge reduction and exemption before the end of 2005, they can enjoy this policy in their remaining period.
256. The social insurance premium subsidies will be given to above mentioned trading enterprises and service oriented enterprises within certain period, which is no more than 3 years. The standard of subsidy for social insurance premiums will be calculated based on retirement, medical, and unemployment insurance premiums paid by recruited certificate holders, and the retirement, medical, and unemployment insurance premiums to be paid by individual will be borne by those certificate holders.
257. For the enterprises, which were approved to enjoy the subsidies for social insurance premiums before the end of 2005, they can enjoy this policy in their remaining period. For the small labor intensive enterprises which satisfy the loan condition, if their newly recruited “Re-employment Preferential Certificate” holders account for over 30% of their total employees or the total number of the certificate holders is over 20, and they sign over one year period labor contract with them, their loan quota will be properly determined based on the number of certificate holder they recruited. The loan should be no more than CNY 1 million yuan.
viii. Preferential policies for flexible employees
258. For flexible employees and the people engaging in individual businesses, if they hold “Re-employment Preferential Certificate” and register for employment and join the social insurance, they can establish the labor security agent or labor arrangement relation with employment service institutes, and enjoy the subsidies for social insurance. They can pay the social insurance premiums first and then receive the subsidies, and the period of subsidy should be no more than 3 years. 53
259. The standard for social insurance premiums subsidies are for those with “4050” qualification. The subsidy will be 2/3 of the total social insurance paid individually by themselves; subsidy will be 1/3 of the total social insurance paid individually by themselves.
ix. Preferential policy to people of “4050”
260. For the people of “4050” who hold a “Re-employment Preferential Certificate”, the zero employment family members, and long-term laid-off workers who enjoy the guarantee of subsistence allowances for urban residents, and who have difficulty finding jobs, they, as targets of employment difficulty, can obtain employment assistance and enjoy the corresponding preferential policies.
261. Public benefit positions invested by government, government funded logistics service positions of government units and colleges or universities should give the priority to arrange the targets of employment difficulty. Public benefit positions funded by government or paid by residents such as the jobs of cleaning and landscaping of residential areas, and parking lot management must be used for people who have difficulty finding jobs.
262. Those enterprises which can arrange the people who have difficult to find jobs, and sign the one-year or above contract with them, could get subsidies for social insurance premiums within corresponding period according to actually recruited number of those people. The standard of subsidies for social insurance premiums will be calculated based on the retirement, medical, and unemployment insurance premiums for those recruited people paid by the organizations. If the people of “4050” work for public benefit positions over 3 years, the period of their subsidies for social insurance premiums could be extended. For the organizations, which were approved to enjoy the subsidies for social insurance premiums before the end of 2005, they can enjoy this policy in their remaining period.
263. If enterprises which employ the difficult laid-off workers and also sign two years or above labor contract with them, public benefit positions, and individuals who take leading role in starting up their own businesses to arrange the difficult laid-off workers, local government could give some position subsidies according to the real situation. The subsidies will come from re-employment funds, and the concrete standards will be decided by local municipal people’s governments.
264. However, the subsidies should not be lower than the guarantee of subsistence allowances for local urban residents, but not be higher than 80% of the local lowest salary standard. The salary of the recruited laid-off workers should not be lower than the local lowest salary standard. If the recruited workers do not obey the job arrangement without proper reason, they will not be regarded as the difficult people for employment arrangement.
b. Policies of Vocational Training in Shanxi Province
i. Specify the designated training institutions, carry out vocational training and business startup training program
265. Through the verification of qualification and open tendering to specify certain high quality and good effective vocational training institutions as designated training institutions, establish a system which associates with the training subsidies, training quality, and employment promotion together. Instruct all kinds of vocational institutions to actively carry out designated training program based on the market demand.
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266. Provide one-time training subsidy for the people with “Re-employment Preferential Certificate” and “Certificate of Unemployment” who participate in the vocational training and business startup training programs.
267. Each province and each city should work out business startup training plan to provide business startup training services to those urban and rural laborers who have willingness and conditions to create their own businesses, provide one-stop service such as business startup instruction, project development, small secured loan, and tracking support, etc., and give priority to small secured loan to those who complete the business startup training courses and successfully create their own business.
268. All kinds of designated training institutions at all levels adopt designated training, training for specific posts, and ordered training approaches to provide instructive training courses and professional skill training to those rural laborers who come to cities to find jobs, and provide professional skill appraisal service to enhance the professional skill and transfer employment ability for those rural laborers.
269. Working skills and employment information will be sent to rural families by utilizing TV long distance training program, etc. Specific mechanic training plan for those young people living in poor families will be implemented. Province, city, and county should establish training bases for rural migrant laborers, and rely on various training institutions to establish a labor export training mechanism featured with “plan by government as a whole, industry taking leading role, supported by departments, and social involvement”.
270. Vigorously support the development of labor export economic entities. Promote triune model of “vocational training, employment service, maintaining rights and interests”, improve the quality of labor export, and build labor export brand. For the agencies of sending labors to outside of the province or to other countries, if they signed the labor contract over one year with those laborers, an one-time subsidy will be given according to the labor export employment service charging standard ratified by the provincial government and the number of laborer exported. The subsidies come from the re-employment funds.
271. The training and employment services for the farmers whose land are expropriated, will be planned by the local government, the funds and land requisition fees will be arranged by the government. Detailed methods will be determined by the people’s government of each city.
ii. Establish public training bases
272. Each city should actively create conditions to establish public practice training bases, and to carry out professional skill training and professional skill appraisal to the public. Conduct special professional capability examination step by step by providing: public services for developing employment positions and for enhancing the employment capabilities of laborers; professional skill appraisal service for laid-off workers who attend the training program; and one-time professional skill appraisal subsidy for “Re-employment Preferential Certificate” holders who first time pass the professional skill appraisal (limited to the designated working positions listed in the entry permission system prescribed by the government ) and who are in very difficult living condition.
7. Environmental Regulations and Procedures for Small Coal Mine Closure
273. Small and large coal mines must follow national and provincial laws, policies, regulations, and standards for environmental protection that have been put in place for all industries. Local and provincial policy and regulations etc are based closely on the national 55 directives. Tables 16 & 17 list the national, Shanxi provincial, and Jincheng municipality laws, policies, and regulations for environmental protection.
274. There are no formal policies or regulations that govern the protection of the environment during the closure of small coal mines in the Shanxi province or throughout China8. Specifically, there are no directive procedures for closing mine shafts and filling mine cavities, and for remediation of the land surface area altered by mine activity. The only formal directive that exists is for the closure of large and consolidated mines (300,000 tons/yr) which specifies the need to fill the main shaft from the shaft opening to an undefined distance into the mine9. No such formal directives are in place for small coal mines of 90,000. tons /year or less.
275. The only place where mine closure procedures can be formally specified is in the Environmental Impact Assessment (EIA) process for new mines. Mine proponents are required to submit EIAs to the EPBs for approval and for issuance of operating licenses. The EIA document can specify closure requirements along with mitigation and monitoring requirements for a particular mine. However, the weakness of the process as a vehicle to direct closure procedures is in implementation.
276. However, for the operation phase of coal mines there are national directives for coal mine operators to enhance local environmental quality and to minimize environmental degradation. National Regulation #9 in Table 16:
"The Rules for Enhancing Environmental Protection Regarding Village & Town Coal Mine" specifies the following environmental management directives for TVCM coal mines: (i) Coal mining administration departments should supervise and urge mining enterprises to establish specified gangue quarry, to take measures to prevent its self-ignition, to actively seek methods for the dispose and utilization of gangue, and to reduce the use of land for gangue purpose; (ii) Coal mining administration departments should supervise and urge mining enterprises to restore the eco-system in a timely manner; (iii) The legal representative of TVCM bears full responsibility of environmental protection. The TVCM must clearly specify the person(s) who undertake the duties regarding environmental protection; (iv) It is prohibited to build village or town coal mines in drinking water source area, nature reservation area, scenery area, and other areas which require special protection. The existing mines in above-mentioned areas should be closed in a prescribed period. They should take measures to restore eco- system and to eliminate pollutions; (v) The TVCM which produce coal with high content of sulfur and dust should be strictly limited. For existing village or town coal mines which produce coal with high content of sulfur and dust, the necessary facility should be gradually equipped to clean the coal with high content of sulfur and dust; and (vi) The TVCM which emit pollutants exceeding standards or cause severe damage to the eco-system, must take steps to reduce the emission or to restore the eco-system within the period specified in relevant regulations. For those which fail to do so in the specified period, they will be ordered to suspend, close down, or shift business.
8 Jincheng EPB, 2006. Personal Communication. 9 Shanxi EPB, 2006. Personal Communication. 56
277. While these directives are not specifically for the closure of a TVCM, they clearly identify responsibilities and required knowledge for the protection of the environment from coal mine activity. Coal mine operators at the provincial and municipal levels such as the Coal Mine Bureaus are required to follow these regulations.
278. Similarly, Jincheng Municipal Bylaw #10 in Table 17:
"The Notice of Regulating the Production and Distribution of Coal for Civil Use" specifies the following: (i) No plant for processing civil use coal shall be built or rebuilt within established urban area. For existing ones, manufacturing facilities must be dismantled and plants closed down before May 30, 2003. (ii) Existing coal processing plants within 1 km outside established urban area must undergo reorganization and verification by municipal environmental protection bureau before May 20, 2003. Only after that, the qualified plants can then renew the production. (iii) New coal processing plants must strictly take environmental impact evaluation. The site for new plant must be: a) 1 km away from established urban area; b) impose no pollution to eco-system, vegetation, and residents, and c) far away from water source, river, or reservoir. (iv) The raw coal and other raw materials for processed civil use coal must reach specified standards: dust content must be lower than 20% and sulfur content lower than 0.5%. Small amount of lime should be added to reduce the emission of SO2.
279. At the implementation level there are specific environmental criteria and standards for pollutant discharges and emissions for different industries (Table 18). However, specific standards and criteria for coal mines do not exist. Coal mines are obliged to comply with general national environmental standards and criteria for air quality, water quality, solid waste, and noise levels summarized in Table 18.
280. The Shanxi provincial EPB anticipates the development of specific environmental protection regulations and guidelines for coal mines in a few years. The regulations and guidelines will supplement existing national regulations for surface water quality, air quality, and solid waste management by focusing on: 1) ecosystem protection and restoration; 2) groundwater flow/quality; and 3) land subsidence remediation.
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Table 16. National Environment Protection Laws and Regulations.
National Laws and Regulations 1. People’s Republic of China Environmental Protection Act 2. People’s Republic of China Air Pollution Prevention and Control Act 3. People’s Republic of China Water Pollution Prevention and Control Act 4. People’s Republic of China Solid Waste Pollution Prevention and Control Act 5. People’s Republic of China Ambient Noise Pollution Prevention and Control Act 6. People’s Republic of China Environmental Impact Evaluation Act 7. Clean Production Promotion Act 8. People’s Republic of China Radioactive Contamination Prevention and Control Act 9. Environmental Protection Administrative Regulations for Infrastructure Construction Projects 10. People’s Republic of China Natural Conservation Area Regulations 11. Medical Waste Administration Act 12. Administration Regulations for the Collection and Use of Dumping Levy 13. State Council’s Decisions on Certain Concerns about Environmental Protection 14. Implementation Guidance to People’s Republic of China Water Pollution Prevention and Control Act 15. Urban Mist & Dust Control Area Administrative Rules
Regulations and By-laws 1. Dumping Levy Standards Administrative rules 2. Dumping Levy Remitting and Spending Administrative rules 3. Funding Arrangement for Environmental Protection Agencies after the Implementation of Separate Administration of Collecting and Spending of Dumping Levy 4. Environmental Protection Administrative Department Transparency Rules 5. Environmental Protection Administrative Punishment Rules 6. Certain Opinions Regarding Enhancing Administrative Law Enforcement 7. Gradual Appraisal Rules for Environmental Impact Evaluation Document Regarding Construction Project 8. Environmental Protection Verification Administrative Rules Regarding Completed Construction Project 9. The Rules for Enhancing Environmental Protection Regarding Village & Town Coal Mine 10. The Rules for Enhancing Environmental Protection Regarding Village & Town Enterprise 11. The Relevant Issues Regarding Enhancing Environmental Impact Evaluation for Development Zone 12. The Relevant Issues Regarding Enhancing Environmental Protection Administration for Medium/Small Construction Project 13. The Notice of Further Regulating Environmental Impact Evaluation 14. The Notice of Public Notification of Environmental Protection Verification for Completed Construction Project 15. The Notice of Enhancing Hospitality Industry Environmental Administration 16. The Opinion about Promoting the Industrialization of Urban Waste Water and Trash Disposal 17. The Notice of the Implementation of Levy System on Urban Household Waste to promote the Industrialization of Waste Disposal 18. The Notice of Further Enhancing Monitoring and Regulating Urban Mobile Vehicle Pollutant
Source: Jincheng Environmental Protection Bureau, 2003. Collection of Practical Environment Protection Laws and Regulations, 328 pp.
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Table 17. Shanxi Provincial Environment Protection Regulations and Bylaws.
Shanxi Provincial Regulations, and By-laws 1. Shanxi Provincial Environmental Protection Regulations (Amended) 2. Shanxi Provincial Air Pollution Prevention and Control Regulations 3. Shanxi Provincial Industrial Solid Waste Pollution Prevention and Control Regulation (Amended) 4. Implementation of State Council’s Decisions on Certain Concerns about Environmental Protection 5. Shanxi Province Water Pollution Prevention and Control Regulations Regarding Danhe River Basin 6. Shanxi Province Temporary Rewarding Rules for Reporting Environmental Law-Violating Behavior 7. Shanxi Province Temporary Guidance for Resolving Environmental Pollution Dispute 8. The Supplement Notice of Enhancing Construction Project Environmental Protection Administration 9. Administrative Punishment for Violating Environmental Protection Laws and Regulations Jincheng Municipal By-laws 1. The Resolution Regarding Enhancing Air Pollution Prevention and Control 2. Jincheng Comprehensive Urban Environment Reorganizing and Governing Plan 3. Jincheng Blue-Sky Project Implementation Plan 4. The Notice of the Adjustment of Jincheng Urban Area Noise Standards 5. The Notice of Enhancing Urban Air Pollution Control 6. The Notice of Prohibition of Burning Loose Coal in Urban Jincheng 7. Jincheng Urban Floating Dust Pollution Prevention and Control Policing Method 8. The Notice of Enhancing Hospitality Industry Environmental Protection Administration 9. The Notice of banning the use of Loose Coal Burning Boiler by Restaurant and Spa 10. The Notice of Regulating the Production and Distribution of Coal for Civil Use 11. The Notice of Promoting the Degradable Plastic Products in Jincheng Source: Jincheng Environmental Protection Bureau, 2003. Collection of Environment Protection Laws and Regulations, 328 pp.
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Table 18. Available Environmental Standards for China.
Environmental Quality Standards 1. Ambient Air 2. Surface Water 3. Urban Noise 4. Farmland Irrigation Water 5. Fishery Water 6. Soil 7. Underground Water 8. Urban Environmental Vibration 9. Crops Density Air Pollutant Emission Standards 1. Comprehensive Air Pollutant 2. Boiler Air 3. Restaurant Oily-Smoke 4. Coke Furnace Emissions 5. Industrial Kiln Stove 6. Cement Plant Emissions 7. Thermoelectric Power Station 8. Odor Emissions Water Pollutant Discharge Standards 1. Comprehensive Waste Water 2. Pulp and Paper Industry 3. Synthetic Ammonia Industry 4. Iron and Steel Industry 5. Textile Industry 6. Phosphate Fertilizer Industry 7. Meat Processing Industry 8. Alkali & Poly-Chlorine-Ethylene Industry 9. Discharges to Municipal Sewer Noise Emission Standards & Solid Waste Control Standards 1. Industrial Enterprise Noise 2. Construction Site Noise 3. Household Waste Landfill 4. Household Waste Incineration 5. Hazard Waste Landfill 6. Hazard Waste Incineration 7. Hazard Waste Storage 8. General Industrial 9. Livestock Industry Waste Discharge Source: Jincheng Environmental Protection Research Institute. November, 2002. Practical Environmental Standards Handbook for China, 280 pp.
281. The absence of formal environmental management regulations or guidelines for small mine closure is consistent with the unclear institutional arrangements for mine closure discussed above in section C-2.
8. Conflicts, Inadequacies, & Barriers with Existing Policies
282. The results of closing down small mines in Shanxi province are not remarkable, and there still exist a large number of operating small mines at present. In 2005, Shanxi province started a new round of small coal mine closures. In order to ensure the success of this work, it is necessary to review the current policies and regulations on closure of small coal mines in Shanxi province to find out the existing problems and obstacles during the fulfillment of the policies and regulations.
283. The management of the socio-economic impacts of the closure of small-scale mines does not seem to be on the existing policy agenda. The favorable conditions which can allow for systematic planning for the closure of large-scale mines do not exist for small-scale mines.
284. The small-scale mining sector is permeated by weak legal and regulatory regimes in which either the laws and regulations are inappropriate or the institutions are incapable of effective implementation. These weaknesses will apply to the closure process as much as to the management of operating mines. The relatively impoverished nature of some, but not all, mine owners and of the local governments which tax the mines, together with the weak regulatory regime, ensure that funds are rarely accumulated to address mine closure issues, either environmental or socio-economic. 60
285. It could be argued that the closure of small-scale mines is a local problem which should be delegated to local government. But without active support, advice and encouragement from above, local government may lack the skills, the resources and the will to manage mine closure in a structured manner. Without a systematic policy framework devised by higher levels of government, how local government addresses the socio- economic impact of the closure of small-scale mines is likely to depend on a wide variety of local economic, political and social factors and the degree of success may be highly unpredictable.
286. In view of the 1998 closure directive whenever catastrophic accidents in mines occur, Shanxi Province tends to close down illegal mines and to rectify the small coal mines in nonconformance with safety conditions. After each catastrophic accident, Shanxi Province always becomes deeply introspective of the problems existing in work safety at the coal mines, and takes measures for rectification and organizing general safety examination. Sometimes leaders of the provincial government personally assign work of mine closures and determine the time and index of mine closures. The standing committee of Shanxi provincial government convenes a regular meeting for safety production each quarter in order to study the issues of work safety, especially the key points existing in coal safety.
287. While some results have been achieved in closing down small mines, the number of small mines is still very high, safety accidents still occur frequently, and there still exists a lot of cases of false closures and even reopening of illegal small mines. One of the reasons for this is the benefit distribution to different stakeholders. During the closing down of small mines, there are at least four kinds of different stakeholders:
a. Central Government.
288. The central government requires the closing of small mines for coal mine safety, the effective utilization of coal resources, and the restructure of the coal industry.
b. Local Government.
289. For the local government, small coal mines mean taxation, employment, economic development and GDP index, and in some cases, even personal share and unlawful profits for officials. Once the benefits to the local government are adversely affected by the closure of small coal mines and they are not compensated, the local officials will not be active in carrying out the closure policies and regulations.
c. The Mine Proprietors, Investors and Contractors.
290. The interests of mine proprietors are directly affected by closing down small mines. Therefore they may take measures to prevent small coal mines from being closed down if small legal mines cannot be reasonably compensated.
d. Coal miners and Local Residents.
291. Small coal mines provide jobs for the rural labor force and local residents. In Shanxi province, as well as the rest of China, most miners in small mines are migrant rural workers from other provinces; while the local residents are mainly engaged in the management of the coal mine and other service trades related to coal (e.g. coal transportation). After small mines are closed, not only migrant pitmen, and management will lose their jobs, but also the 61 service trades related to coal will be affected so that the incomes of many local residents will be reduced.
292. If all stakeholder interests are not fully considered when formulating policies on closing down small mines, large obstacles will remain during implementation of these policies. Based on these considerations, there still exist problems in the current policies of closing down small mines in Shanxi province and Jincheng city:
i. Lack of Policies to Help Economic Development in the Areas Affected by Closing Down Small Coal mine.
293. Closing down small coal mines has a negative effect on the local economy, especially in the areas (counties, towns and township and village etc.) mainly relying on the coal industry. Therefore, a very important issue is how to help the local government develop substitute industries so that the local economy can still survive. Neither Shanxi Province nor China National policies and regulations on closure of small coal mines address issues in this field.
ii. Lack of the Policies for Compensating, Small, Legal, Coal Mines.
294. Current policies on closure of small coal mines in Shanxi province include two categories: one type is illegal coal mine; another type is legal mines which cannot combine resources and are not up to scale requirement (i.e. annual production over 90,000 tons). The former certainly should be closed down, but the latter should be compensated for closing down due to restructuring of the industry. Neither Shanxi Province or China National policies and regulations on closure of small coal mines address issues in this field.
iii. Lack of the Policies for the Resettlement of Unemployed Coal Miners.
295. Most miners in small coal mines are migrant rural workers from other provinces, who will lose their job after small mine closed down. Under the current management system in China, Shanxi province and the local government have no responsibility and initiative to resettle these outside personnel. But after small coal mines are close down, they will lose their jobs – resulting in significantly lower living standards for their families. Some of them may find jobs in larger and technology-advanced coal mines that need a less number of miners, but most of the unemployed coal miners do not have a command of these advanced technologies due to their lower education levels. Current policies have no concrete measures for the training of these, to be unemployed, miners.
iv. Weak Administration of Industry and Cross Functions Between Relevant Departments.
296. In Shanxi province the task of coal industry administration is very large due to the many coal enterprises with low productivity levels. After the reform of the coal management system, the only administrative organization that remains at the provincial and district levels is the Coal Industry Administration. However, the equipment and function of this administration have been weakened.
297. The Coal Industry Administration became a department under the Economic and Trade Commission with low authority. The number of officials in Shanxi’s Coal Industry Administration has been reduced from 280 to 40. Special county-level Coal Industry Administration do not exist so management control of the industry weakened. The relevant 62 departments have low efficiency due to cross functions. After several restructurings, a new coal management system has been formed. The coal industry is now co-managed by: (i) The Shanxi Development and Reform Commission; (ii) The Shanxi State-owned Assets Supervision and Administration Commission; (iii) The Department of Land and Resources, the Department of Finance; (iv) The Department of Labor and Social Security; (v) The Bureau of Coal Mine Safety Supervision; and (vi) The Bureau of Work Safety.
298. For the special organization teamwork needed for closing down small mines in Shanxi province, the coordination is very hard and work efficiency is relatively low due to the dispersion of management functions.
v. It is Unpractical to Totally Close Down Small Mine with an Annual Production Below 90,000 Tons According to Current Policy.
299. The coal layer in some districts in Shanxi has a thickness of 20-30 cm, which is not suitable for mechanical mining and its annual output is only 20,000-30,000 tons. However, these mines can solve the issue of local unemployment and provide economic benefits for the local communities and fuel for local farmers. If the mines with an annual output below 90,000 tons are totally closed down, these resources will be unusable and local farmers may also return to poverty again. If small coal mines that have been legally set up and certified (including following all the newest safety and environmental regulations) exist, it may be beneficial for local economic stability to allow them to remain open.
300. It is impossible for coal located at the border and corner of big mines to reach a production capability of 90,000 tons. When several coal mines below 90,000 tons are consolidate into a big mine, there exists other problems: (i) If these mine pits are not located close enough, it is hard for the combination to be mined effectively due to the different directions of the coal sources. Essentially the ownership has changed, but multiple small mines still exist. (ii) At the same time hidden safety dangers are not easily removed through the forced combination and new accidents could occur due to enlarged lanes and inadequate ventilation facilities.
301. The effective planning and implementation of closure programs for small scale mines will face even greater challenges than those faced by large scale mines. In most locations a lack of skills, financial resources and political will result in little planning for mine closure and a high degree of variability in the response to mine closure. Local governments have begun to started proposing plans and regulations to address the need for mine land rehabilitation after the closure of small scale mines, but the social and economic impacts seem to remain a policy vacuum.
302. Unemployed miners from closed TCVMs are mostly off province residents and very likely to out-migrate seeking for employment in other parts of the county. Hence the local government does not have much incentive to setup extensive training programs. The provincial government, in order to minimize the temporary loss, having responded to the campaign by closing a number of TCVMs, allows or regulates the SOCMs to increase their output so that total output can reach the pre-closure level. 63
303. These cases show that a lack of forward planning need not necessarily lead to disaster. Local governments have been able to respond relatively quickly to constrain the negative economic impacts of a closure program for small scale mines. However, the effectiveness of that response has depended on the pre existing economic conditions in the respective county. It would have been desirable and very possible for the provincial government to have drawn up a strategy which identified those municipalities which were most exposed to an economic downturn resulting from the closure of the mines, and to have targeted resources at these counties to minimize the negative impacts.
e. Environmental Management
304. As introduced above the obstacles for effective environmental management of small coal mine closure are the absence of clear institutional mandate, operational budgets, and an effective policing environment. A set of procedures must be developed which prescribe the steps to minimizing residual environmental damage from the operation phase of the coal mine along with procedures to remediate the site to original conditions as close as possible.
305. The owners and operators of the mines such as the Coal Mine Bureaus must be given the clear mandate for environmental management, and have a dedicated operations budget for environmental management during mine closure. The budget should come from mine operation revenue. Mine owners should receive training on environmental management for mine operation and closure from the provincial EPBs.
D. Existing Retraining and Job Creation Programs
1. Re-employment and Training
306. The Labor and Social Security Administration of Shanxi Province is the organization responsible for the labor and social security administration. Its main responsibilities in terms of re-education and re-employment include: (i) formulate the administrative rules for employment agencies; (ii) organize, establish and improve the employment service system; (iii) formulate the plans and policies for the reposition and placement of laid-off workers, for the basic cost of living allowances, and planning and policy of the re-employment; (iv) organize and implement the re-employment projects; and (v) formulate, organize and implement the policies and measures for the employment of surplus rural labors as well as its smooth flow across different regions, etc.
307. Shanxi provincial government has provided a variety of flexible business start-up instructions and training programs for laid-off and unemployed people, graduates from high education institutes, migrant rural labors and other groups looking for employment. The Shanxi provincial government has undertaken various activities: i) to organize training programs for teachers of re-employment training bases; ii) to help the development of the service industry of communities and the development of community employment positions. Its business start-up training program is mainly for the tertiary industry; iii) business start-up training program should be carried out by designated training agencies alone or together with the re-employment center. 64
308. The implementation of the training programs yield benefits. From 2004 to 2005, there were 250,000 laid-off works in Shanxi province, of which, 90% have been trained and the rate of re-employment after training reached 60%. Of the total trained workers, 6,000 have been trained for business start-up with the passing rate of 80%, and 50% of them successfully established their own business.
309. The employment and re-employment goals for Shanxi province during the “Eleventh Five-year Plan” period are: to add 1.75 million positions in the cities of Shanxi province, registered unemployment rate controlled within 4%, 1.5 million rural redundant labors will be transferred into cities to find their job opportunities.
a. Registered urban unemployment rate
310. According to the statistics from the Labor and Social Security Administration of Shanxi Province, the number of newly-increased employment has reached nearly 1.532 million and the registered urban unemployment rate is stabilized within 4.5% (see Table 15).
b. Closure of small coal mines and re-employment
311. According to the Shanxi Coal Industry Bureau, about 1,200 small coal mine were closed down recently in Shanxi province, involving more than 60,000 employees, most of whom come from rural areas. Since the closure, about 10% of the employees have been re- employed while 90% of them have returned to their hometowns.
c. Social retirement insurance
312. On April 13th, 2005, more than 160 township enterprises started up their retirement insurance for employees at the same time, more than 3.75 million employees from which would enjoy their social retirement insurance, including 3 million rural workers or more.
313. According to the information from the Labor and Social Security Administration of Shanxi Province, various preferential policies, such as pre-tax deduction, premium exempted of business tax, interest tax and individual income tax, are granted to township enterprises by Shanxi provincial government for the promotion of their participation of social insurance, and it is also the first province to initiate “one factory two systems” in the whole nation.
314. Employees in township enterprises with permanent urban residence certificates enjoy retirement insurance for urban enterprise employees while those with agricultural residence certificates enjoy rural social retirement insurance. The payment methods, paying period and retirement conditions of insurance policy of the employees in township enterprises with permanent urban residence certificates reflect that the retirement insurance policy between employees in urban enterprises and those in township enterprises with permanent urban residence certificates is consistent, and it is in favor of a reasonable flow of employees among enterprises of various ownership.
315. For the employees with agricultural residence certificates to participate in the insurance, the benefit age for pension is allowed between 55 and 65 years old, they can draw their pension 1 to 5 years in advance or in postponement for both male and female. Considering the income gap between urban and rural employees, different standards for payment and withdraw is worked out based on the principle of balanced and harmonious development of urban and rural areas.
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316. For designing the account for the employees with agricultural residence certificates, a new system called “large account, and small adjustment funds” (individual account 11%, and adjustment funds 4%) was therefore carried out, which makes employees pay 5% of the total amount of their own salaries while enterprises have to pay 10% total salary amount of their employees with agricultural residence certificates. Although it is lower than the security standard for urban employees, it can also meet the basic retirement requirements considering the high value-added interest rate of agricultural insurance as well as the different consumption levels between urban and rural areas.
317. The number of employees in township enterprises of China exceeds 0.138 billion, less than 5% of them have participated in the social insurance. In 2004, the GDP of township enterprises nationwide accounted for approximately 27.4% of the total GDP of the country. In order to secure a safe operation of township enterprises, social retirement insurance system should be established. Shanxi province carried out the province-wide social retirement insurance for township enterprises and solved the problem for the transference of retirement insurance between urban and rural areas, and between different regions, which was a pioneering work in China.
2. Development of Vocational Education
318. In 2004, secondary vocational schools enrolled 155,000 students and had 403,000 registered students in total, 34.78% and 10.84% increase, in comparison with 2001 respectively; Shanxi province had 40 independent higher vocational colleges, with 127,000 students; in 2004, more than 4.2 million people participated in various short-term training programs, including 1.53 million rural labor trained for transfer, and 0.44 million of rural labor have been transferred.
a. Goal:
319. Shanxi provincial government attaches great importance to vocational education. In 2003, provincial government held a provincial vocational education conference, brought forward the overall goal that “secondary vocational education development should be the key issue, all kinds of secondary vocational school in the whole province should enroll 200,000 students with 600,000 students in 2007 so as to ensure that the number between the students who receive secondary vocational education and those who receive average high school education is evenly proportioned”. Besides, important policies and measures to promote the reform and development of vocational education for the period ahead were clarified.
b. Develop rural vocational education, and strengthen the construction of key demonstrative schools
320. Shanxi has a great proportion of agricultural population, but the foundation for secondary vocational education, especially for the rural vocational education is weak. The key issue of vocational education for Shanxi provincial government is always to strengthen rural secondary vocational education and to construct key demonstrative secondary vocational school.
i. Conduct construction projects of county level vocational education center
321. First of all, each county/district is required to build a comprehensive secondary vocational school which could accommodate 1,800 students and is able to enroll more than 66
600 new students each year. So far, 43 comparatively high-standard county-level vocational education centers have been built in the whole province. Some of the counties are continuously investing a large amount of capital to build vocational education centers.
ii. Capital investment is invested to the rural areas
322. The expenditure invested into vocational high school construction and special subsidies for vocational education are mainly used in rural schools in Shanxi province.
iii. Strengthen the construction of key demonstrative secondary vocational school
323. Since 2002, through the great efforts for construction, 40 schools in Shanxi province have been acknowledged as key national secondary vocational school and 64 key provincial as secondary vocational schools. Great emphasis has been paid to student enrollment in secondary vocational school in the rural area and assigned the task of student enrollment in secondary vocational school to each county and city.
324. Meanwhile, macro-controls have also been carried out for the secondary education structure by means of measures like strengthening “three limitations” (limit the student number, limit the score, and limit the tuition fee) in average high school enrollment, so as to guarantee that 80% of the students enrolled into secondary vocational school per year in the whole province come from rural areas. In 2004, the proportion of vocational school students to average high school students in the province reached 43:57.
c. Implement two large projects, and improve the ability of service
325. Implementation of the two projects, namely the cultivation of urgently needed skill- oriented talents and the training program of rural labor transfer, is on the one hand, a key task of vocational education in new area, on the other hand, it is also a precious development opportunity for vocational education.
i. Strengthen the construction of training practice bases
326. Work out a plan for the construction of training practice base. Shanxi provincial government has made out a plan of “2004-2007 Shanxi Provincial Overall Plan for the Construction of Vocational Education Training Practice Base”, which integrates the construction of training practice base with the construction of demonstrative vocational school in and before the year 2004 financially supported by central finance, also with the construction of practice bases and training supported by Ministry of Education in recent years in order to make use of the benefit of former investments to share the resources of vocational education.
327. In 2004, the key training practice bases for vocational education have made some achievements. In addition to satisfy the demand of training practice for their own students, professional training practice for on-the-job training and re-employment training for over 5,000 people from adjacent schools or enterprises were provided. Raise money for the construction of training practice bases through different channels. In 2004, the expenditure on the construction of training practice bases for vocational schools in Shanxi province reached CNY 95 million yuan, of which CNY 64 million yuan is used for purchasing the equipments, including nearly 30,000 m2 of newly-constructed area for training practice, 800 sets of various newly-purchased training equipments, and about 2,400 computers for training practice.
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328. In 2005, coal industry administrative department invested CNY 20 million yuan special funds to support the construction of training practice bases for Shanxi Coal Mining Vocational and Technology College, with CNY 30 million yuan more funds in the following 2 years.
329. Each vocational school also raised money from the faculty members of schools. By taking Shanxi Engineering Vocational and Technology College and Shanxi Comprehensive Vocation and Technology College as an example, in 2004, through the active participation of faculty members of schools, CNY 9 million yuan and CNY 10.5 million yuan were raised for the construction of training practice bases, respectively.
330. Strengthen the instruction and training. Shanxi Education Bureau has organized experts and teachers from industries and colleges to establish a professional instruction committee on vocational education, to strengthen the instruction on the teaching reform and the construction of training practice bases of more than 40 kinds of vocational education in the whole province.
ii. Organize the training programs for rural labor force transfer
331. Shanxi Education Bureau established the “leading group of training programs for rural labor transfer” led by the director of the Bureau, so that the whole education system in the province will focus on the “two 5-millions”, that is, 5 million rural labor force eager to be transferred to non-agricultural industries and towns, and another 5 million rural employment personnel eager to receive practical technology training, so as to carry out various forms of training programs.
332. The overall goals for the whole provincial education system to train the rural labor force from 2004 to 2010 are: to provide the practical technology training for 7 million rural workers, and rural labor force transfer training for 3.5 million people.
333. Implementation approaches: practical technology training for rural workers will be carried out by three levels of Farmers’ Culture and Technology Schools and Rural Secondary Vocational Schools: county, town, and village, which takes Farmers’ Culture and Technology schools as its core at all levels; training for redundant rural labor force will be carried out by Rural Secondary Vocational Schools and Farmers’ Culture and Technology Schools at all levels, which take rural secondary vocational school as its core; technological training in profession for graduates from junior of senior high schools who fail to go for higher grades will be carried out by all kinds of secondary vocational schools and training organizations for professional education organized by society; training for rural workers in cities will be carried out by urban secondary vocational school and other professional training organizations.
334. Promote the rural labor force transfer: to take the advantage of education system to organize an overall door-to-door and village-to-village investigation into the training demand and employment intention of rural labor forces, particularly those returned junior and senior high school graduates in recent 3 years, as well as the people from 18 to 45 years old. Distribution of training task to meet different demands should be arranged in an affirmed way of implementation into different types of schools. Besides, work responsibility system and reward system should be established so as to strengthen the supervision and inspection force.
335. The function of vocational school: from 2004 to 2005, 123 vocational schools in total took active role to provide training program, finishing the task of instructive training for 1.2 68 million people and professional technology training for 0.37 million people, succeeding in transferring 0.44 million rural labor force, taking up 13.2% of the total number of rural labor transfer in the whole province.
d. Implement employment-oriented teaching reform and improve the teaching quality.
i. Construct teaching team adapted to vocational education.
336. By various means of “introducing, sending, cultivating and employing”, Shanxi province strengthens the construction of teaching team. In 2004, over 50 teachers were sent abroad for study, and over 400 teachers were sent to higher education for on-job postgraduate study and advanced study. More than 600 teachers were sent to enterprises for professional technology practice and more than 100 experts in enterprises were employed as part-time teachers. In the same year, 122 academic leaders at provincial level in different subjects, 377 excellent teachers and 304 teaching experts were appraised. Many terms of training courses for schoolmasters were organized. Schoolmasters from various vocational schools actively took part in the senior research programs organized by the Ministry of Education so that the schoolmasters gradually changes from the type of experience to the type of expert.
ii. Regulate experimental teaching and promote “double certificate” system.
337. The Education Bureau of Shanxi province has formulated “Laboratory (Training Practice) Equipment Standard for Shanxi Secondary Vocational School” to set substantial requirements for laboratory equipments of all specialties, for training practice equipments as well as its construction and management. In order to reinforce the practical teaching in vocational schools and to enhance students’ professional skills, in 2005, Education Department of Shanxi province demand that, for specialized courses, theoretical exams and skill tests to be considered in the assessment of students’ grade. Students must take part in the judgment of professional skills of relevant specialized areas, obtain relevant vocational certificate and acquire two certificates, namely, the academic record and vocational certificate for graduation. Over years of practice, on average, 87% of students acquire vocational certificate before graduation. In 2004, the employment rate of graduates from secondary vocational schools in the whole province reached over 95%.
e. Goals for vocational education development in Shanxi during the “Eleventh Five-year Plan” period.
338. The overall goals for vocational education development in Shanxi province during the “Eleventh Five-year Plan” period are: up to 2010, a high-standard comprehensive secondary vocational school should be build up in each agricultural county so that the training network for rural labor force transfer training and rural practical technology training at county level could come into being; the number of national key secondary vocational schools should be increased from 40 to 60, the number of provincial key secondary vocational schools should be increased from 64 to 90, the number of secondary vocational school enrollment per year in the whole province should reach 0.25 million compatible with the scale of average high school enrollment.
339. The goals for the cultivation of urgently needed skill-oriented talents and the construction of training programs for rural labor force transfer are: 100 specialized and modernized construction projects, 11 construction projects of city-level modernized 69 secondary vocational schools, 25 newly-built vocational education centers (or vocational senior high schools) at county level, the expansion of 50 vocational education centers at county-level (or vocational senior high schools), improve the strength for vocational schools to take the responsibility of rural labor force transfer training and urgently needed skill- oriented talents cultivation.
3. Re-employment and Training in Demonstration Area, Jincheng City
340. Labor Bureau of Jincheng area is responsible for social labor force training of the whole city. It organizes and implements the labor preparation system, supervises all the vocational training institutions in the whole city, makes training and developing plans for training of skilled workers and enterprise on-job employees as well as for the re-employment of the unemployed people in this city, instructs the schools of technology and vocational training institutions to build teaching team, to develop teaching materials and to conduct teaching researches. It is also responsible for skill assessment and certificate issuance for graduation in technical schools and employment training centers, as well as the recruitment and assignment work in technical schools.
a. Current situation of employment.
341. According to the statistics of Jincheng Labor Bureau, by the end of 2005, Jincheng had population of 2,205,357, of which 910,697 are urban residents and 1,294,660 rural residents. The total amount of labor resources in the city is 1,256,300, of which 380,600 come from towns while 875,700 from rural areas.
342. From 1998 to 2005, the number of laid-off employees in Jincheng was 15,000 in total, of which 13,000 are re-employed, with the re-employment rate of 75%, and 2,000 natural depletion of numbers (retirement).
Table 19. Unemployment insurance receivers in Jincheng between 1995 and 2005.
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2,602 2,609 2,908 6,295 10,681 8,904 2,530 2,330 2,228 4,867 4,077 Data source: Labor Bureau of Jinchen area
b. Measures for employment and reemployment
343. Jincheng municipal government attaches great importance to employment and re- employment, and issued Notice on Establishing the Work Post Responsibility System for Newly-added Posts [Jinshizhengban (2003) No. 23]. The document requires conducting assessment to newly-added employment posts of related departments of the government at all levels. From 2003 to 2005, the newly-added employment positions are 85,000.
344. Since 2002, the government has been setting the target for each county and district on the development and transfer of rural surplus labor force each year, and till 2005, the city has transferred 300,000 rural surplus labor forces accumulatively.
345. In 2005, Jincheng municipal government issued the Opinion on Implementation of Business Start-up Training Program [Jinshizhengban (2005) No.117]. The purpose of the document is to “promote business through training, and promote training through business start-up”.
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346. In 2006, Jincheng municipal government will add 20,000 new positions in urban area, transfer and export 50,000 labor forces, and the urban registered unemployment rate will be controlled within 4%. About 100,000 farmers will be trained in technology, with instructive training for 30,000, and 10,000 rural surplus labor forces will be transferred.
347. Jincheng municipal government takes active role in implementing the preferential policy for the re-employment of laid-off workers, and provides small loan for laid-off workers, and the government will purchase the public service position to arrange the people with the age ranging from 40 to 50. Since 1998, the government accumulatively has arranged 15,000 laid-off workers, realized 13,000 people re-employed, together with the natural depletion of the numbers. Nearly all of the laid-off workers find their jobs again.
348. The production workers of small coal mines in Jincheng city mainly come from migrant workers from other provinces and regions, and their average salary is CNY 1,400 yuan per month.
c. Training resources and problems
349. Currently, Jincheng city has 66 different vocational training schools and institutes at all levels, of which 25 are public and 41 are private. There are 1,195 full time teachers, of which 180 teachers have senior title, about 480 middle level teachers, and 416 teaching assistants. The total construction area of teaching area and student dormitory is over 230,000 m2 the total value of teaching equipment reaches CNY 60 million yuan. The major vocational training schools in Jincheng city are listed in Table 20.
350. The Vestibule School of Shanxi Jincheng Anthracite Coal mine Group Co., Ltd is one of the 48 national key vestibule schools recognized by the Ministry of Labor and Social Security [Laoshebuhan (No.53) 2006], while Jincheng City Senior Vestibule School is one of the 18 national senior vestibule schools recognized by the Ministry of Labor and Social Security [Laoshebuhan (No.53) 2006].
Table 20. Major Vocational Training Schools in Jincheng City.
Technical Training Center of the Jincheng Urban Vocational High School of Jincheng Mining Coal Industrial Administration Bureau Bureau Vestibule School of Shanxi Jincheng Anthracite Coal mine Employee Training Center of Gaoping Coal mine Group Co., Ltd City Jincheng City Senior Vestibule School Jincheng Urban Vocational School Jincheng City Vocational School Jincheng Beihua Vocational School Jincheng City Suburb Gaodu Vocational School Lingchuan County Lucheng Vocational School Lingchuan Vocational School Gaoping City Vocational School City Vocational High School of Shanxi Province Qingshui County Vocational School of Shanxi Shanxi Township Enterprise Correspondence Province School: Jincheng School Township Enterprise Correspondence School: Dongzhi Town Senior Vocational School of Jincheng School of Shanxi Province Yangcheng County Fengcheng Town Senior Vocational School of Yangcheng Senior Vocational School Yangcheng County
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351. The funds for public schools mainly comes from the fiscal allotment, which account for 80% of the total funds on education, and the remaining fund comes from tuition fees; the fund of the private training institutes mainly comes from tuition fees. Jincheng municipal government provides financial support to all the schools and institutes who undertake employment and re-employment training program, and the supporting fund accounts for about 20% of the training costs. Students will bear the living costs for themselves, and it is about CNY 5 yuan each day. The tuition fee is about CNY 2,000 yuan for each student.
352. The major problems of existing vocational training schools and institutes are: (i) Small in scale. The annual training capacity of all 66 vocational training schools and institutes is only about 10,000 students. It could not satisfy the training demands. (ii) Small amount of teaching facilities with poor quality. All of 66 vocational training schools and institutes only have over 3,000 sets of teaching equipments, of which, most mechanical processing equipments are the products made in 50s and 60s of last century. They could not meet the modern training demands. (iii) Serious shortage of funds. The purpose of the fiscal allotment for public school is to ensure the salary of the faculty members, and the direct investment on teaching activities is only CNY 180 yuan for each student every year; the direct investment on teaching activities of private training institutes for each student every year is less than CNY 100 yuan.
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IV. IMPACTS OF SMALL COAL MINE CLOSURES
A. Coal Production and Consumption
353. In 1004 and 2005, the coal output, export volume and inter-provincial transfer volume per year in Shanxi were all over 25%, 45% and 75% of national levels respectively. The coal output from small coal mines accounted for more than 38% of the total of coal output for per year in 2004 and 2005. Thus, central to an examination of the impacts of the closure of small coal mines in Shanxi province are the potential impacts on the national coal production and consumption.
354. Energy plays a fundamental role in China’s economy and continues to support the rapid economic growth and growing living standards. Because coal is such a dominant component of the energy structure in China, the coal industry has been important in this context. Coal is used in all sectors of China’s economy and by households. It accounts for over two-thirds of primary energy consumption and more than three-quarters of electricity generation.
355. Annual coal production in the PRC expanded from about 1.05 billion tons (BT) in 1990 to about 1.40 BT in 1996, after which it decreased again to about 1.23 BT in 2000. The considerable decreases in annual coal consumption between 1996 and 2000 have been largely the result of the implementation of the Government’s economic reform policies aimed at restructuring of the state owned enterprises and improving their operating and energy efficiency and financial status. In particular the Government’s policy to close small enterprises in the coal, power generation, petrochemicals, iron and steel, and construction materials industries contributed to more efficient use of coal and hence a decrease in coal consumption.
356. The coal production levels were maintained at slightly higher levels in 2001 and 2002, only to increase sharply to about 1.6 BT in 2003. In 2004, the raw coal production is 1956 MT in China and the consumption demand in 2005 exceeded 2.1 BT, surpassing the demand in 2004 by 0.15 BT, where the increase is largest in power coal which accounts for 0.1 BT. By the calculation of coal demand model, the future demand for coal in China will come to about 2.43 billion tons in 2010, and 2.82 billion tones in 2020.
357. According to the Shanxi provincial 11th five-year (2006-10) coal industry development plan 244 key state-owned coal mines being built or reconstructed by the end of 2005, from which the total annual output will be 152.37 million tons. They would be put in operation in succession from 2006 to 2010. The annual output of local state-owned coal mines will increase 140 million tons through the reformed method of exploitation. Although the annual output of small coal mines will decrease because of small coal mines closure, the annual total output of coal in Shanxi province will approach 0.7 to 0.8 BT.
358. Considering that the output of coal in Shanxi accounts for around 25 percent of national levels, the closing down of small coal mines in Shanxi would not affect the country’s supply for coal significantly. Moreover, according to China’s 11th Five-year (2006-10) coal industry development plan, China’s coal output will be 2.5 and 2.6 BT in 2010, as compared with 2.19 BT in 2005. The country has approved establishment of 13 large coal production bases each capable of turning out over 100 million tons of coal annually. In short, the supply can balance the demand when production from small mines is halted.
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B. The Coal Demand Forecast for China
1. Multiple Regression Model of Coal Demand - I
359. For forecasting the country’s demand for coal, we use GDP, price indices of coal and oil ( and ), production indices of steel and electricity and also building material PCOAL poil (Steel, Elec, Mat) as explanatory variables, and the demand for coal (Coal) as explained variable. The demand model is set up the following equation. Data for the various Indices available from 1978 to 2004 are listed by year in Table 21.
Coal =+βββ ×+β × +× + t t 0 1 GDPi 2 PPcoaltt3 oil βββµ×+×+×+ 456Steelttt Elec M at t
(1) where;
Coal t = demand for coal β = a constant , 0 β _ β = coefficients, 1 6 GDP = Gross Domestic Product,
and = price indices of coal and oil PCOAL poil Steel, Elec, Mat = production indices for steel, electricity & building materials, and µ is disturbance term. t
360. Using least squares regression of the above data produces the following multivariate model of the relationship between Coal demand and the array of independent variables defined in Table 22.
Coal = 76.00280 + 0.530487 * GDP − 0.005551 * Pcoal + 0.115762 * Poil + 0.569509 * Steel + 1.140096 * Elec + 0.392358 * Mate (2)
The goodness-of-fit and Durbin Watson statistics are R 2 = 0.975681 , and D.W.=1.014352. Complete summary statistics for the analysis including t statistics for each estimated parameter are found in Appendix 1.
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Table 21. Major Chinese Industrial and Coal Demand Time Series Data.
Con- Indices of Steel Power struction GDP's Coal Prices Oil Price Year Coal Output Output's Material Indices Indices Indices Demand Indices Indices Output Indices 1978 100 100 100 100 100 100 100 1979 103.4 120.19 113.4 101.6 108.49 109.9 113.27 1980 107.72 129.56 120.66 103.73 115.4 117.15 122.41 1981 106.98 136.3 123.79 104.25 108.82 120.54 127.07 1982 113.23 148.7 126.15 104.77 114.71 127.71 145.92 1983 121.29 164.91 128.04 111.37 121.96 136.94 165.93 1984 132.16 189.98 130.6 124.74 132.21 146.92 188.57 1985 143.88 215.63 153.59 133.72 143.89 160.05 223.71 1986 151.7 234.6 148.67 139.87 161.78 163.48 254.54 1987 163.42 261.82 152.83 145.47 175.04 193.8 285.48 1988 175.43 291.4 169.03 155.36 184.28 212.47 322.1 1989 182.37 303.35 189.66 168.41 189.94 227.9 322.33 1990 186.19 314.88 201.41 180.37 203.34 242.09 321.44 1991 195.51 343.85 227.8 214.27 220 264.03 387.2 1992 204.59 392.67 264.48 247.06 252.45 293.8 472.44 1993 214.51 445.68 369.47 423.21 286.64 327.16 563.89 1994 227.89 501.84 451.5 629.31 309.42 361.69 646.66 1995 242.27 554.53 502.51 762.73 327.64 392.44 729.02 1996 256.98 607.77 571.36 797.81 340.49 421.4 754.12 1997 243.92 661.25 617.07 856.85 365.31 442.56 784.4 1998 227.83 712.83 596.09 796.87 385.34 454.79 821.5 1999 219.05 763.44 565.09 873.37 418.22 482.97 878.3 2000 213.23 824.51 554.35 1260.3 441.03 528.29 915.08 2001 218.11 886.35 590.39 1248.9 527.75 577.08 1013.2 2002 242.19 957.26 658.87 1189 615.6 644.58 1111.3 2003 286.03 1048.20 704.99 1374.48 763.77 744.57 1321.40 2004 330.11 1147.78 817.10 1569.66 927.11 852.30 1486.82
361. The signs of parameters are intuitive. At a significance level of 5%, the critical values for t- and F-tests (27) = 2.11, (7,27) = 2.62 are respectively. With the t 0.025 F 0.05
exception of Pcoal , the statistics of t and F of other variables are all larger than the critical values, and the adjusted R-squared becomes 0.96 (Appendix 1). This indicates that the fit of the regression model is good.
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2. Multiple Regression Model of Coal Demand - II
362. After eliminating the variable Pcoal , the regression analysis yields the following adjusted coal demand model:
Coal = 76.4666 + 0.533309 * GDP + 0.114962 * Poil + 0.574292 * Steel + 1.141037 * Elec + 0.398776 * Mate (3)
The goodness-of-fit and Durbin Watson statistics are slightly stronger than those of regression model 1. Complete summary statistics can be found in Appendix 2.
3. Further Statistical Analyses
a. White Heteroscedasticity Test
363. The White Heteroscedasticity test determines whether there is heteroscedasticity among the independent variables of the coal demand model. The following theoretical model is fit to the data.
2 µ = + * GDP + * 2 + * Poil + * 2 + * Steel + α 0 α 1 α 2 GDP α 3 α 4 Poil α 5
* 2 + * Elec + * 2 + * Mate + * 2 + α 6 Steel α 7 α 8 Elec α 9 α 10 Mate ε i
(4) The results of the analysis produced the following empiric generalization:
2 µ =45.31552+9.018162*GDP−0.007627*GDP2 −1.398074*Poil+0.000354*Poil2 +16.87538*Steel− 0.022328* 2 −21.38632*Elec−0.025532* 2 −3.216665*Mate+0.003483* 2 + Steel Elec Mate εi
(5)
364. The null hypothesis can be accepted, i.e., the assumption that there is heteroscedasticity, at 1% significance level is rejected. Complete summary statistics for the White Heteroscedasticity Test including t statistics for each estimated parameter are found in Appendix 3.
b. Serial Correlation Test
365. The null hypothesis of the Serial Correlation test is that there is no serial correlation in the residuals up to the specified order. Eviews reports a statistic labeled “F-statistic” and an “Obs*R-squared”(NR2 —the number of observations times the R-square) statistic. The statistic has an asymptotic distribution under the null hypothesis. The distribution of the F- statistic is not known, but is often used to conduct an informal test of the null hypothesis. The Breush-Godfrey LM Test is conducted with results shown in Table 22.
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Table 22. Summary of Breush-Godfrey LM Test.
Breush-Godfrey LM test:
F-statistic 3.058737 Probability 0.022657 Obs*R-squared 17.72710 Probability 0.059745
366. The above LM statistics above reject the null hypothesis under the 5% significance level, which means there exists serial correlation in the residual terms. To revise the serial correlation, the AR(i) model can be used. The result is summarized in Table 23.
Table 23. AR(i) Estimation of Coal Demand.
Dependent Variable: COAL Variable Coefficient Std. Error t-Statistic Prob. GDP 0.426927 0.182194 -2.343252 0.0308 POIL -0.045889 0.021815 -2.103610 0.0497 STEEL 0.418799 0.160392 -2.611097 0.0177 ELEC 0.869236 0.234410 3.708186 0.0016 MATE 0.248108 0.081891 3.029729 0.0072 AR(1) 1.014901 0.034626 29.31026 0.0000
R-squared 0.984688 Mean dependent var 183.0771 Adjusted R-squared 0.980435 S.D. dependent var 49.90919 S.E. of regression 6.981087 Akaike info criterion 6.936604 Sum squared resid 877.2403 Schwarz criterion 7.231118 Log likelihood -77.23925 Durbin-Watson stat 1.376681 Inverted AR Roots 1.01 Estimated AR process is nonstationary
367. From above we summarize the estimation of coal demand with the following equation:
Coalt = 0.426927 * GDPt + 0.045889 * Poilt + 0.418799 * Steelt + 0.869236 * Elect
+0.248108 * Matet + 1.014901 * Coalt-1+µt, (6)
where µt = 1.014901*µt-1+εt
c. Co-integration Test
368. The Co-integration Test is applied to determine whether the residue of the regression equation is stable. To do this we may test whether the residue has a unit root. The results of the test are summarized in Table 24.
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Table 24. Summary of Co-integration Test.
Null Hypothesis: RESID01 has a unit root t-Statistic Prob.* Augmented Dickey-Fuller test statistic -3.761580 0.0102
Test critical values: 1% level -3.769597 5% level -3.004861 10% level -2.642242 *MacKinnon (1996) one-sided p-values.
369. The results indicate that residue has not a unit root under the level of significance of 5%, and the residual series is stable. In the other words, the regression equation is not a “spurious” regression. Based on the above regression model, the forecast result is shown in Figure 3, and the fitted degree is good.
Indices of Chinese Coal350 Demand (100 Million tons) Forecast: COALF Actual: COAL 300 Forecast sample: 1978 2004 Included observations: 27 250 Root Mean Squared Error 7.649689 200 Mean Absolute Error 6.677282 Mean Abs. Percent Error 3.619761 Theil Inequality Coefficient 0.019288 150 Bias Proportion 0.000000 Variance Proportion 0.004176 100 Covariance Proportion 0.995824
50 78 80 82 84 86 88 90 92 94 96 98 00 02 04 Year
COALF
Figure 3. Actual and Forecasted Coal Consumptions.
370. Providing the average annual growth rate of GDP and investment in fixed asset in the next 10 years are projected to be approximately their average rates from 2000 to 2004, the future demand for coal in China will come to about 2.43 BT in 2010, and 2.82 BT in 2020.
4. Impact on Local Government Financial Revenue
371. It is understood that local governments that are heavily dependent on coal revenues will experience significant reductions in revenue from coal mining closures. Similar to the analysis for the impact of employment, it was estimated that local government obtained the financial revenue about RMB 20 Yuan per ton from small coal mines at 2005 constant price. If the output for small coal mines fall 130 million tones, 61% of the total of annual output, local financial revenue will reduce more than 2.6 billion yuan. This is around 8% of the total local government revenue in 2005. 372. However, given that small coal mines are geographically concentrated, it is almost certain that some areas will experience a far more substantial reduction in government revenue. For example, Zezhou county government revenue will reduce around 291 million 79 yuan if the proportional reduction of small coal mine output to the annual output is the same as that of the whole of the province, and a reduction of revenue is almost 43% of the total government revenue in 2005 at 2005 constant price. Of course, this figure is a preliminary estimate.
373. To analyze further, the local revenue’s impact of the small coal mine closure campaign, we should find the quantitative relation between the local revenue and output value of coal industry using an econometric approach at 2005 constant price.
374. Because the data on the output of coal is only available from 1997 to 2004 (annual panel data), conducting a regression analysis using only univariate time series would very possibly yield spurious and biased results. In this section, an econometric analysis using panel data on each county in Jincheng is presented. We use the output value values of coal industry, primary industry and secondary industry (except coal industry) and also tertiary industry (Primary, Secondary, Tertiary) as independent variables, and the government revenues as dependent variable. The estimated results of the governments in the five counties studies are summarized in Table 25.
375. From the above coefficient of the contribution of coal to local government fiscal revenue, we can compute the impact of small coal mines closure on the local government revenue. For example, the coefficient of the contribution of the output value of coal industry to Zezhou county’s government revenue is 0.69. If the output of coal industry decrease 50% at 2005 constant price because of small coal mines closure, the local government revenue will consequently decrease 35%.
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Table 25. Panel Regression of County Fiscal Income in Jincheng.
Dependent Variable: Revenue Method: Pooled EGLS (Cross-section SUR) Variable Coefficient Std. Errort-Statistic Prob. _Xingshui—Coal_Xingshui 0.309909 0.207151 4.778688 0.0002 _Yangcheng—Coal_Yangcheng 0.581521 0.064377 10.89704 0.0000 _Lingchuan—Coal_Lingchuan 0.298840 0.105009 4.284082 0.0004 _Zezhou—Coal_Zezhou 0.693217 0.154664 6.156679 0.0000 _Gaoping—Coal_Gaoping 0.675849 0.102737 5.994447 0.0000 _Xingshui--Primary_Xingshui 0.138349 0.192306 7.19423 0.0001 _Yangcheng--Primary_Yangcheng 0.132686 0.055825 5.85497 0.0001 _Lingchuan—Primary_Lingchuan 0.143397 0.085621 4.674781 0.0002 _Zezhou--Primary_Zezhou 0.135563 0.137368 2.224414 0.0019 _Gaoping--Primary_Gaoping 0.140719 0.062299 2.644001 0.0184 _Xingshui--Secondary_Xingshui 0.048956 0.177022 3.276551 0.0007 _Yangcheng--Secondary_Yangcheng 0.196853 0.046799 4.206390 0.0008 _Lingchuan--Secodary_Lingchuan 0.206304 0.066690 3.843220 0.0016 _Zezhou--Secodary_Zezhou 0.205072 0.107132 3.700742 0.0004 _Gaoping--Secondary_Gaoping 0.242273 0.074811 7.248623 0.0000 _Xingshui--Tertiary_Xingshui 0.110416 0.178158 3.619762 0.0007 _Yangcheng--Tertiary_Yangcheng 0.114452 0.051671 10.34334 0.0000 _Lingchuan--Tertiary_Lingchuan 0.158057 0.156381 5.486979 0.0001 _Zezhou--Tertiary_Zezhou 0.134643 0.184160 3.989156 0.0012 _Gaoping--Tetiary_Gaoping 0.111240 0.104997 9.631140 0.0000
Weighted Statistics R-squared 0.999446 Mean dependent var -2.118766 Adjusted R-squared 0.998745 S.D. dependent var 33.70898 S.E. of regression 1.194035 Sum squared resid 21.38581 F-statistic 1425.416 Durbin-Watson stat 2.939365 Prob(F-statistic) 0.000000
Unweighted Statistics
R-squared 0.913934 Mean dependent var -0.111665 Sum squared resid 4.685928 Durbin-Watson stat 2.952954
Furthermore, panel unit root test result is shown below in Table 26.
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Table 26. Panel Unit Root Test for County Fiscal Income.
Group unit root test: Summary Series: RESID_XINGSHUI, RESID_YANGCHENG, RESID_LINGCHUA N, RESID_ZEZHOU, RESID_GAOPING Exogenous variables: Individual effects Newey-West bandwidth selection using Bartlett kernel
Cross- Method Statistic Prob.** sections Obs Null: Unit root (assumes common unit root process) Levin, Lin & Chu t* -5.66507 0.0000 5 28 Breitung t-stat -2.74685 0.0030 5 23
Null: Unit root (assumes individual unit root process) Im, Pesaran and Shin W- stat -2.75135 0.0030 5 28 ADF - Fisher Chi-square 27.9387 0.0018 5 28 PP - Fisher Chi-square 37.0230 0.0001 5 30
Null: No unit root (assumes common unit root process) Hadri Z-stat 0.89878 0.1844 5 35 ** Probabilities for Fisher tests are computed using an asymptotic Chi-square distribution. All other tests assume asymptotic normality.
C. Political impacts Related to Small Coal Mine Closure
376. Forced closure of small coal mines will result in many economic and social problems. This is because the social impacts would be very difficult for the current society. Major aspects of these impacts are as follows:
1. Assurances of Economic Development and Fiscal Income
377. In situations where there are no other supporting industries, some local governments (especially towns and counties) must depend on small collieries as the major source of fiscal income. If new ideas of development do not occur the fiscal sources will be completely cut off once the small collieries are closed. Meanwhile, some industries such as coal transportation and other services that are related to small collieries will be affected or will disappear.
378. Thus, the negative impacts of closure of small collieries to local economies and fiscal income are very obvious. Realistically, in the long term the social development cannot be managed when the income source for mining workers is cut off. It is more difficult for them to find other local sources of income, because the arable land for farming at coal production areas is small in size and degraded polluted by past mining activities. The recovery capacity of the land is poor and the land is not suitable for large-scale agricultural production.
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2. Social Stability and Large-scale Unemployment
379. In the “Emergency Notice” and “Special Regulation”, emphasis has been to close collieries either without conditions of safe production or illegally operating, but these policies do not explain how to deal with dismissed personnel. No matter what form of dismissal (whether are compensated or not), mine workers will face problems in seeking new jobs. Workers that cannot find new jobs within a short period will return to the coal mine and wait for signs of reopening, or they will unite and potentially threaten social stability. The problem of a single mining worker reflects the family level. The problem of a group of mining workers will involve problems of social stability.
3. Potential Waste and Technological Innovation
380. Potential waste means that there are still small amounts of unexploited resources when small coal mines are closed that are left unexploited. For example, if a small coal mine with an annual production of 20 thousand tons of coal is closed, on average the unexploited resources are identified to be 150 thousand tons, which can be mined for 4 to 5 years if the coal mine was not closed.
381. If coal mines like this are closed properly according to policies and regulations, the 150 thousand tons of unexploited coal will be sealed and it would be impossible to exploit in the future. Thus, the potential resource would be lost. Technological innovation of the small coal mines is often not feasible because the cost-benefit difference between inputs and outputs is too large to justify for the mine owners. Small collieries like these are more suitable to be mined by private entities. If small coal mines that have been legally set up and certified (including following all the newest safety and environmental regulations) exist, it may be beneficial for local economic stability to allow them to remain open.
4. Closure of Small Collieries and Legal Problems.
382. According to the principle of the rule of law, the government should value and support legally valid agreements and contracts. While the government needs to regulate the mineral industry, it should be through regulations that are within legal scope. If investors and the real owners of the small coal mines (local government and town committee) have signed long-term agreements on contracted management for legal operations, it is unfair to the investor when the government closes the coal mine by force.
383. That kind of agreement should be dealt with appropriately when an investor can demonstrate that they acted legally and in accordance with all the regulations and policies of that time. They should be allowed to negotiate with the contracted local government or the town committee so as to share responsibility of the loss caused by a change in policy.
D. Impacts on Employment
384. The closure of small coal mines will negatively affect existing unemployment levels in Shanxi and Jincheng (see Table 15). Mine closure will almost always have an immediate and significant negative economic impact on the local community, unless the mine has been operated in such a way as to minimize contact with the community. In simple terms, the negative economic impact takes the form of the removal of some or all of the positive contributions made by the mine during its life. These might include the following: employment in the mine; spin-off economic activity; local tax revenue; physical infrastructure; and social services.
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385. Removal or deterioration of these economic components of life around the mine site will not only affect the economic strength of the community but substantial economic decline will almost certainly result in a range of social problems. Common symptoms include unemployment, crumbling infrastructure, failing social services and rising crime. However, the closure campaign in Shanxi is very recent, and therefore, it is too early to judge fully these impacts of closures.
386. Based on the above annual coal output and the number of employees for small coal mines, it was estimated that a productivity was about 290 tons per man-year in Shanxi. If the closure campaign will be as successful as officially declared, there will be about 130 million tons per year reduction by the small coal mines, estimated by the bureau of coal industry in Shanxi province.
387. Based on these figures, the closure campaign will cause about more than 440 thousand people to lose their jobs, assuming average productivity remains the same. Give that the least mechanized and least productive mines is probably closed in preference to the more efficient mines, this number is likely to be larger.
388. This estimate does not include those who do not work at the coal mines but whose employment depend on small coal mines. In fact, most small coal mine workers are the local farmers and migrant underemployed rural workers. The general view of government officials in coal mining areas appeared to have been that these people are not their responsibility and that they should return to their villages farming.
1. Impact on Local Workers
389. In the case of Jincheng City, by the end of 2005, there are over 150 thousand employed mine workers and about 90 thousand miners employed. The average monthly salary was 1,478 yuan. Generally there is no UI (unemployment insurance) for the miners except for some KSOCMs, and the minimum monthly salary was only 300 yuan. In the period of 2001 to 2005, Jincheng has accumulatively closed licensed 209 mines (mostly TVCMs), causing over 10,000 miners to lose their jobs.
390. Most of the miners did not have UI and/or job expertise, hence they have difficulty attaining employment in other sectors. On the provincial level, Shanxi has closed about 1,200 small coal mines, with a total of 60 thousand workers involved. There are 10% of workers reemployed, and 90% returned home. There was no reemployment training programs specifically designed for these laid off workers.
391. The impact of small coal mines closure on local farmers was more variable. Those farmers who worked in mines which were closed lost their jobs. Given that most mine workers are locals there will clearly have been an increase in the number of unemployed or under employed farmers. This occurred against a background of static rural employment and falling employment in agriculture. In addition, the local farmers were accustomed to receiving compensation from the coal mines for the use of their land.
392. The closure of the mines affected them in two ways. First, they no longer receive this compensation payment; second, the lack of any reclamation work means that the land still cannot be used for agriculture. This might not matter if the land destroyed by the mining had been rehabilitated, but this has not happened. Therefore, the local farmers who worked in small mines lost employment opportunities, in some cases have lost a flow of cash from those using the land for mining, and have not had their land returned in a useable condition. 393. The income of local farmers would drop and their material life would suffer losses. For example, Dongyuanqingxipo coal mine in Zezhou county, which the project team visited 84 in December, was built in 1989 and invested about 5 million yuan. The annual output was 60,000 tons. About 200 local farmers were employed by the small coal mine. The small mines was closed in 2003 and 200 local farmers became the underemployed farmers. Farmers in this position would thus have lost a source of income. The fees of water and electricity was paid by local farmers, and the per capital annual net income of local farmers decreased from 3000 yuan to 1000 yuan. It is roughly estimated that the per capita annual net income of rural households in Jincheng will be 37.85 percent of the reduction of coal sold, which is resulted from the small coal mines closure.
394. There are several options for the laid off workers from mine closures and they are listed and discussed below. Because systematic statistical data are difficult to retrieve, the consultants only could use a case study approach to assess the local residents and households’ reaction to the closures.
a. Emigration & Migration
395. Moving as part of an income raising strategy or at least income maintenance strategy for the laid off miners once the closure decision became final has been quite common. According to the provincial labor statistics, only approximately 10% of the total previously employed miners are from Shanxi, the rest are from off province. Emigration of temporary residents and migration of originally off-province miners have become part of the poverty problem.
396. It is reported that many TVCM closure-related villages lost many of their inhabitants. Because of the lack of employment tracing system, we have no accurate figure of how many have gone into new jobs since the closing down of TVCMs. We do know that the vocational training and labor market retraining programs are close to nonexistent with miners moving out either north or south, and unavoidably with some of the miners experiencing mid to long term unemployment.
b. Self-employment
397. Starting one's own firm has not been as common as in other areas where plants closed down. The surrounding market is too small to support small businesses started up by displaced workers.
c. Reducing Living Costs
398. Interviews held in field visits show that there is a significant decrease in income of the local households in relation to the mine closures. Households that explicitly plan to stay after mine closures are trying to change their way of living. One example is families who had started service businesses in relation to the mines now face lowered revenue streams.
399. When a plant closes, individuals face a change in their life situation. The change in their crucial circumstances creates a new framework for the shaping of their future welfare. This change will cause a reaction from the individual, a reaction that can vary considerably between different persons.
400. Some miners react to the closure passively or with absence of reaction. The financial consequences depend on his or her position within the social insurance system after one is being unemployed. In Shanxi, with a few exceptions, most unemployed miners have a 85 substantially lowered income level compared to that obtained while employed. The financial situations of the unemployed will be worsened when passive reaction on a lowered income due to unemployment is coupled with the erosive effect of inflation.
E. Impact of Coal Mine Closure on Environment
401. In principle the closure of small coal mines is good for the natural environment because closure marks the end of characteristic, unregulated production and coal handling activities that harm the environment. The environmental impact of mine closure is determined by the residual, or unmanaged, negative effects of coal production and storage activities on the environment. Thus, mine closure impacts are determined by: (i) the extent of environmental protection and site remediation that occurs when the mine is closed; and (ii) the sensitivity of the affected environment as determined by slope, vegetation type and presence of agriculture, depth of groundwater table, proximity of streams lakes, and sulfur content in the coal that is mined.
1. Mine Operation Impacts
402. Cognizant that the project is focused on the closure of small coal mines a discussion of the environmental impacts of mine closure must begin with a review of the impacts of the development and production phases of small coal mine mining. The primary potential impact areas of the development and operation of small underground coal mines are the adjacent landscape, surface waters, groundwater, local airshed, and adjacent town or village. The potential impact areas are discussed further below.
a. Adjacent Landscape
403. The small underground coal mine normally requires no more that 1-3 small diameter shafts from the surface to the exploitable coal seams. Thus, the area of land converted to mine shafts is small. However, the area of land forming the coal mine site property including coal and equipment storage areas is much larger. The development of storage areas for marketable and waste coal (gangue), and equipment destroy all previous uses of the land such as agriculture, and can impair existing natural processes of drainage and aquifer recharge.
i. Agriculture
404. Agriculture practices and associated livelihood revenue on mine lands are lost when the mine is developed and operated. While the ground surface area individual small coal mines is small (e.g., 2–15 acres), in view of the number of small coal mines in Shanxi province, the cumulative area of lost agriculture is significant. The impact of lost agriculture is dual edged because it contributes directly to sustaining unemployment that is caused by mine closure because displaced mine workers cannot return to their agricultural livelihoods.
ii. Drainage and Recharge
405. Access roads, coal storage areas, buildings, and equipment storage areas collectively can significantly alter natural drainage and aquifer recharge of the area. Coal piles can alter surface runoff patterns and can create erosion and sedimentation problems (see below). Heavy truck traffic compresses the ground which affects natural drainage and the ability of the land to naturally absorb rainwater and recharge local aquifers. The effect of 86 impaired drainage is flash flooding and erosion which negatively affects living conditions of local villages, and impairs water quality of nearby watercourses (see below). Without natural recharge local water tables lower leaving groundwater less available.
iii. Land Subsidence
406. A potential effect of creating the subterranean excavations in coal mines is the collapse of overlying soils into the void created by the excavated coal. While subsidence is a much more of an issue with large coal mines, it can occur from the much smaller excavations of small mines. On the land surface depressions or cave-ins can occur as a result of the shaft collapsing underneath overlying material. Land subsidence normally occurs over closed mines or abandoned mine shafts of producing mines if shafts have not been filled by the operator. It has been estimated that approximately 650 km2 of Shanxi province is subjected to land subsidence from all coal mining.10 However, the area related to small coal mines would be significantly smaller.
407. Land subsidence can seriously weaken the foundations of buildings and roads, alter local drainage patterns, and interfere with other land uses such as agriculture. If subsidence occurs abruptly it can cause human injury and cause destruction to property.
b. Surface Waters
408. The runoff from the coal mine site – particularly from the coal storage areas - can cause sedimentation of adjacent streams and shoreline areas of lakes. After rainfall events suspended sediment levels of lakes can easily exceed the provincial and national water quality standards11. Elevated suspended sediment in surface waters impairs habitat for aquatic wildlife and human use of the waters.
c. Groundwater
409. The shafts of small coal mines can penetrate local groundwater tables (aquifers) which can cause both physical and chemical impacts on local groundwater supplies. When shafts penetrate water tables normal groundwater flow can be disrupted which can affect groundwater availability to nearby wells. Groundwater and rainwater that mixes with disturbed coal and coal dust can become acidic due to the high sulfur content in some grades of coal in China. Surface or subsurface discharge of the acid mine waste negatively impacts aquatic habitat of local surface waters.
d. Airshed
410. Dust from coal storage areas and from coal transport trucks can become a large local air quality problem during the dry season in Shanxi province. The dust becomes a local air pollution problem with which local communities are required to cope.
411. The landscape impacts and impacts on groundwater and local air quality summarized above have been recently associated with small coal mines in Shanxi province by the Jincheng Municipal Environmental Protection Bureau (JMEBP)12
10 UNDP/World Bank, 2004. Toward a Sustainable Coal Sector in China. World Bank Energy Sector Management Assistance Programme, 252 pp. 11 Jincheng Environmental Protection Research Institute, 2002. Practical Environmental Standard Handbook, 280 pp 12 JMEBP, 2006. General Environmental Impacts of Coal Mining, 3 pgs, and personal communication. 87
2. Mine Closure Impacts
412. At the time a small coal mine is closed coal production and storage activities come to a halt, and the environmental impacts summarized above have occurred or are in progress. Thus, mine closure normally represents the end of further development of mine impacts with the possible exception of land subsidence, and groundwater and surface water contamination.
413. The environmental impacts that occur from mine closure are a result of the absence of adequate closure procedures and site remediation and reclamation which can go a long way to mitigate residual impacts, and return a small mine site to the original natural state.
a. Environmental Management Model for Mine Closure
414. A simple resource exploitation principle that could easily form the practical management goal for mine closures is that all unused mined material is returned to the mine allowing rehabilitation of mine site. That is; all waste coal is returned to mine cavities, all remaining cavities imploded, and the land surface returned to the pre-mine vegetative state. Key closure procedures for small coal mines to prevent or mitigate residual lasting negative environmental are the following:
i. Fill mine cavities and shafts
415. Filling mine voids with waste coal or soil, or by implosion with explosives should occur to return the ground to the original state as much as possible. This will minimize risk of surface subsidence, will assist restoration of groundwater flow, and will inhibit further groundwater contamination. Filling mine voids with waste mine material should precede implosion because it is the initial step toward waste coal disposal and ground surface remediation. Implosion of the voids with explosives accelerates any land subsidence that will occur, which makes subsidence more prescribed and predictable. Currently there are only formal requirements for filling a defined length of mine shaft mine cavities and shafts for large coal mines (> 300,000 tons/yr)13.
ii. Ground surface remediation
416. Surface remediation is returning the site as close as possible to its original vegetative state. Unlike the extensively disturbed areas of open pit coal mines, cavity mines disturb a relatively small area which can be rehabilitated relatively inexpensively. Hence, the simple management model of returning unused excavated material back into the mine to permit site rehabilitation. The two relatively simple management actions of remediation are as follows: (i) Return all accumulated waste coal and mined material to the mine. (ii) Replace top soil and actively—through re-planting—or passively allow original vegetation to re-colonize area.
Removal of waste coal and mined material followed by re-vegetation stops continued erosion of coal and contamination of surface waters. Local dust problems also cease.
13 Shanxi EPB, 2006 Personal Communication 88
3. Cumulative Impacts
a. Direct
417. The environmental impacts described above represent the direct potential impacts of a small coal mine. At the level of the individual small coal mine the direct environmental impacts are small relative to the impacts of the large KSOCM-scale mines. However, as indicated for agricultural losses above the cumulative environmental impacts of the operational and closure phases of the mines can be significant – especially in areas where small mines are clustered. The quality of individual streams or lakes, and aquifers can be extensively impaired if subject to the effects of many small mines. Thus, in addition to ecological sensitivity and the extent of post mine environmental management, the spatial and temporal cumulative impacts of small mine closures are also strongly influenced by mine density.
b. Indirect
418. The single largest, potential positive cumulative impact of large-scale closure of small coal mines is improvement of regional air quality from the reductions in regional CO2, NOx and SOx from the combustion of coal. This is turn would act directly to reduce emissions of greenhouse gases, and the production of acid rain. The indirect positive impact to regional air quality can only be realized if production from closed mines is not transferred to other mines. If the production of closed small coal mines is replaced by further development of either consolidated mines or larger SOCM and KSOCM mines then the potential positive effect is lost, and air quality will remain a problem in the coal mine areas of Shanxi province.
419. Replacing energy lost from closed coal mines with the development of other forms of energy, such as hydroelectric, nuclear or wind power, or from cleaner-coal based sources is required to create the positive cumulative effect of small mine closure on air quality. The development of cleaner coal-based energy sources as the means to reduce coal-induced environmental degradation is introduced in section VI-B and examined later in detail in section VII. 89
V. INTERNATIONAL EXPERIENCE
A. Processes, & Policies for Poverty Reduction and Environmental Protection
420. Governments of all countries with mining industries must deal with the difficult issues related to mine closures, namely: Environmental, Social, Economic and Development. In most countries, the role of government in comprehensive mine closures is increasing due to the need to implement policies and procedures.14
421. The majority of countries with mining industries have enacted Mining Laws directly or indirectly (such as within Environmental or Foreign Investment Laws). Very few governments have actually developed a specific Mine Closure Law, as it is including in the broader Mining Laws or other laws related to Environment. Most of the laws related to mine closure around the world focus on environmental protection and less on socioeconomic issues.
422. Some countries develop mining laws on a national level, while others provide a national framework and give the regional governments power to pass and enact mining laws.
423. A description of government agencies, systems, processes and policies that several countries utilize in their Mine Closure Laws and Regulations will be presented in Section I, as well as socioeconomic and sustainable development policies and experiences from Romania, Russia, and the Ukraine in Section II.
1. Systems Processes and Procedures for Mine Closure Laws and Regulations
a. United States
i. National Level
424. The U.S. legislated the National Environmental Policy Act (1969), the Clean Air Act (1970), the Clean Water Act (1972) and the Resource Conservation and Recovery Act (1976), all of which generally apply to issues related to mine closure. The National Environmental Policy Act requires federal agencies to consider the affects of proposed activities in considering how best to protect the health and welfare of the human environment.
425. In the United States, closure is typically regulated at several levels: federal, state and county. The Bureau of Land Management (BLM) regulates mining and closure on public lands under its jurisdiction through the authority of the Federal Land Management Act (FLMPA) of 1976. ii. State Level
426. The responsibility for implementing, monitoring and for ensuring compliance of specific mine closure policy and legislation is the responsibility of the individual states and their subordinate levels of government.
427. For example, in the State of California there are a number of different agencies administering their own laws and regulations that apply to mine closure. The two most important are the local agencies that control land use and the state agency that is
14 An International Overview of Legal Frameworks For Mine Closure, by Allen L. Clark and Jennifer Cook Clark 2000, page 68 90 responsible for water quality protection. The land use laws regulate post mining land use and assure that the final topography, drainage, re-soiling, re-vegetation, etc., is appropriate to support that post mining land use. The Water Quality Control Board has jurisdiction over "mine waste units." These include waste rock dumps, tailings ponds, spent heaps, etc.
428. The water quality law requires that waste disposed to land be managed within engineered waste containment units to assure that the waste will not, either during operation or after closure, impair the beneficial uses of the waters of the state, essentially a zero degradation standard for usable ground and surface water. The regulations include prescriptive engineering standards that can be generally used (such things as liner systems, leachate collection, closure caps, etc) but also allows the operator to propose "alternative engineering" to the prescriptive standards that, because of the particular nature of the waste, or the disposal site, will provide equivalent water quality protection15.
429. Other agencies also have jurisdiction, but often indirectly, by providing advise to the land use agency. For example, the Fish and Wildlife agency can offer comments and suggestions on the post mining land use and the reclamation if the intent is to provide wildlife habitat. iii. Operator Level
430. Mine operators are held responsible for reclamation and closure of their operations. The operator obtains a variety of permits from federal, state and local agencies. Requirements for closure and reclamation are made a responsibility of the operator by including them in the permit or by making them a condition of approval of their activities. The Bureau of Land Management requires an operator to file a plan of operations and reclamation plan for proposed mining activities on public land. The BLM then prepares an environmental document to analyze the proposed activities and potential impacts. Bureau of Land Management’s approval of the operator’s plan is subject to the inclusion of mitigating measures into the operator’s reclamation plan to minimize or avoid potential impacts as identified by the environmental document.
431. One way to deal with limited government resources in the U.S. is to contract services from private, third parties or consultants to undertake the sometimes specialized or needed work. In these situations, the mining operator is responsible for paying the third-party or consultant while the government entity is responsible for providing the overall management and guidance to the third-party.
b. Australia
i. National Level
432. The States and Territories administer mining development, but the 1999 Federal Government’s Environment Protection and Biodiversity Conservation Act established a nationally consistent framework for environmental assessment of new projects and variations to existing projects, based on consultative agreements between the two levels of government.
433. Mine closure issues are an important consideration in the assessment process for mining proposals. All States and Territories have mine closure policies requiring companies to develop site-specific post-mining rehabilitation plans for approval by the relevant mining agency. All jurisdictions require some form of security bond, but the calculation process for bonds varies.
15 International Institute for Environment and Development (IIED), January 2002 91
434. A national initiative was the published in 2000 jointly by ANZMEC (the Australian and New Zealand Minerals and Energy Council) and the Minerals Council of Australia of a Strategic Framework for Mine Closure. The objective was to prevent or minimize long-term environmental damage, and to create a self-sustaining natural ecosystem or other land use based on an agreed set of objectives. The Strategic Framework is a set of general guidelines for all jurisdictions. It addresses objectives and principles under six key areas of stakeholder involvement: planning, financial provision, implementation, standards and relinquishment. It does not address the issue of abandoned mines. It is not comprehensively detailed and assumes that governments (the various jurisdictions) and industry will develop complementary regulations and guidelines to advance the process of effective mine closure.
ii. State & Territory Level
435. In the example of Western Australia, responsibility for regulatory requirements and procedures is shared between the Department of Environmental Protection, on behalf of the Environmental Protection Agency (EPA), and the department of Mineral and Petroleum Resources. If a project has the potential to create a significant effect on the environment it is forwarded to the EPA for assessment. However, the Department of Mineral and Petroleum Resources handles most of the day-to-day control of the mining industry with the Department of Environmental Protection having an auditing and referral role.
436. In Australia, liability for environmental protection during the operational phase of mining lies with the leaseholder or landowner in most cases. At the time of closure, the mining lease is relinquished or extinguished and the landowner resumes liability. Each State has specific rules though16: (i) Tasmania: Crown is liable after the discharge of corporate liability with the discharge of lease and closeout. (ii) South Australia: Landowner is responsible, unless another arrangement has been agreed at closeout. (iii) Western Australia: Land titleholder or the Crown. (iv) Queensland: Liability is with the landowner, but a mining company may be held liable under the Conservation Act if subsequent problems arise. (v) New South Wales: in the case of coal, the mining leaseholder remains liable. In the case of minerals, the landowner is liable. (vi) Victoria: Liability rests with landowner, but the mining company can be prosecuted if problems related to mining arise and additional cleanup is required. (vii) Northern Territories: Once the mining company has quit the site, liability rests with the land titleholder.
c. Canada
i. National Level
437. The Federal Government of Canada is responsible for mine closure and mine reclamation in the Yukon Territory, Nunavut and the Northwest Territories. There are sections of the Environmental Assessment Act, Environmental Protection Act, Fisheries Act,
16 Clark, Ian. Planning for Closure: The Case of Australia. In Warhurst, Alyson and Ligia Noronha Ed. Environmental Policy in Mining: Corporate Strategy and Planning for Closure. Lewis Publishers, Boca Raton, 1999. Page 447. 92 and Atomic Energy Control Act to manage the reclamation of AML sites on federal land provide the Federal Government with an important indirect role in how mines are operated and reclaimed 17, but Constitutionally, minerals and metals activity throughout the rest of Canada (excluding some uranium mines) are managed and regulated by the provincial governments.
ii. Provincial & Territory Level
438. Each province is responsible for developing policies and regulations governing how mined lands are to be reclaimed within their jurisdiction. Historically, the laws have been written in a way that government inspectors are awarded a high degree of discretion in terms of how they interpret the regulations.18
439. In Newfoundland and Labrador, Nova Scotia, New Brunswick, Quebec, Ontario, British Columbia and Yukon, mining related Acts for the administration of abandoned mines and mine reclamation have been enacted. In Saskatchewan, Northwest Territories, Nunavut and Yukon government regulators rely instead on environmental related legislation. In Alberta the Coal Conservation Act is used. Manitoba has written a policy document that covers the administration of Abandoned Mines Lands, AMLs.
d. South Africa
i. National Level
440. There is a Mining and Petroleum law that has national scope for the entire mining operation, prospecting and the governance of minerals rights. Some analysts from the private sector consider that although closure policy and legislation is reasonably clear, the interpretation of it has been quite subjective by the Departments. Recent “tightening” of the interpretation has thus led to difficulties where mining companies have no history on which to base their approach, as previous requirements have been less stringent, or applied differently (specifically the financial provision issues). Legislation certainly has the potential to improve closure practice, such as the EIA regulations, the performance assessment and monitoring regulations and such. However, lack of consistent application and enforcement detracts from their effectiveness.19
441. The liability of mine closures is transferred to the State. In the event that any accumulated funds are inadequate for mine rehabilitation, State Agencies may choose to curtail the rehabilitation process or make up the shortfall from treasury funds. The majority of mining companies in South Africa have centralized the closure funds at a corporate level and these contributions are tax deductible as running costs. According to Mary Stewart and Jim Petrie, the practice and experience with remediation bonds has not evolved “to a level where there is clarity over or consistent application of the concept.”20
442. Governments in developing countries often lack sufficient funds to deal with mine closure issues. In South Africa there is very little capacity across all of the government
17 Veiga, Marcello, Stephen Roberts, Carlos Peiter, Glória Sirotheau, Maria Laura Barreto & Gilson Ezequiel. Filling the Void: The Changing Face of Mine Reclamation in the Americas. Department of Mining and Mineral Process Engineering, University of British Columbia, Vancouver, and CETEM - Centro de Tecnologia Mineral, Rio de Janeiro, 2000. 18 B.C. Ministry of Employment and Investment (1997). Health, Safety and Reclamation Code for Mines in British Columbia, Victoria, BC, Canada. ISBN 0-7726-3150-6 19 International Institute for Environment and Development (IIED), January 2002 20 Stewart, Mary and Jim Petrie. Planning for Waste Management and Disposal in Mineral Processing: A Life Cycle Perspective. In Warhurst, Alyson and Ligia Noronha Ed. Environmental Policy in Mining: Corporate Strategy and Planning for Closure. Lewis Publishers, Boca Raton, 1999. Page 167. 93 departments. There are cases where the approvals of Environmental Management Program, EMP, and applications have been delayed for up to 5 years. The problems with concurrent jurisdiction of the various government departments, and their differing requirements also delay processes.
443. There is a Standing Committee on Environmental Management for the Mining Industry. This committee is chaired by the Department of Minerals and Energy, DME, and includes representatives of the mining industry (Chamber plus others), government departments such as the Department of Environmental Affairs and Tourism, DEAT, (national and provincial), Department of Water Affairs (DWAF), Finance, South African revenue services, Agriculture. Organized agriculture and the labor unions are also represented on the committee. The Committee’s function is to serve as a forum for the different stakeholders in mining. Roles of the Committee include communication, debate issues; can make recommendations to change policy through negotiations. This structure was responsible for the preparation of the Aide Memoir (Guidance on EMP Reports) and the finalization of the accepted arrangements regarding financial provisions for mine closures.
e. Chile
i. National Level
444. Chile does not have a comprehensive mine closure law but there are several Acts that deal one way or another with the issue of mine closure. Among these pieces of legislation, the Framework Law for the Environment and its By-Laws on Environmental Impact Evaluation require environmental impact assessments (EIAs) for all mining projects - including a reference to mine closure within their Environmental Impact Studies, though it does not mention specifics or standards. Furthermore, there is no established system to properly control the execution of the commitments the mining operators state in their Environmental Impact Studies.21
445. The Chilean Copper Commission (COCHILCO) is a government agency whose mandate includes: (i) Elaborate, propose and implement policies that promote the permanent development of the mining sector, both public and private, within the context of a global and highly competitive economy; (ii) Enforce and monitor the accurate and timely compliance with laws, regulations, norms and procedures that applies to the public and private mining sector. Likewise, support the control of the application of those legal bodies in which the institution can contribute thanks to its particular expertise; and (iii) Safeguard the interests of the State in its enterprises, helping to formulate long term goals and evaluating their subsequent fulfillment to ensure the achievement of the objectives of the State-owned companies and the optimal use of the State’s resources.
446. COCHILCO has been commissioned by the Minister of Mines of Chile to carry out investigations on mine-closure, abandoned sites and mining towns to establish liabilities, technical, social and political guidelines.
21 International Institute for Environment and Development (IIED), January 2002 94
ii. Regional Level
447. The Chilean government has been involved since 1999 in a regional process to advance the enactment of comprehensive mine closure systems in the different mining countries of the region, though no substantive policies have been approved yet.
448. In May 2001, within the context of a Annual Conference of the Ministers of Mines of the Americas, CAMMA, preparatory meeting in the United Nations Economic Commission for Latin America and the Caribbean, ECLAC in Santiago, a Draft Memorandum of Understanding was presented to the delegates for their consideration. The title of the document is “Memorandum of Understanding: General Non-binding Principles for Mine Closure in the Americas”
449. The purpose of the Memorandum of Understanding was to assemble a theoretical basis for the policies on mine closure each country has implemented, is implementing, or will implement. It assumes that there are principles common to all countries governing such policies and that a harmonization of these principles could be used for the further development of national policies. This is especially true in an era in which the various
f. Brazil
i. National Level
450. Mining contributes significantly to the national economy in terms of GNP, employment and exports - therefore proposed mechanisms to assure mine reclamation, which is part of the mine closure plans, have gained great importance in the definition of the governmental policies and in the strategy of the companies.
451. The Brazilian Mineral Production Department (DNPM) has created a Work Group for the elaboration of Mining Rules. They propose that before the temporary or definitive break in activities, the mining companies should submit to DNPM a Closure Plan, containing the measures related to environmental control, including those which refer to mine reclamation.
452. Environmental Impact Assessment, EIA, is the primary tool used to control projects that can cause damage to the environment, with an aim of avoiding pollution or, at least, minimizing it by means of mitigation or alternative measures (CONAMA Resolution no. 01 of 1986). The results of the EIA should be presented in the Environmental Impact Report (EIR), which evaluates alternatives for the project’s technology and chosen site and includes aspects related to the construction and operation of the enterprise to be licensed.
453. Act 97.632 (April/89) establishes that during the EIA/EIR process, the mining operator should submit a mine reclamation plan to the approval of the environmental agency. Recovery should return the degraded land to its former condition in agreement with a preset plan for the use of the soil, in order to reach the stability of the environment. The EIA/EIR usually include issues related to monitoring programs, the future land use and the physical and chemical stability of the rehabilitated areas, but a statutory requirement for a Closure Plan is not common.
ii. Regional Level
454. Environmental licensing is required for the installation, amplification, modification and operation of enterprises that use natural resources or are potentially aggressive to the environment.
95
455. In Minas Gerais, COPAM - State Council of Environmental Policy is responsible for environmental licensing. It operates through specialized departments, which are advised by the State Secretary of Environment - SEMAD. The license is granted by means of approval of an environmental control plan. For the mining projects this plan considers the several stages of the enterprise, and it also establishes the conditions, restrictions and measures of environmental control that should be obeyed. In the environmental licensing process, the decision about the need for a closure plan is determined by technicians of SEMAD and of members of the Mining Activities Chamber.22
iii. Operator Level
456. In Brazil, the company can be considered responsible for the environmental impact associated to its activities even if this impact is caused after its closure. Sometimes this responsibility is defined in a very general way, causing a high degree of uncertainty according to the chosen approach of responsibility (CASTRO, 1996): (i) Strict Responsibility: responsibility for causing damages even if the activity of the company is considered legal and cautious. (ii) Common Responsibility: a company can be made responsible for all environmental problems on its area of influence, even if this company is only partially responsible for the damage. This approach can discourage the retaking of the abandoned mines by other companies, even if this is the most acceptable way of achieving the rehabilitation of the area. (iii) Retroactive Responsibility: responsibility for damages caused previously to the Act or any specific regulations. It usually implies high costs to define who should take the responsibility.
457. In some cases this situation can lead companies to go beyond the commitments with the legislation, but usually these approaches are criticized for being unfair and for discouraging investments in mining activities.
458. Table 27 presents additional information in the form of a snapshot view of what is included Mine Closure Related Provisions for various developing countries:
22 International Institute for Environment and Development (IIED), January 2002 96
Table 27. Provisions in laws, implementing rules and regulations of select countries for coal mine closure.23
Country Closure Require EIA Require Require Require Negotiated (environmental) SIA Reclamation Bonding 24 (social) / Rehab Africa Burkina Faso – x x x x Botswana x x – x – Ghana – x – x – Namibia – x – x – Tanzania x x – x – Zambia – x x x Zimbabwe – – – – – Asia Bhutan – x x x – Brunei Darussalam – – – x – Cambodia – x – x x China x – – x – Democratic People’s Republic of Korea – x – Indonesia x x – x – India x – – x – Kazakhstan – x – x – Kyrgyzstan x x – x – Lao People’s Democratic Republic x x x x Malaysia x x – x – Mongolia – x – x x Myanmar – – – – – Philippines – x x x x Republic of Korea – – – – – Sri Lanka x x x Tajikistan – – – – – Thailand x x – – – Uzbekistan x – – x – Viet Nam – x – x x Latin/South America Chile – – – – – Costa Rica x x – x – Ecuador – x – – – Guyana x – – – x Mexico x x – x – Peru – x x x – Venezuela x x – – – Middle East Islamic Republic of Iran x x – x – Saudi Arabia x – – x –
23 An International Overview of Legal Frameworks For Mine Closure, by Allen L. Clark and Jennifer Cook Clark 2000, page 72 24 Virtually all Mining Laws provide for a great deal of discretion on the part of the Minister would apply to issues of mine closure. Those noted (x) pertain to delegations of authority that are specific with respect to mine closure 97
2. Socioeconomic and Sustainable Development Policies and Experiences from Russia, Romania, Ukraine, and Poland.
459. A study was conducted by the World Bank in 2003 to evaluate the progress and effectiveness of mine closure policies in terms of local, community, social, and development after a period of time. This study included Romania, Russia and the Ukraine – countries where major coal mine closures were initiated at least 5 years ago. Highlights and relevant findings include:
a. Romania
i. National Level
460. Despite inherently poor conditions, the Romanian coal sector, like other extractive industries in the country, was extensively developed under the previous government’s goal of economic self-sufficiency. The emphasis on increasing production irrespective of costs resulted in a larger industry than was economically justified and which consequently required extensive budget support. As the industry expanded, its relatively high wages attracted large numbers of workers from all over the country.
461. The coal sector is of significance on the national level in view of the all-Romanian character of its workforce, the high levels of subsidization provided to the industry, and more recently, as a result of the scope of the Government’s sector restructuring program and the attendant resistance to further layoffs by the unions and general social unrest that has accompanied phases of the restructuring program.
462. Coal sector restructuring was launched in Romania in 1997, which was a particularly bad year for the country’s economy overall, and the first year in a three-year trend of negative growth. The Government tried something new and in 1997 restructured the coal industry through a voluntary program rather than the involuntary method of mine closure.
463. A generous separation package consisting of up to 20 months of wages as severance was offered to workers in the coal and other extractive industries constituting Romania’s mining sector. The acceptance of the voluntary package was two to three times the expected amount, far exceeding the expectations of the Government and the trade unions. By December 1998, approximately 83,000 miners (out of a total of about 173,000 workers total for coal and other mining industries) left the industry, including about 70,000 who had accepted the voluntary redundancy package (the others retired)
464. The Government had expected that a large portion of those accepting the separation package would return to their native regions but this did not happen. The combination of so many workers leaving the industry and the low level of out-migration precipitated a sharp decline in general economic activity in the mining regions as the redundancies triggered further unemployment in local service industries, which were not adequately compensated for by labor redeployment efforts.
465. By January 1999, the severance payments of the first large group of workers to accept the separation package were largely consumed and it became clear that employment options in the coal regions were still extremely limited. The positive feelings of the separation package declined dramatically and mining unions went on strike to protest against continued high unemployment and the poor results of efforts to create jobs in the mining regions.
466. Social unrest started and trade unions led a march on Bucharest. The Government managed to contain the unrest through a negotiated settlement with the striking miners and 98 the restructuring program has gone forward although employment opportunities in the mining regions remained limited.
467. The Government realized that in 1997 it had stimulated the mass downsizing of the industry with offer of generous voluntary separation packages but without having put measures in place for the restoration of the incomes of the workers separated from the industry.
468. Since then, with support of the World Bank and the UK Department For International Development (DFID), the Government has developed a social mitigation strategy for the mining industry consisting of: (i) micro-credit programs; (ii) work space centers using facilities at closed mines; (iii) an enterprise support program; (iv) an employment and training incentive scheme; and (v) a public information and social dialogue.
469. In addition to the programs focused on the mining regions, other national-level programs sponsored by the Romanian Government in order to stimulate employment in depressed regions, including the mining regions.
470. These programs include subsidized credits and temporary work programs. The temporary public works programs, which provide employment up to six months, are the best known within the local mining communities and in many cases are the only Government- sponsored employment programs known. This suggests that longer-term mitigation policies require more than a few years to begin to have the intended effect, if at all.
ii. Regional Level
471. The results of restructuring in three mining town indicate various degrees of success according to surveys conducted.
472. The town of Motru has fared best, primarily due to the availability of small agriculture as an alternative solution; agricultural products are a constant part of the household income in a significant number of cases. Social services in Motru are considered relatively good, as are the conditions of housing, including water and heating pro.
473. In contrast to Motru, which is relatively isolated from large cities, Uricani is integrated into the communities of the Jiu Valley. Local social services are poor. The city has derived some benefits from the political visibility of the Jiu Valley, such as the Solidarity Fund—a program of social assistance that is used primarily in the Jiu Valley. In Uricani, as in the entire Jiu Valley, agriculture is not an option. Housing, especially the older ones, is also in particularly bad condition.
474. Anina, a small town quite isolated from the larger city of Resita, has fared the worst of the 3 locations surveyed because it has neither agricultural opportunities nor political visibility. The forest is the main subsistence source for chronically unemployed people, especially because heating in all the housing complexes is based on wood. The state of housing blocks is rather poor, and significantly more apartments are in public property. In Anina, more than anywhere else, the majority of those surveyed have the feeling of being at a dead end and having no future.
99
b. Russia
i. National Level
475. Russia remains one of the largest producers of coal in the world, Even after the closure of 183 heavily loss-making mines over a few years. The downsizing of the overall industry workforce has been from 900,000 in 1992 to 328,000 by the end of 2001. The restructuring of the coal industry has been in progress for almost a decade in Russia: de facto restructuring began in 1993, when the price of coal was liberalized.
476. Russia has progressed significantly in implementing coal sector restructuring, which in addition to the program of closure of loss-making mines and related social protection and mitigation programs has included notably the privatization of the sector. The elimination of government subsidies at the end of 2001 is also an achievement that not all coal-producing countries can claim even after decades of restructuring, and is directly linked to the successes in removing loss-making mines from production.
477. As for programs directed at the community, the long period of coal sector restructuring in Russia has allowed for a relatively long-term focus on local development and job-creation programs.
478. Russia has taken in over US$2.1B in international loans from 1996-2001 to assist with coal sector restructuring, plus US$773MM in of its own funds. A portion of this funding was funneled into Local Development Programs (LDP). The following major aspects of the LDP in Russia are noted.
1) Statutory payments made to affected individuals.
479. At the beginning of sector restructuring in 1992 this was limited to miners laid off from closing mines. Over time, this policy was expanded to include workers laid-off from continuing mines. Eventually, workers of auxiliary enterprises that were demonstrably directly impacted by mine closure were also paid.
2) Professional Retraining
480. There has been an extremely small volume of financing that municipalities have allocated to professional re-training programs. While these are often and common policies in cases of large-scale industrial downsizing, the experience in Russia indicates that this policy tool has not been used.
481. Interviews that were conducted by the World Bank with local experts and with recipients of the training indicate that the major problem with professional re-training, even when the training is of a high quality, is the lack of relevance of the professions in which training is provided to the needs of the local job market. This experience is consistent with that of other countries.
482. Another view encountered in some of the interviews is the more complex question of demand for such services among laid-off miners. One frequently encountered point of view is that the miner’s mentality is such that he is not inclined to seek employment in other professions, and hence not interested in retraining.
483. In recent years, jobs have become available again in the coal industry in some regions, and miners prefer to seek employment in the profession they know best and in which they can make relatively better wages. A comparative study of social assessments carried out in 1996 and 2000 found that in 2000, interest among miners who had been laid- 100 off in connection with mine closure in seeking re-employment in the industry had increased, 25 while interest in re-training had decreased relative to the 1996 survey.
3) Temporary Public Works
484. Temporary public works were utilized during the beginning of the mine closure period in order to quickly create jobs and relieve social tensions. Over time the amount of public works is reduced significantly as other job and economic opportunities improve over time.
4) Small Business Support and Job Creation Programs
485. Micro-Credit Programs and other funds were provided as co-financing of investment projects on a competitive, returnable basis both for the expansion of existing small enterprises and the creation of new small enterprises outside of the coal sector.
An analysis26 of existing data on the 410 businesses that had received co-financing for projects from the job-creation component of the LDP over the years 1998-2000 and that had used these funds to create 19,115 jobs outside the coal sector. A more detailed analysis of 42 enterprises was conducted as well, 28 had been created with the help of LDP subsidies, and the other 14 were existing small enterprises that had used LDP funds to expand their businesses.
486. Enterprises were evaluated on the basis of five criteria: (i) financial potential; (ii) productive potential; (iii) marketing assessment; (iv) socio-economic assessment; and (v) investment potential. The analysis found that some two-thirds of the surveyed enterprises had good or very good potential for long-term viability, growth, and continued job creation. The remaining one third of the enterprises were rated assessed to have a chance to fare well, but needed to improve various aspects of their operations and clarify their overall business strategies.
487. Despite the relatively positive assessment of this performance, it is important to keep in mind the small scale of job-creation relative to the loss of jobs due to mine closure. Over the years 1997-1999 sector employment decreased by about 156,000. Assuming that one- third of this number retired, about 104,000 workers would have entered the job market; thus, the jobs created under the LDP provided employment for only 18 percent of those who entered the job market as a result of mine closures. It would be necessary for a few of the successful businesses in each location to become large companies in order to create additional jobs with enough volume.
5) Relocation
488. Relocation was a special category used by a small number of isolated municipalities and extremely expensive.
489. One of the major issues with LDP funding allocation has been the question of whether former miners and non-miners alike, or only former miners, were the intended beneficiaries of these funds (either as workers in temporary public work programs, or as entrepreneurs competing for investment funds, or as employees in enterprises creating jobs with the help of the subsidies.) The intent on the national level has been to ensure maximum access to LDP funds to benefit the entire community. In practice, however, different regions have employed various interpretations, with some insisting that the LDP funds are “money
25 World Bank Social Development Papers, No. 42, June 2003, page 52 26 This analysis was conducted by local private Consultants and paid for by the World Bank, results excerpted are from Reformugol (2001). 101 for the coal miners” and should be used to alleviate the situation of miners and their families. Most regions, however, have followed a more inclusive policy that is closer to the intention of the programs.
ii. Regional Level
490. The mining city of Novoshakhtinsk was identified as one that focused on long-term development after a 5 mine closures. The city first invested, using LDP funding, in the establishment an infrastructure to support small business development. This was different from many other cities where job-creation programs were created before support infrastructure was in place.
491. The city’s long-time mayor, 11 years, focused on lasting, strategic, development and created a dedicated team to work on this. They identified that Novoshakhtinsk’s work force lacked good managerial and entrepreneurial skills. Therefore the development of overall business skills among the local community was the top priority.
492. Two municipal agencies were created, a Business Incubator (BI) and a Municipal Foundation for the Support of Small Businesses (MFSSB). The BI was created in 1996 and provided various types of support services (providing loans, technical assistance and business consultation) to all entrepreneurs and businesses. After 2 years, in which several business were developed, the MFSSB was created to focus on small business support – which allowed the BI to focus on providing support services to medium and large size enterprises.
493. In addition to setting up these two agencies, a business park was created on the land of a closed mine. This location served as a site for training and consulting services to small entrepreneurs as well as partially subsidized office space and facilities (security, Internet access, etc.) for up to a 3-year period.
494. Positive results such as the conversion of a former military factory to a manufacturer of mechanical components has increased headcount from 400 to 800 people. A second round of investment projects are being financed with the loans that have been paid back.
495. Even though this type of example is positive, it should be noted that the total number of jobs created is still a small percentage of those that were lost with the closing of 5 mines. Local experts in Novoshakhtinsk believe local employment issues will not stabilize until 3-4 large size enterprises are newly created.
c. Ukraine
i. National Level
496. The coal industry in Ukraine is large, uneconomic and has a poor productivity and safety record. In 1996, the Government adopted a restructuring policy of: (i) closing about 20 uneconomic mines per year; (ii) improving of the operation of the mines with the best long-term prospects; and (iii) providing production subsidies to mines which have no future but which the Government had decided against closing immediately for social and political reasons.
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497. Up to mid-2002, about 90 mines, mostly in the Donbass, have been closed. Donbass is the traditional coal-mining center of Ukraine and has about 190 mines still in operation.
498. In September 2001 the Government adopted a program called Ukraine Coal 2001- 2010. This program reversed the Government’s earlier commitment to carrying out a comprehensive reform of the coal industry, and reverted to the earlier policy of supporting increased production through high levels of subsidization of the industry. The motivation behind the change in policy is believed to have many factors such as: (i) influence of vested interests that benefit from the existing subsidies; (ii) continuing poor general economic condition of the country and concerns over exacerbating the difficult socio-economic situation of the coal regions; (iii) energy security—that coal, as an indigenous energy source, deserves special protection from the Government; (iv) failure to date of municipalities heavily dependent on the coal industry to diversify their economies; and (v) negative experience of the first significant wave of mine closures, which had a particularly harsh impact on some municipalities,
B. Social Mitigation
499. The most common labor market instruments to alleviate unemployment include the provision of redundancy payments, retraining schemes, and voluntary redundancy schemes. Mostly used by governments in the case of the restructuring of state-owned mines, these instruments are increasingly of interest to private mining companies. For example:
a. Poland
500. An essential element of the program in Poland consists of converting jobs and restructuring of the labor market in mining localities. The State aims not to allow unemployment to increase. Measures include: (i) re-employment of mine employees leaving the coal industry; (ii) free of charge for re-qualification and training processes adjusted to labor market demands; (iii) provision of social protection measures: to mitigate the negative social outcome of the complete or partial closure of mines and to create conditions to favor the reduction of employment, the so-called "Social Package of Mining" has been worked out. The Package includes allowances such as "five-year leave of miners". This facility makes it possible for miners that are up to five years short of retirement to leave the mines and become entitled to a social allowance that will amount to 75% of monthly wages; and (iv) unconditional redundancy payment of 24 monthly wages granted to the employees who leave the mining industry and resign from all other employee benefits.
501. To stimulate the creation of new jobs, the program besides providing a wide range of easily accessible free-of-charge professional retraining courses, also offers essential financial incentives for the employers of those who ceased working at mines. Those incentives include: 103
(i) refunding the full value of obligatory employers' contribution to social protection fund; (ii) preferential terms of credit for enterprises involved in enlarging activities and re-hiring miners who had left; and (iii) mining communities could also apply for preferential credits that could be utilized to create new jobs.
b. Romania
502. In 1997 Government began restructuring the coal industry through a voluntary program rather than the involuntary method of mine closure. A generous separation package consisting of up to 20 months of wages as severance was offered to workers in the coal and other extractive industries constituting Romania’s mining sector. The resulting rush to accept the package, which was two to three times the size of what other industrial workers were being offered, far exceeded the expectations of the Government and the trade unions.
503. By December 1998, about 83,000 miners (out of a total of about 173,000 workers for coal and other mining industries in total) left the industry, including about 70,000 who had accepted the voluntary redundancy package (the others retired) - but no measures were taken to create new jobs. Consequently, most of the funds were used for consumption. When they ran out less than a year later, the workers came back to the government demanding jobs and social assistance.
504. The government responded by developing a social mitigation program to generate new economic activity in the mining regions, including the conversion of un-used mine buildings to Workspace Centers, technical assistance to help establish small businesses, employment incentives for on-the-job training to create new jobs, and provision of micro- credit facilities. Implementation of the program has been supported by a Mine Closure and Social Mitigation project, financed by the World Bank.
c. United Kingdom
505. British Coal divested a total of 204,000 workers, mostly over the age of 50, who accepted lump sum redundancy payments. In addition, British Coal Enterprise Ltd. was established to assist employees in the sector, and their families, in developing skills and securing new employment with a special emphasis on helping displaced workers start small businesses.
d. Chile
506. The Retraining Program for Displaced Workers is a pilot project organized recently by the government of Chile with the financial assistance of the Inter-American Development Bank Multilateral Investment Fund. The program is mainly designed for skilled adult workers displaced by industrial restructuring and technological progress. The program is currently focusing on the retraining of more than 1,000 redundant coal miners.
507. The program is managed by the Production Development Corporation includes subsidies for counseling, retraining, and employment intermediation services for displaced workers. The private agencies that provide these services are selected on the basis of competitive bidding and receive a maximum subsidy of approximately US$2,000 per reemployed worker. Enterprises that hire retrained workers receive a subsidy of approximately US$900 per worker. The retraining and reemployment program is part of a 104 broader plan for industrial restructuring in the coal-mining region that offers a series of incentives for private investment in labor-intensive projects.
e. Japan
508. Reemployment measures implemented for coal mine closures include: (i) Assistance to mine workers for their change of job. (ii) Establishment of vocational training schools. (iii) Extension of insured period to pay against jobless claims under unemployment insurance to a maximum of five years. (iv) Preferential treatment of any company that employed retired mining workers. (v) Employment of former mine workers on any rehabilitation project or development project in the deprived mining areas. (vi) Issue of job application record books. According to the Law for Temporary Measures for Stable Employment of Coal Mine Workers (enforced in 1959) and the Law for Temporary Measures for Stable Employment of Workers in the Specified Declining Industries (enforced in 1983), what were called “Black Record Book” and “Green Record Book” were issued for coal mine job leavers. The Black Record Book was for coal mine workers who had been employed for one year or more before they left by the mining company or by a subcontractor on a job inside of a coal mine or a job for essential services outside the mine. The Green Record Book was for all other mine personnel not eligible for the Black Record Book. (vii) Allowance for coal mine job leavers (a) as a benefit of the unemployment insurance, its base allowance was paid (max. for 300 days) from the next day they lost the job and it was extended for a certain period (mostly for 90 days) if they were not employed yet, and (b) for those who were still unemployed at that point, the employment promotion allowance was paid until the Record Book was expired (in three years and one year after losing the job for the Black Record Book holders and for the Green Record Book holders, respectively). As for the level of these allowances, the unemployment insurance base allowance was about 50 percent to 80 percent of the daily wage before losing the job. (viii) Vocational training was carried out free of charge in principle for those who wished to participate, and a Training Allowance and Participation Allowance were paid during the training period. (ix) For those who were going to be re-employed, the Employment Preparation Allowance was paid, the amount of which depends on the number of days since leaving the job.
509. The brief review of the international practices presented in the preceding paragraphs demonstrates a broad range of social support programs. The most successful programs include direct dialogue between key stakeholders (e.g., the government, enterprise management, workers, and community leaders) both before and during the restructuring program.
510. The stress and emphasis on income support (e.g., severance) vs. and other forms of support (e.g., labor services) vary depending on economic and employment conditions, but most programs include both elements to varying degrees. Any new Social Support Package should draw on this, and worldwide, experience and be designed in a manner to respond to current conditions in a specific country. 105
VI. PROPOSED IMPROVEMENT TO POLICY, REGULATIONS, AND MITIGATION
A. Policies, Regulations, Institutional Arrangements, and Mandates
511. As introduced in Section III-C-8, a large obstacle to the effective closure of small coal mines is that current policies do not address the benefit distributions of the different stakeholders. Remediation mechanisms for the losses of most stakeholders are not included in the existing policies. The following policy recommendations are put forward:
1. Boost Industrial Diversification of Local Economy in Small Coal Mine Closure.
512. From the experience of other countries, such as Romania, Russia and Ukraine, the most affected areas in mine closure are those areas whose industry structure heavily depends on the coal industry. It is obvious that diversification of industry structure is one of key measures to mitigate the negative impact on economic development for areas of small coal mine closures. It is important for local governments in the process of coal resource integration to prepare relevant plans to boost the industry diversification of local economy be established. Different areas have their own advantages except coal resources. The responsibility of local government is to identify these advantages and make decisions accordingly.
2. Design Support Mechanisms for Individual Entrepreneur SME Development.
513. International experiences demonstrate that individual entrepreneurs and small & medium enterprises (SME) have an important role in local economic development and employment. A standard policy response to the economic recession and high unemployment that can arise from industrial restructuring is to foster the development of individual and SMEs. Shanxi province is facing the same problem in the process of small coal mine closure. It would be prudent to foster the development of individual and SMEs in the areas of coal mine closure. But individual and SMEs have their intrinsic vulnerabilities such as lack of finance and information, and lower level of technology and management, etc. Effective mechanisms such as the provision of micro credits to individual entrepreneurs, subsidized credits to small and medium enterprises, technical assistance, and support business development through business incubators and workspace centers, should be designed to attain the objective.
3. Design Compensatory Mechanisms for Different Stakeholders.
514. As described above, the loss to different stakeholders from no compensation is one of the biggest obstacles in the implementation of the policies of mine closure. It is important that compensation mechanisms are established for different stakeholders. If legal coal mine are to be closed down because annual production cannot reach 90,000 tons/year in Shanxi province, compensation should be provided. The amount of compensation can be determined according to the investment and the length of time the owner’s operating the mine. For laid-off mineworkers, compensation should be made before they find new jobs and various professional training should be made available to help laid-off miners to look for new jobs.
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4. Combine Mitigation Action with National Development & Assistance Strategies
515. There are existing national development strategies in the different stages of implementation such as the strategy of construction of new rural areas and poverty reduction strategy. The affected areas of mine closures should have priority in receiving assistance from these strategies.
5. Establish a Mitigation Fund for Negative Impacts Small Coal Mine Closure.
516. The goal of a mitigation fund is to help reduce the negative impacts of mine closures, which include: 1. boost industrial diversification of the local economies affected by small coal mine closure; 2. assist displaced coal miners find new jobs; 3. provide small credit loans to encourage displaced coal miners to build small business; 4. compensate small, legal, coal mines that are forced to closed down; and 5. provide subsidization to offset some of the costs for site remediation and rehabilitation.
No mitigation measures are included in the current policies for mine closures in Shanxi province or China. The costs are the most important factor in the mitigating negative impacts of mine closures. Thus, it is necessary to establish a special fund to cover these costs.
517. The establishment of this mitigation fund in China is feasible. In June 2006 the State Council ratified the Pilot Policies for the Sustainable Development of Coal Industry in Shanxi Province (thereafter known as the pilot policies). One of important issues of the pilot policies is its regulation of the benefits distribution coming from the reimbursement of coal mining rights between the central government and Shanxi province. According to the pilot policies, 20% of the benefit from reimbursements for coal mining rights in Shanxi province will be allocated to the central government.
518. The Shanxi provincial government will be allocated the remaining 80% of the benefits. The benefits received by the Shanxi provincial government are to be used primarily for: 1. ecologic, environmental, rehabilitation or coal mining areas; 2. coal resource exploration and protection; and 3. reduction of the social burden of state owned coalmining enterprises, etc.
519. The detailed plan for the use of the benefits is to be mapped out by the Shanxi provincial government and then examined and approved by Ministry of Finance, Ministry of Land and Resources, and National Development and Reform Commission. It is recommended that a portion of the benefit due to the Shanxi provincial government be utilized as a mitigation fund. Other sources of funding can be from the transfer payments of the central government, social donations, etc.
B. Development of New Industries
520. The increased unemployment from closing small coal mines will negatively affect the economy. To help address the unemployment problem and other social issues involved with 107 the closure of small coal mines, the transformation of industrial structure should be accelerated to develop connected and substitute industries that will create many new job opportunities as possible.
1. Industry Selection for Small Mine Closure Areas
521. Industry selection is the first step toward the adjustment of industrial structure which is and an important factor that will determine future profitability and management risks. Before making decisions on industrial development, a thorough understanding of the new industries is needed to demonstrate and prove the feasibility of relevant projects. Further clarification is needed of the capital requirements, required techniques, selling, personnel, brand name, and quality of target industries. The conditions that must be met by enterprises to enter the target industries must be clear, as are the factors that are crucial for the overall success of target industries.
a. Apply favorable policies
522. Appropriate use of favorable policies must be maximized including the reliance on local resource advantages, as well as including the coal power and processing industries. On December 21, 2005, the State Council issued “Temporary Regulations on Stepping up the Adjustment of Industrial Structure”, which points out the establishment of infrastructure in energy, transportation, water conservancy, and information etc. to guarantee the stable development of economy. At the same time, the Development and Reform Committee issued “Guide to the Adjustment of Industrial Structure” which accordingly defines the encouraged, limited, and eliminated projects involving over 20 industries. Projects to be encouraged related to mining areas include: (i) Exploit fuels low in calorific value (including gangue) and by-products of coal mining. Manufacture relevant equipment. (ii) Merge coal power and coal tarring (furnace gas and coal tar processing) into an organic whole. (iii) Make electricity using generators whose generating capacity should be at least 20,000 kilowatt per hour and which use gangue or inferior coal.
523. Coal production is the very beginning of the overall production chain. According to the market demands, we should extend the chain of coal processing and maximize its added value so as to establish an industrial group of coal processing and utilization. For example, in many places it is a common practice to make electricity from coal or gangue and hence develop other industries forming a coordinated industrial group. Developing connected industries by extending the industrial chain can make the most of the coal resource in Shanxi Province and solve the unemployment problem caused by the closing down of small coal mines. i. Proposed Coal Mine Area Development Project (CMADP)
524. The CMADP is a good example of further development of cleaner coal-based industries to offset unemployment caused from closure of small coal mines (see section VII- B below). The development of cleaner coal-based industries in Shanxi province has been examined by the project (ADB TA 4566) as a means to offset unemployment caused by the closure of small coal mines.
525. The CMADP is comprised of a suite of integrated coal-based projects that provide significant potential social and environmental benefits. The CMADP is a good example of the potential for the development integrated projects that provide alternate employment for 108 displaced coal miners while exploiting coal resources more efficiently with better technologies. The reader is directed to Section VII-B below for an assessment of the economic, financial, employment, and environmental benefits of the CMADP.
b. Re-allocation of labor force
526. Emphasis must be placed on the allocation and development of the labor force including labor for the service industry. To reduce risks the coal mining areas should take remaining human resources into full consideration when choosing industries not related to coal mining. The remaining resources that can be transferred are mostly in the form of management experience and low skilled labor force. Therefore, the industries chosen should be able to absorb the labor force, such as farming, aquaculture, dining, clothes-making and so on. It is also agreeable, inter alia, to make full use of their unique conditions to develop feature industries. For example, in Luer District in Germany, mining facilities were modified to serve as feature restaurants; iron and steel factories as exhibition halls.
c. Land Resources and High-tech Agriculture
527. The land resources, and potential for the development of high-tech agriculture should used to full advantage. The transformation of industrial structure in the mining areas should take local conditions into full consideration, diversify the range of industries, and provide more job opportunities. Substitute industries should be developed to use local conditions. For example, in Fuxin in Liaoning Province there are large areas of land for which local climate, sunshine, and soil are all suitable for cultivating crops, flowers and plants, vegetables, and edible mushroom. As a result modern agricultural parks have been established which enable miners to find jobs after coal mines are closed down.
d. Foreign Investment
528. Foreign capital should be attracted to invest in the transformation of industrial structure. Some mining areas in Shanxi Province have poor fiscal solvency making it difficult for them to realize the goal independently. Thus, it is necessary to attract foreign capital. Foreign investment brings not only capital, but also advanced technology and management ideas, which are crucial to the development and employment of Jincheng mining area.
529. First of all, it is necessary to increase construction of basic facilities, thus creating a good environment for foreign investment. For example, in the 1970s the Japanese government built a modern airport in Kyushu and made transportation more convenient which provided an ideal environment for the electronic industry. Forty percent of Japan's integrate circuits are produced in Kyushu along with 30% of Japan’s production quota which transformed Kyushu from a mining area to Japan’s “silicon island”.
530. A good soft environment includes an uncorrupted and effective government, a favorable commercial atmosphere, citizens of high quality and civilized social environment. Among other things, improving the government’s service role is the key to the construction of soft environment.
2. Policies for Other Industrial Development in Jincheng
a. Establish Supportive Policies
531. Establish favorable policies and development areas for connected industries. To enhance the development of substitute industries, it is advisable to establish “development 109 areas for substitute industries” in cities that are rich in natural resources. In these areas new industries can enjoy favorable policies. As a result, industries in other areas are attracted to these cities selectively and systematically which is helpful to the adjustment of industrial structure and the reemployment of laid off workers.
532. For example, to assist economic transformation in areas that experienced closed coal mines, the government of France made efforts in two respects: 1) it encourages enterprises from other areas and foreign enterprises to invest in mining areas; and 2) it encourages local enterprises and individuals to open businesses. The following policies and measures in France were adopted:
i. Industrial & Construction Development
533. Establish the construction of basic facilities and build a good investment environment. The government set aside special funds to establish “the Industrial Development Foundation for Mining Areas”. In 1984, the first appropriation of 450,000,000 Francs was made. The funds were mainly used to build basic facilities and need not be repaid. The European Union’s support cannot be ignored. It invested over 100,000,000 Euros in Luolin District of France alone.
ii. Financial Support
534. Establish financing (investment) companies (SOF1REM) to help the industrialization of mining areas and give financial support to whomever starts enterprises in mining areas. The company encourages the construction of basic facilities and the start-up of enterprises by buying shares and granting loans. The interest rate on these loans is generally lower than that on bank loans by 3%. At the same time, consulting service is provided free for the companies that will start enterprises in mining areas.
535. The financing company has made some achievements after 34 years’ efforts. At the time of its foundation in 1967, the government invested US$ 2,000,000. Now the company has a total capital of US$250,000,000. In 34 years, its total financing has reached US$5,000,000,000 and over 4,000 small or medium sized enterprises have been aided financially.
iii. Investment Subsidization
536. Establish preferential policies in taxation. As an example, the French government will usually establish high-tech parks in major areas that require industrial transformation. To attract investors it will provide subsidies and financial aid for desirable investments. For example, in Luolin District any project that can create over 40 job opportunities and can invest 40,000,000 Francs in three years can enjoy the financial aid provided by the Industry and Service Sector Foundation. Any enterprise started in mining areas can be exempt from taxation in the first five years of its operation and then taxation is gradually restored. As a result, many companies are attracted to the mining areas to invest. In fifteen years 341 enterprises from 18 countries have settled in Luolin District, and created 48,000 job opportunities.
iv. Enterprise Development Support
537. Establish enterprise gardens (enterprise incubators), cultivate new enterprises, and provide more job opportunities. Enterprise gardens help entrepreneurs to research the feasibility of their projects and start new companies. There are ten such gardens in Luolin District in France. Statistically, the chances of success of new enterprises in Luolin District 110 are 50%, while success of those enterprises aided by gardens is as high as 80%. Gardens are commercial organizations jointly created by chambers of commerce and individuals, and they are encouraged and subsidized by the government.
v. Industrial Transformation Support
538. Strengthen the guidance and organization of the industrial transformation in mining areas. For example, in Luolin District many organizations are set up to deal with the detailed affairs during economic transformation, such as “Economic Transformation Committee”, “Industrial Promotion and Development Association”, “Land Management and Coordination Office” and so on. Some important projects are intentionally channeled to the areas that have closed down coal mines. For example, with the government’s help Luolin District won the bid for the construction of Benz mini-automobile factory. The Toyota Company was persuaded to start a factory in this area. Besides, the Renault Automobile City is also located here. These enterprises have provided many job opportunities for the mining staff and their offspring.
539. Thanks to the above mentioned measures, the economic transformation in the French mining areas is a great success. After the gradual closing down of coal mines in the Luolin District the following three new industries emerged: automobile, electronics and plastic processing. The number of workers in these three industries makes up 20% of the total industrial staff (only 5% in 1960). There are more than 20,000 workers in the automobile industry including the manufacturing of component parts, over 12,000 in the electronics industry and over 8,000 in the plastic processing industry. Some traditional industries have been developed further, like metallurgy, machinery, chemical industry, textile industry, forestry, agriculture etc.
540. It is advisable to learn from foreign experience. The central government and the local governments in Shanxi province should lay down favorable policies to encourage the industrial transformation in mining areas. First of all, provide financial support, establish industrial transformation foundations and set up financing (investing) companies. Second, carry out favorable policies to attract domestic and foreign investors, create more job opportunities for laid off workers. Third, these areas should have priority over others when the central government, the Shanxi provincial government and the municipal governments decide on the location of some major projects.
b. Transformation of Government Function
541. Transform the government’s functions, attract investments, and serve enterprises. The local governments should refer to international practices and the rules of market economy and at the same time create fair judicial system. To revitalize local economy and solve the unemployment problem, they should also build a good environment that can attract both domestic and foreign personnel and investors. In addition, small and medium sized enterprises should be welcomed. Large enterprises are of course highly desired, however, the role of small and medium sized enterprises cannot be ignored. Special favorable policies should be formulated to bring in successful small and medium sized enterprises in large numbers and create more job opportunities. For example, the British government drew up “Enterprise Extension Plan” for the economic transformation of cities rich in natural resources. The purpose is to provide consulting service for small and medium sized enterprises. One of the financial policies is to grant larger loans for their starting. For every job opportunity created by small enterprises, the government will grant 3,000 pounds.
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c. Training & Awareness of Employment Opportunities
542. Offer training programs, strengthen the awareness of finding jobs through the market and improve the employment possibility. Besides the policies and measures that help the reemployment of laid off miners, the government should also grant financial aid to encourage the local governments, offer training programs, provide job opportunities for laid off miners, and cultivate a labor market that fits in with the industrial transformation.
543. First of all, change the workers’ idea of job finding. The laid off workers in mining areas are often too addicted to their previous jobs and they have no awareness of finding jobs independently. Therefore, it is advisable to launch a campaign to educate them, change their old fashioned ideas and strengthen their awareness of finding jobs through the market.
544. Second, offer job training programs. Different forms of training programs are required. The trainees differ greatly in education background, skill, age and capability. Therefore, it is difficult to achieve good results using uniform training methods during fixed training periods. We should offer individual training service to different trainees. Training programs different in methods, time, location etc. should be offered to laid off workers. Then, the training programs should be practical. Before carrying out training programs, the relevant departments and training organizations should do some research and get a clear idea of what laid off workers really need. The purpose is to offer effective training and help them find jobs easily after training. Finally, combine job training with vocational introduction. The training organizations should cooperate with employment and reemployment centers to coordinate their actions. While improving the workers’ capabilities and skills, they should also help them choose jobs suitable for them, i.e. put what they have learnt into practical use.
545. Third, put emphasis on business training. Business training can not only help the trainees themselves become self-employed but also create job opportunities for others. Therefore, it is an important form of reemployment. Business training should put special emphasis on improving the trainees’ overall abilities, including business awareness, experience, judging ability, management ideas and some basic skills etc. In this way, those who desire to do business on their own are taught how to start small enterprises, how to stabilize and develop them. Besides, business training should be combined with follow-up service. For instance, help newly created small enterprises work out development plans. Offer the use right of sites and consulting service during their initial operation and growing period.
d. Organization and Management
546. Adjustments to organization structure and management system. While the mining areas transform their industrial structures, their scope of business will be enlarged continuously. Therefore, it is necessary to adjust the organization structure, management system, investment system, and ownership system to fit in with the development of enterprises. All advanced management experience and methods that fit with the establishment of modern enterprise system can be adopted, such as the owners’ responsibility system in real estate, the stock system in property right, the encouragement system, the annual salary system for top management, stock ownership system etc. In particular, while advancing the technical renovation of non-coal-related industries, the sharing of profits should be encouraged as a result of investing production elements like capital, techniques, and buying technical shares.
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e. Development of Private Economy
547. The development of private economy should be fully supported. The development of private economy plays an important role in advancing the industrial transformation, increasing job opportunities, and maintaining social stability. The local governments should carry out related policies to encourage self employment and guide laid off workers to get engaged in the service sector, such as nursing, environmental sanitation, house keeping, maintenance, house moving, driving, cooking, dining and entertainment, consulting etc. Laid off workers are also encouraged to open factories, start shops, do business, get engaged in goods circulation etc. To make good use of the idle capital in society and develop local economy, various forms of financing can be adopted, such as individual investment, money raising, partnership, joint venture, joint stock etc.
f. Foreign Investment Policies
548. Formulate favorable policies to attract foreign capital and non-coal-related enterprises to mining areas. Areas that have closed down small coal mines can take advantage of their techniques and management experience and invest in areas rich in coal resources or invest overseas. On the other hand, they can encourage foreign capital and non-coal-related enterprises to invest in the mining areas.
C. Poverty Reduction
549. Shanxi province is a province with large poor areas and a large impoverished population. Luliang and Taihangshan mountainous areas are one of the 18 geographically connected poor areas in China. There are 3 regions lying in east mountainous areas and west mountainous areas where the poor counties are concentrated. These are the Ganshishan mountainous area in Taihang Mountain in the east, the less flat areas in Luliang mountainous areas, and the high and frigid areas in the north. At present, there are 57 poor counties in Shanxi province, which include 35 key counties of the Helping-the-Poor Development Program of the State, 17 province-designated poor counties, and 5 Chahua (bagger) poor counties.
550. The poverty population in the whole province at the end of 2004 was 3.32 million. The proportion of impoverished population to rural population in Shanxi province is 6% higher than that in the whole country which is 8%. Luliang city and Qizhou city are the poorest areas in the whole province.
551. There are 6 key counties of the Helping-the-Poor Development Program of the State, and 4 province-designated and Chahua poor counties in Luliang city. In Luliang city the poverty population was 1.07 million, accounting for 32.2% of poverty population of the whole province. Further the poverty population that hasn’t solved the basic life problem is 0.508 million, accounting for 41.6% of the whole province. In Qizhou city there are 11 poverty counties, all of which are the key counties of the Helping-the-poor Development Program of the State. The poverty population was 0.645 million, accounting for nearly 20% of that in the whole province.
552. The poverty population in the whole province at the end of 2000 was 4.37 million. Of that population the impoverished population hasn’t solved the basic life problem was 1.82 million and the low-income population was 2.55 million, accounting for 18% of the rural population of the whole province. The population that hasn’t solved the basic life problem ranked 7th in the whole country.
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553. Due to the efforts made over the past 4 years, the decrease of the poverty population in the whole province was 1.05 million, in which the decrease of poverty population that hasn’t solved the basic life problem was 0.6 million and the decrease of low-income population was 0.45 million. By the end of 2004, the poverty population was 3.32 million in the whole province, of which the poverty population that hasn’t solved the basic life problem was 1.22 million and the low-income population was 2.1 million), accounting for 14% of the rural population of the whole province, and the poverty population that hasn’t solved the basic life problem declined to 14th in the whole country.
1. Difficulties Faced by Development-Oriented Poverty Alleviation
554. In the new period, development-oriented poverty alleviation in Shanxi province has made some progress. However, the situation is still serious, and the following are the 3 main difficulties:
a) Difficult getting out of poverty.
555. During the implementation of National 8-7 Poverty Reduction Plan, the decrease of poverty population that hasn’t solved the basic life problem was 0.4 million annually. From 2001, the decrease was 0.15 million annually. In the last year the decrease was 0.2 million which was the biggest from 2001. Getting out of poverty becomes more and more difficult.
b) The population returning to poverty is large.
556. The people that have solved the basic life problem basically can easily return to poverty. In 2001 and 2002 the decrease of poverty population was 1.2 million annually, in which the decrease of poverty population that hasn’t solved the basic life problem was about 0.5 million, and the decrease of low-income population was 0.7 million. However, of poor population, 0.5 million were becoming poor in the same year, of which 0.25 million was that becoming the poor who hasn’t solved the basic life problem and 0.25 million was that becoming low-income people. So actually only 0.7 million impoverished people had succeeded to lift out of poverty annually, of which the poor that hasn’t solved the basic life problem was 0.25 million and the low-income people was 0.45 million.
557. After the continuous two-year drought disasters in 2001 and 2002, the decrease of poverty population was 1.2 million in 2003, of which the decrease of poverty population that hasn’t solved the basic life problem was 0.5 million and the decrease of low-income population was 0.7 million. However, of poverty population, 0.75 million was that becoming poor in the same year, of which 0.35 million was that becoming the poor who hasn’t solved the basic life problem and 0.4 million was that becoming low-income people. So actually only 0.45 million impoverished people had succeeded in shaking off poverty. In 2004, of poverty population, 0.5 million was that becoming poor in the same year, of which 0.2 million was that becoming the poor who hasn’t solved the basic life problem and 0.3 million was that becoming low-income people.
c) The income gap has enlarged.
558. The gap in the per capita net income between the impoverished people and farmers in the whole province is enlarging. The gap of per capita net income between the farmers in the 57 poverty counties and that in the whole province in 2002, 2003 and 2004 was CNY 689 yuan, CNY 683 yuan and CNY 754 yuan, respectively. The gap is enlarging gradually. For example, the gap in 2004 was about 10% larger than that in 2003.
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The gap in per capita net income between the rural people and the urban people in 2002, 2003 and 2004 was CNY 933.2 yuan, CNY 970.7 yuan and CNY 1,048.7 yuan, respectively. The gap of per capita net income between the farmers in the 35 key counties and that in the whole province in 2002, 2003 and 2004 was CNY 933.2 yuan, CNY 970.7 yuan and CNY 1,048.7 yuan, respectively, which is enlarging year by year, too. For example, that gap in 2004 was 7.4% larger than that in 2003.
The main reasons for these three difficulties are as follows:
i. Effects of Conditions
559. The people who had already got out of poverty experienced better natural conditions, And the remainder was the Gordian knot for development-oriented poverty alleviation. Their living and production conditions, especially their ability to resist disaster is worse. The degree of industrial development and notion changing, and the cultural technology quality of these people are worse, too. According to the survey for the situation of the poverty regions in 2004, the reasons that cause poverty are various, in which the main reason is the bad production conditions, accounting for approximately 30% of the whole reasons; and the following reason is difficult to make money, lower quality and lack of technology, accounting for about 23%.
ii. Frequent Disasters
560. Shanxi is the province where disasters are easy to come. Under the conditions that there are 9 drought disasters within 10 years, as well as the waterlog and/or locust disasters in some years, the people who just solved the basic life problem will easily sink back into poverty because of their worse condition and lower saving. Especially in the years that suffer from catastrophe, the population that returns to the poor is larger.
iii. Sources of Income
561. First, the dependence on agriculture is strong. In 2004, the proportion of the income coming from the primary industry, the secondary and the tertiary industry, and the service to the whole net income of the farmers in poverty regions is 39.5%, 44.5% and 15.9%, respectively. According to proportion of the income, the agricultural income takes very great proportion, and the income coming from the non-agricultural industry increases slowly, including the income coming from the secondary and the tertiary industry and from going out to work as a temporary laborer is very low. Second, the agricultural capacity is low. Because the general conditions are lower, the educational level of the labor in the key poverty counties isn’t high, and the ability to accept the new technology and new species is poor, agricultural technique is mainly traditional agricultural production and farming, which can't excavate agricultural potential well.
iv. Complex Causes of Poverty
562. According to the survey, the important reasons that cause poverty are sickness, children’s education, and wedding and funeral, according for 26.7% of the whole reasons in 2004.
D. Environmental Protection
563. The existing legal, policy and regulatory framework for environmental management and protection in China and in Shanxi province summarized in Tables 16-18 provides a base 115 for environmental protection for small coal mine activities, specifically coal mine closures. Relative to the large KSCOM coal mines, and other industries the environmental issues associated with small coal closure are comparatively simple, and can largely be addressed with the technical knowledge and procedures that are embodied in the existing framework. Further development of the environmental protection framework is required, however, a significant lack of legislation is not the major problem with the environmental protection for small coal mine closure.
1. Technical Directives for Mine Closure
564. Notwithstanding the depth and breadth of the existing environmental framework, formal procedures should be promulgated for the closure of all coal mines. As indicated in section IV-E regulations are needed that specify the steps in small mine closure starting from mine cavity filling and implosion to ground surface restoration and re-vegetation to return previous land uses such as agriculture, and to rectify any land subsidence.
565. Based on the review of existing directives (e.g., National Regulation #9 "The Rules for Enhancing Environmental Protection Regarding Village & Town Coal Mine" in Table 16, documents provided by the Jincheng EPB,27 along with discussions with Shanxi provincial and Jincheng EPBs, a general knowledge of impacts of small coal mines, and the necessary procedures for mine closure does exist. Thus, the development of a formal set of closure procedures appropriate to the small coal mine context it seems would not be an arduous task for the EPBs and associate national environmental scientist community.
a. Role EIA
566. As introduced above EIAs are prepared by coal mining proponents in order to obtain operators licenses for new "legal" mines. The EIAs are reviewed by the local EPBs. The EIA process for small coal mines is good for the protection of the environment because the process formalizes the need and awareness for environmental protection. An EIA is meant to specify all environmental requirements from mine opening, operation, and closure. However, as a vehicle to prescribe and convey mine closure procedures individual EIAs are not surprisingly too variable both in content and scope. Also, being the last step in the project life cycle mine closure would receive the least regard and support following EIA approval.
2. Institutional Mandate and Budget Allocation
567. The significant impediment to the implementation of effective environmental management of small coal mine closure is the lack of clear mandate for the task, and the absence of a formal allocation of budget to pay for the activities of mine closure. As a result of the former enforcement and monitoring of environmental protection of mine closure is also absent.
568. The owner and operators of coal mines for example the local Coal Mine Bureau should be required by law to implement procedures proper during mine closure to minimize the residual negative impacts of the mine operation phase. Sufficient revenue from coal production should be allocated to pay for the costs of mine closure and site rehabilitation.
27 JMEPB, 2006. General Description of Environmental Impacts of Coal Mines, 33 pp. 116
569. The following are key weaknesses in the environmental management of closures of small coal mines.28 (i) Many enterprises have sufficient resources, knowledge and technology to meet environmental standards. (ii) Responsible authorities do not have the financial resources, mandate, or ability to remediate problems such as subsidence. (iii) Existing legislation too general without sufficient specific guidance for mine closure.
E. CGE Modeling Methodology
1. Overview
570. Closing small coal mines in Shanxi province has complicated direct and indirect socioeconomic effects on the province. The effects arise from the loss of a major income source in some areas, and from the close interactive relationship and interdependence of coal mining with within the province.
571. As presented above closing small size coal mines have direct effects on production, consumption, unemployment, poverty reduction, households, enterprises, and government institutions etc. However, the indirect effects may be more important. To assess the indirect socioeconomic effects of small mine closure we applied a computable general equilibrium modeling (CGE) and social accounting matrix (SAM) techniques, which have the ability to capture the indirect effects and provide some quantitative results. In fact, the CGE modeling method now becomes a standard tool for policy analysis and thus it may be one of the best choices for studying this kind problem.
572. For example, the socioeconomic interaction of small coal mines closure affects poverty reduction in a differential way through the sectoral pattern of economic growth. The impact of coal mining sector’s output growth on poverty reduction can be direct, through the increase in incomes accruing to poor households who contributed their labor or other endowment (such as land) to coal output growth. Another part of poverty alleviation results from the indirect effects operating through the independence of economic activities, i.e. the closed loop effects familiar in the SAM literature. Now, assume that we are interested in the main paths through which a small coal mine closure in a rural site affects, directly and indirectly, the incomes of the rural households.
573. Closing the small coal mine will result in the mining workers to lose their jobs, i.e. unemployment; this is a direct adverse effect on the unskilled workers and decreases their households’ income. The indirect negative effects are transparent as well, for example, closing small coal mines will decrease the local government’s collective income, and thus cut down the households’ welfare and benefits. For example, on the field visit, we find out the following case: Before closing small coal mines, the village government rebated the villagers’ electricity and water fees, remission of tuition, etc. After closing the small coal mines, however, these favorable to the poor welfare all disappear. This indicates the indirect poverty effects may be great than the direct effects.
574. These are essentially two analytical methods to estimate and simulate the direct and indirect effects of policies (including exogenous shocks) on poverty. The first approach relies on a SAM framework that is assumed to reflect closely the underlying socioeconomic
28 Adapted from UNDP/World Bank, 2004. Toward a Sustainable Coal Sector in China, Energy Management Assistance Program, 252 pp. 117 structure and interdependence of a country or region under consideration. The SAM multipliers are derived from the base year SAM in such a way as to focus specifically on the extent to which different exogenous shocks affect household groups’ income and ultimately, poverty alleviation and the structural mechanisms and linkages through with the initial shock contributes, directly and indirectly, to poverty alleviation. This approach is based on some limiting assumptions, such as the existence of excess capacity, unused resources and constant prices, etc.
575. The second approach relies on building a CGE model calibrated on an underlying SAM and reflecting not only the initial structure of the socioeconomic system but also the behavior of the various agents and institutions. In contrast with the first method above that describes a keynesian world, the CGE approach attempts to capture a more likely world and set of conditions in that, at least, some sectors in the economy operate at full capacity and some factors are full employed. Under those circumstances prices can no longer be assumed to remain constant. In such a model prices are endogenously determined so as to generate the set of prices that is consistent with “equilibrium” in an economy. When an economy is affected by an exogenous shock or policy change, a new set of prices obtains, which, in turn, determines production, consumption, employment and incomes.
576. Both methods, SAM multiplier modeling and CGE models, are based on two fundamental pillars, i.e., that interaction and interdependence within a socioeconomic system matters as does the prevailing structure. The CGE adds to the simple SAM framework the ability to capture the behavior of the main actors in response to price and output changes.
2. Simulating Results
577. The CGE model uses 2002 SAM data as base to provide the benchmark for comparing the result of policy experiments. The base run of the model starts from the benchmark data for 2002. We assume no change in coal price compared with initial coal price in the base case. The basic idea is that closing small coal mines would decrease coal output, and thus we can simulate the effects of various coal output decrease schemes on employment and the economy.
578. This base solution provides the benchmark against which results from various experiments compared. This section describes the policy experiments, and reports the results.
a. Structure of the Shanxi Economy: Benchmark in 2002
579. Table 28 presents base sectoral data. The CGE model is calibrated, using the SAM data and the elasticity parameters estimated by econometric methods and techniques, so that the base solution replicates the input SAM in the report. The base SAM is assumed to represent equilibrium for the model economy, and the parameters of the model are initialed to insure that the model solution in fact replicates the SAM. In our case, we then let the change in coal out equal to zero change in the model. The new base solution of the CGE, which provides the benchmark for making comparisons, is thus an updated base, with the data from 2002.
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Table 28: Structure of the Shanxi Economy, 2002, the Base year for Modeling
Value- Added Domestic Exports Imports (VA) Output (O) Supply (Q) (E) (M) (E/X) (M/Q) Agriculture 10.9 7.6 8.6 1.2 3.1 2.1 6.2 Coal 13.3 10.5 4.8 48.0 0.0 60.5 0.1 Industry 34.2 39.7 39.7 39.6 86.9 13.2 37.8 Construction 8.1 12.6 14.5 0.0 0.0 0.0 0.0 IT 9.3 9.4 9.4 9.5 4.3 13.4 7.8 Commerce 9.0 7.8 8.8 1.6 4.8 2.8 9.5 Services 15.1 12.4 14.3 0.0 1.0 0.0 1.2 Total 100.0 100.0 100.0 100.0 100.0
580. Table 28 shows the structure of sectoral value added, output, trade, and trade ratios. For the coal industry, its value added is 13.3% of total value added, exports 48% of total export. In the core CGE model, constant elasticity of substitution and transformation (CES and CET) functions are used to represent production and trade aggregation functions. These elasticities follow the common assumption in standard CGE modeling.
3. Counterfactual Policy Experiments
581. To conduct a policy experiment, one or more policies and exogenous parameters are assumed to change from their initial base value and the model is then solved for a new equilibrium.
582. In this study, the simulation analysis designs the changes in coal output. So, the parameter of increment of coal output is introduced in the model. In the benchmark, there is no change in coal output; the simulation is assumed that there were –10% increments. These experiments are up to 50 percent, that is, the coal output decreases one times to see what would happen in the province.
583. The following section presents the results from coal output changes focusing on the overall production, consumption, income, employment, and other selected macro aggregated.
4. Quantitative Impact of Coal Output Changes
a. Impact of Coal Output Changes on Employment
584. Table 29 provides various quantitative effects of assuming different coal output declines on the employment rates. For example, if the coal output declines 10% due to closing small size coal mines, then the employment rates in coal, industry, construction, information technologies (its), commerce, and services industries would reduce 12.30%, 0.12%, 1.69%, 2.31%, 1.71%, and 1.85% respectively. Note that employment in agriculture would increase. The main reason may be that the peasant-workers employed by small coal mines would go back their homes due to closing small coal mines, and they have to employ in agriculture.
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Table 29: Change Rates in Employment due to Coal Output Decline (unit: %)
base 10% 20% 30% 40% 50% Agriculture 0.00 1.90 NA NA NA NA Coal 0.00 -12.30 -24.44 -35.91 -46.29 -55.45 Industry 0.00 -0.12 0.04 0.53 1.41 2.64 Construction 0.00 -1.69 -3.09 -4.08 -4.57 -4.55 IT 0.00 -2.31 -4.45 -6.33 -7.85 -8.98 Commerce 0.00 -1.71 -3.14 -4.23 -4.83 -4.95 Services 0.00 -1.85 -3.26 -4.09 -4.20 -3.55 Resource: Author Calculation, NA = no data available.
b. Impact of Coal Output Changes on Domestic Production
585. When the coal output is assumed to decline a certain percentage, e.g., 10%, by running the CGE model, we can simulate what would happen in the domestic production. As a whole, except that both agriculture and industry have slight increase; other sectoral output increase due to coal output decreases. Table 30 gives more detail of the impact of coal output decrease.
Table 30: Sectoral Output (Domestic Production) due to Coal Output Decline
base 10% 20% 30% 40% 50% Agriculture 1.000 1.037 1.074 1.110 1.144 1.175 Coal 1.000 0.900 0.800 0.700 0.600 0.500 Industry 1.000 1.016 1.031 1.046 1.060 1.073 Construction 1.000 0.999 0.999 0.998 0.998 0.997 IT 1.000 0.996 0.990 0.983 0.974 0.964 Commerce 1.000 1.002 1.003 1.005 1.006 1.006 Services 1.000 0.998 0.997 0.998 1.002 1.008 Resource: Author Calculation.
c. Impact of Coal Output Changes on GDP
586. The most important macroeconomic index, GDP, is affected by the coal price changes (Table 31). These figures indicate there are significant decreases in both nominal and real GDP. For example, if coal output declines 10%, real and nominal GDP would decrease by 2.4% and 1.8% respectively. In fact, the actual Shanxi GDP increases 11.7% in 2002, if coal output in 2002 decreased 10%, the real GDP would decline to 11.7%X0.976 = 11.42%; and if coal output decreased 20%, the real GDP would shrink to 11.17%, etc.
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Table 31: GDP Results
Decline Real GDP Nominal GDP base 1.000 1.000 10% 0.976 0.982 20% 0.955 0.968 30% 0.938 0.958 40% 0.924 0.953 50% 0.914 0.952 Resource: Author Calculation.
d. Impact on Other macroeconomic Variables
587. At the macro level, the aggregate effects of coal price increase are shown in Table 32. Coal output decrease brings about negative impacts on the indexes selected. It reduces household consumption, leads to decrease enterprise revenue, household income, and government revenue.
Table 32: Quantitative Impact on Other Macroeconomic Variables
Household Enterprise Household Government Decline Consumption Revenue Income Revenue Base 1.000 1.000 1.000 1.000 10% 0.999 0.890 0.934 0..926 20% 0.977 0.870 0.914 0.906 30% 0.960 0.855 0.898 0.890 40% 0.946 0.842 0.885 0.877 50% 0.935 0.833 0.875 0.867 Resource: Author Calculation.
5. Conclusion
588. Based on the qualitative and quantitative analysis above, we have modeled the Shanxi economy (CGE) using a mixed complementarity approach. We use this model to explore the impact of coal out decline on the poverty in this province. Our simulating results support a few conclusions.
589. Coal output changes have significant adverse impacts on employment, GDP and other relevant macroeconomic variables. For example, if coal output declined 10%, employment in coal industry, industry, construction industry, IT industry, commerce industry, and services industry would decrease 12.3%, 0.12%, 1.69%, 2.31%, 1.71%, and 1.85% respectively; and real GDP would increase 2.4%. In fact, the actual Shanxi GDP increases 11.7% in 2002, if coal output in 2002 decreased 10%, the real GDP would decline to 11.42%; and if coal output decreased 20%, the real GDP would shrink to 11.17%, etc.
590. At the macro level, the aggregate effects of coal output decrease are shown in Table 32. Coal output decrease has unfavorable impacts on the indexes selected. It reduces household consumption, leads to decrease enterprise revenue, household income, and government revenue. As a whole, coal output decrease due to closing small coal mines has a negative effect on poverty reduction and the economy, at least in short-term. Thus, from 121
Viewing from these quantitative results, the government need carry out the essential policies and measures (for example, training the unemployed man) to eliminate the disadvantageous effects on poverty reduction due to closing small coal mines.
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VII. ASSISTANCE PROGRAM FOR THE STUDY AREA IN SHANXI PROVINCE
A. Training program
1. Training Program in the Study Area, Jincheng City
591. According to Opinions on Implementation of Jincheng Municipal People’s Government on Carrying Out Business Startup Training Program in the Whole City [Jinshizhengban (2005)No.117], Jincheng City launched the following business startup training programs in the second half of 2005: training programs involving community food industry, retail, chain stores, residential services, and other new people-benefit services.
592. For example: home-based handicraft industry, repair and maintenance, book store, hotel service, food and beverage service, washing & dyeing, sewing & mending, printing and photo-copying, small table eating service, house moving, hourly service, housekeeping service, elementary health care, baby sitter and education service, handicapped children education and training and boarding service, service for the elderly, student transportation, car washing, planting and breed aquatics, etc. The reason for choosing these businesses is that they have great market potential.
593. Recruitment target: recruitment is open to the public, mainly including: laid-off workers, rural surplus laborers, graduates from colleges and universities, other special groups (including released persons from forced labor camp, demobilized servicemen, handicapped people, etc), as well as individual business owners, managers of small and medium sized enterprises.
594. Training contents include: four modules such as “generate your business plan”, “create your business”, “improve your business” and “expand your business”. Business startup training includes three stages such as theoretical study, consultation and tutorship, and after training support: (1) Theoretical study to train the students on basic theory and practical knowledge, including business idea, marketing, introduction to laws, enterprise management, financial management, and case study, etc. The duration is 7 days; (2) consultation and tutorship: Based on the individual business idea, the students conduct in- depth marketing research, and under the instruction of teachers, work out a feasible and workable Business Startup Plan in accordance with their specific conditions, and it will be the guideline for their future business operations. The duration is about one month; (3) After training support: Instruct and assist students to start up their business, and turn their business startup plans into practice.
595. For the problems faced by the students during business startup practice, the training institutions will provide consulting and services, which include handling individual archives management, registration for starting operations, payment of social insurance premiums, adjustment of marketing strategy, application of small secured loan, etc. The duration is about 3-6 months. Improve your business (IYB) training contains 6 modules, and it is a training program on improving the businesses. The duration is 6 days.
596. Carry out tax and charge deduction and exemption policies: according to related provisions of the state, and based on the type of businesses and the real situation of their self-employment, the training institutions coordinate with taxation, and industrial and commercial administration departments to help students to handle tax and charge deduction and exemption procedures; assist student who start their own business to handle related 124 qualification and project assessments for applying loans, and help students to handle loan application procedure.
597. Organize expert voluntary group to provide after training support. Through open recruitment, establish a warm-hearted expert voluntary group to help the people who start their own business. The members of the group consist of the experts from the fields such as industrial and commercial administration, economic fields, banks, taxation, pricing, sanitation, legal system, technical supervision, enterprise management, and the scholars engaging in economic research. Adopt service approaches such as diagnostic reply, concentrated question reply, door-to-door service, and online service to provide helps and instruction to the people who start up their own businesses.
598. Training funds: refers to the practice of national first pilot cities: normal training funds of CNY 2,500 yuan for each trainee will be given from the re-employment funds of local finance. Training fund is mainly used for: teacher’s training, purchase of teaching materials, adding equipments and facilities, mid-term theory study and after training support, as well as other services.
a. Training of Rural Labor in Jincheng Area
599. On August 4th, 2004, the “Sunshine Project” for training rural labor force of Jincheng city was launched in the Municipal Vestibule School. Large scale training program on rural labor force transfer has formally started. Jincheng Municipal government attracts great importance on rural labor force transfer, and issued Implementation scheme on Strengthening Training to Rural Farmers to Enhance the Quality of Farmers. The government also listed the strengthening farmer professional skill training as the one of the government good deeds for farmers. Ten schools (institutions) such as the Municipal Vestibule School were specified as the designated schools of the “Sunshine project”. In 2004, 7,500 transferred rural laborers in Jincheng will be trained through the “Sunshine Project”.
600. Jincheng Municipal government requires the training institutions to pay their attention on the following four aspects: firstly, pay much attention on training bases to enhance the employment ability of rural laborers. Ten (10) designated training schools have been specified. At the same time, broadening the training channels, encouraging and support agriculture industrial leading enterprise to establish scientific training centers to undertake the task for rural farmer professional skill training. Secondly, attach great importance on order transfer.
601. From current market demand, it can be seen that, the industries such as construction, manufacture, housekeeping service, security service need rural workers who have certain professional skills. Related departments, especially those key training counties and the schools which undertake the training tasks should adapt the market, strive for “order”, and establish their own labor export channels. Thirdly, highlight the brand export, and building rural labor force featured with Jincheng characteristics. The foundry workers, locksmiths, and millers trained by Jincheng Municipal Vestibule School enjoy good reputation. Fourthly, strengthen the training ticket management to directly benefit farmers.
2. Projects of Coal Refuse Generate Electricity in Jinchen Area
602. According to the statistics made by related departments, the total business amount of comprehensive utilization of China’s key coal mines in 2001 reached CNY 58 billion yuan; provide job positions for 2.08 million people at maximum. Among the projects of multiple businesses of coal enterprises whose business income is over CNY 0.1 billion yuan, all top 125 ten projects come from coal gangue power generation. The low calorific value fuels such as coal gangue, coal slurry produced in China is equal to 15-18 million tons standard coal calculated by converting their calorific value. Shanxi province, as a demonstration province in small town construction and comprehensive utilization of coal gangue in China, has been listed in the name lists which could enjoy the favorite loan support from Asian Development Bank, the first amount of US$0.4 million dollars of the first stage grant-in-aid will be launched soon.
603. The development of Yanmen Guan Eco-pasturage area, reconstruction of Saline- alkali Land, and circular economy demonstration project of agriculture breed aquatics of Shuozhou are also receiving the support from international financial institutions. In addition, according to the preparatory opinion of Asian Development Bank, from 2005 to 2015, Asian Development Bank will provide no less than US$1 billion dollar loans to assist the Shanxi projects mainly focused on utilization of coke oven gas, utilization of coal gangue, energy saving technologies, environmental treatment, water resource protection, etc. It is estimated that the formal memorandum of assistance could be signed this year.
604. The “Eleventh Five-year” plan of Shanxi government advanced that: new power stations should give the priority to mountainous poor counties which satisfy the condition. Combining with the coal gangue comprehensive utilization project, Shanxi government should make all efforts to improve the employment and re-employment situation of this region. a. Jincheng city coal gangue power plant project
605. Jincheng government puts forward to establish circular working system on international loan projects, directly learns international advanced management models, further expands cooperation with international financial organizations, and speeds up the projects of exploitation and utilization of CMM which is supported by the loan from Asian Development Bank, strengthens the initial stage preparation of the technical aid projects of Asian Development Bank such as the “Comprehensive utilization of coal gangue and small town construction” , etc.
606. In 2005, Jincheng area coal gangue power generation projects mainly include: coal gangue 2×135MW technical improvement project of Gaodu Town, Zezhou County, and coal gangue 2×135MW power generation technical improvement project in other place of Yangcheng Thermal Power Co., Ltd. Jincheng government planned to apply the loan from Asian Development Bank to develop more coal gangue power plants in Jincheng areas. On the one hand, utilize the coal gangue hills piled by local coal enterprises to reduce the environmental pollution; on the other hand, it could provide job opportunities for the local laid-off workers and the unemployed rural workers caused by the closure of small coal mines.
b. Key points of the policy on coal gauge power generation technologies
607. Promote the utilization of low caloric value fuels such as coal gauge, coal gauge and coal slurry, coal gauge and coke oven gas, and coal mine gas to generate electricity. The construction of low caloric value fuel comprehensive utilization power plant should be closed to the production place of the fuels to avoid long-distant transportation of fuel; in the areas with stable heating load, after conducting technical and economic argumentation, the thermal-electric associated production and supply will be carried out.
608. Popularize 75 t/h or above Circulating Fluidized Bed Boiler (CFBB) fueled by coal gauge (basic heat generation of their application is no more than 12,550 kJ/kg). The place 126 with condition should actively promote the heat/electricity/cooling associated production technologies and the heat/electricity/coal/gas associated supply technologies.
609. Popularize lime desulphurization in the furnace and static electricity dust removal technology. For the power plants fueled by high sulfur coal gangue, desulphurization measures must be taken to make the discharge of pollutants such as sulfur dioxide and soot up to standard. Ash and residue should be comprehensively utilized to avoid secondary pollution.
610. Popularize coal gauge under boiling hearth wind chamber igniting technology and red residue direct igniting technology, and popularize the technology of the utilization of high heating coal gauge to produce molding fuels.
611. Research and develop high efficient dust elimination, desulphurization equipment of boiler, technologies and equipments for ash and residue dry transportation, storage, and utilization in power plants powered by low caloric value fuels such as coal gauge; transportation, feeding, and molding technologies and equipments for boilers fueled by coal slurry.
612. Research and develop abrasion-proof materials and manufacturing technique of the boilers of coal gauge power plant to solve the abrasion problem and to enhance the non- stop operation duration and reliability; research and develop high efficient and reliable cooling slag equipments and large capacity Circulating Fluidized Bed Boiler (CFBB) manufacturing technologies.
c. Employee training for the coal gauge power plants in Jincheng area
613. Power generation manufacturing technique by low caloric value fuels such as coal gauge (washery refuse) and coal slurry is to feed this kind of compound into boiling boilers after they are broken up and sifted out. The power plants fueled with high sulfur coal gauge must take desulphurization measures to make the discharge of pollutants such as SO2 and coal dust, etc up to standard, and to carry out comprehensive utilization of dust and slag to avoid secondary pollution.
614. According to the technique procedure of coal gauge power plant, Jincheng municipal government advanced the suggestion on the initial stage preparation for the technical assistance projects such as “coal gauge comprehensive utilization and small town construction” of Asian Development Bank. The trainees mainly include managers and common employees. Common employees include skilled workers and common workers. Detailed training contents refer to Table 35.
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Table 33. Major training contents for the employees of coal gangue power plants.
Types of Position Training Contents Management Staff Business management of the power plant; technique procedure; equipment operation principle; human resource management, etc.. Skilled Operation principle of all kinds of equipments, heavy repair and daily workers maintenance, etc. For example, the working principle, operation, and maintenance of boiling furnace or dust removal, and desulphurization Common Staff equipments Common Operation, use, and daily maintenance of specific equipment, for workers example, the operation of broken equipments for coal gangue and low caloric value fuels, and the use of heating control instruments, etc.
(i) Enlarging the reemployment by supporting ecological restoration of mining area. Environmental restoration should be developed as a new industry in the resource-type region. The reemployment of miners can be resolved by the development of this industry, and miners can participate in reestablishing of livelihood. The development of modern ecological agriculture can be realized by land reclamation of mining area. (ii) Using the comparative advantage of resource-type to develop tertiary industry for job enlargement. Many resource-type regions have their comparative advantages, and own special resource to develop coal tour, and could drive the development of tertiary industry. Tourism industry has low employment entrance requirement, but with long chain, which could promote employment quickly. (iii) Private sector development. The National Re-employment Conference held in September, 2002 and the subsequent 16th Congress of the Communist Party stressed employment generation as one of the government’s main policy priorities and emphasized the need to support private sector development. However, non-state-owned firms face numerous hurdles to growth. Access to capital remains difficult for them because tight ceilings on bank lending rates limit the ability of banks to factor in the added risk of lending to private enterprises, and the number of new stock market listings is strictly limited by the authorities, as is private corporate bond issuance. Moreover, private firms face significant regulatory barriers to entry, including those created by state monopolies in many industries, especially in the service sector.
615. According to the reemployment training plan from 2004 to 2005 in Shanxi province, more than 250 thousand laid-off and unemployed persons should accept skill training, and eligibility rate of training and re-employment rate after training can reach 90% and 60%, respectively. Therefore, 6,000 persons should carry out “starting a business” training project, and eligibility rate of training and succeeding rate of “starting a business” should reach 80% and 50%, respectively.
616. In Jincheng city, schools and organizations undertaking employment and reemployment training tasks can achieve financial support from government to some degree, and it was about 20% of training cost. Students should cover the living expenses by themselves.
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3. Report Seminar and Training Plan
617. Based on the discussion with the EA, an international seminar and training program has been developed. It is planned that the training will be held in either Hangzhou City or Yunnan Province between December 1 and 6, 2006. It is anticipated that about 25 representatives from the stakeholder organizations will attend the training courses, including Shanxi Development and Reform Commission, Shanxi Finance Bureau, Shanxi Provincial Government, Shanxi Coal Mining Bureau, Shanxi Coal Safety Management Bureau, Shanxi Labour and Social Security Bureau, Shanxi Environmental Protection Bureau, Shanxi Civil Affairs Bureau, Shanxi Poverty Alleviation Office, Shanxi Civil Affairs Bureau, and respective municipal organizations accordingly. Table 36 is the proposed project seminar and training plan:
Table 34. Proposed Reporting Seminar and Training Plan
Time Chair Person Training Content December 8, 2006 (Friday) Arrival at Hangzhou or Yunnan
December 9, 2006 (Saturday) 09:00 – 09:10 Ms. Wang Hong Ya Opening Speech 09:10 – 09:30 Leader of Provincial Government Policy and Current Implementation of Government Small Coal Mine Closure 09:30 – 09:50 Don Meisner Objectives, purposes and outputs of the TA, and purposes of the international seminar and training 09:50 – 10:20 Daniel Shao Overview of Institutional Framework 10:20 - 10:40 Coffee break Current Unemployment and Economic Trends 10:40 – 11:30 Baomin Dong Economic Impacts of Small Coal Mine Closure 11:30 – 12:00 All Group Discussion and Answers 12:00 – 14:00 Lunch 14:00 - 14:30 Don Meisner Environmental Impact Issues and Management 14:00 – 14:50 Unemployment Situation and Social Situation Li Mou 14:50 – 15:30 Social Impacts of Small Coal Mine Closure 15:30 – 16:00 Coffee Break 16:00 – 17:00 All Group Discussion and Answers
December 10, 2006 (Sunday) 09:00 – 10:00 Daniel Shao Overview of International Experiences of Small Mine Closure Policy & Regulation 09:00 – 10:00 Existing Re-Training and Job Creation Programs 10:00 – 10:30 Huang Shengchu Education and Training Needs, Requirements and Resources, and Vocational Training Policy 10:30 – 11:00 Coffee Break 11:00 – 11:30 Financial Expert Financing Sources and Budget for Vocational Training 11:30 – 12:00 All Group Discussion and Answers 12:00 – 14:00 Lunch 14:00 – 14:50 Rural Sociologist Alternative Livelihoods 14:50 – 15:30 Peng Jianliang Sources of Funding 15:30 – 16:00 Coffee Break 16:00 – 17:00 All Group Discussion and Answers
December 11, 2006 (Monday) 09:00 – 09:50 Li Mou Assistance Program Training Program 09:50 - 10:50 Baomin Dong Assistance Program CMADP description & benefits 129
Time Chair Person Training Content 10:50 – 11:15 Coffee Break 11:15 – 12:00 All Group Discussion and Answers 12:00 – 14:00 Lunch 14:00 – 14:50 Appropriate Policy Recommendations Daniel Shao 14:50 – 15:30 Barriers to Implementation of the Proposed Policy 15:30 – 16:00 Coffee Break 16:00 – 17:00 All Group Discussion and Answers
December 12, 2006 (Tuesday) 09:00 – 10:00 Coal Mine Expert Coal Mining and Social Security 10:00 – 10:30 Coffee Break 10:30 – 12:00 Coal Mine Expert Coal Mining and Social Security 12:00 – 14:00 Lunch 14:00 – 14:30 Don Meisner Indicators of Assistance Program 14:30 – 15:30 Coffee Break 15:30 – 16:00 Wang Hong Ya Conclusion of the International Seminar and Training
December 13, 2006 (Wednesday) Departure from Hangzhou or Yunnan
B. Coal Mine Area Development Project
618. The Coal Mine Area Development Project is an integrated series of coal-based industries that were identified by the Shanxi Development Reform Commission for potential development support following the completion of TA 4566. The CMADP exemplifies potential industrial development as a means to offset unemployment and environmental pollution associated with current coal mining activities.
619. The proposal and analysis of the CMADP provided below extends the introductory discussion of new industrial development in section VI-B above, and exemplifies industrial development support for Shanxi province worthy for consideration by the Asian Development Bank as introduced above.
1. The Rationale
620. As developed in earlier chapters, the PRC has experienced rapid economic growth in recent years and is heavily dependent on coal for this continued growth. Government programs have continued to work toward poverty reduction, particularly in rural areas.
621. Economic growth has been facilitated by infrastructure development, a crucial component being energy sector development. The PRC ranked second in installed power generation capacity and electricity consumption. However the conservative forecast for power consumption growth in the 10th five-year plan has resulted government disapproval for many thermo power plants and consequently large scale of power shortage.
622. Nearly three quarters of the PRC's electricity is generated by coal and a little under one quarter by hydroelectricity. Together, oil, gas, and nuclear power account for less than 1%. The PRC has been encouraging electricity generation by renewable energy sources, such as water, wind, solar, biomass, geothermal, and marine-based power, and all end users will share the costs.
623. The heavy dependence on coal as an energy source has resulted in substantial environmental damage due to pollution from particulate matter (PM), sulfur dioxide (SO2), 130 nitrogen oxides (NOx), and other trace elements occurring in coal. SO2 and NOX are the main causes of acid rain, one of the largest environmental problems in the PRC and East Asia. The poor are most vulnerable to environment-induced diseases and are least capable of paying for adequate medical attention for respiratory illnesses associated with breathing polluted air.
624. Coal production results in the emission of methane, a greenhouse gas (GHG). When released into the atmosphere, GHGs contribute to global warming. Methane is approximately 21 times more potent than CO2. As coal mining operations go deeper underground, the volume is expected to increase. Methane produced by coal is called coalbed methane (CBM) when released through wells, which are drilled from the surface into underground coal seams, and coal mine methane (CMM) when it is released through mine shafts. If captured, methane could be a clean energy source.
625. The CBM is adsorbed onto the internal surface of the coal seam and is released as a result of pressure changes when underground coal is mined or exposed to surface conditions. Underground CMM is highly explosive and needs to be removed during, and sometimes before, actual coalmining operations to ensure that underground coal mines can be operated safely. Many coal mines have a high methane content and inefficient CMM drainage is the main cause of frequent underground explosions, which resulted in the death of more than 2,157 in 2005. The PRC has many more coal mine related fatalities than other coal mining countries, mainly due to differences in mine operation management, safety standards, and miners’ working hours. The government has started to invest on coal mine safety mainly by installing more efficient CMM drainage systems. However, CMM use is small, and less than 10% of the vented CMM has been properly drained.
a. Potential Coal-based Industry for Local Employment
626. As requested by the project EA, and which was subsequently developed into the ToR for the TA was the examination of opportunities and identify priority areas for developing CBM drainage and application projects in order to reduce poverty through job creation, improve environment by substituting current fuel and develop local economy. This was followed in June and August 2006 by field trips to Shanxi for the data collection and preparation of commercially viable CMM (production and use) project.
627. The TA economists confirm the feasibility of establishing the packed CMM project in this economic analysis. Shanxi covers 156,000 square kilometers in the north-central PRC and has a population of more than 32 million. The province has mountainous areas, rolling hills, and the loess plateau of the Fen River valley. Major cities in valleys often experience thermal inversions that lead to severe air pollution. It accounts for about one third of total coal production in the PRC and has many typical examples of the major pollution problems. The air quality of Shanxi is among the worst of any region in the PRC.
628. The study area includes 3 of the PRC’s 10 most polluted cities. On the other hand, Shanxi is very rich in coal bed methane resources. Around one third of the total coal bed methane reserve in China has been identified in the territories of Shanxi Province. The Qinshui Coalfield and Hedong Coalfield are the top two with the richest methane reserve. The use of CMM will avoid the coal’s environmentally harmful emissions.
629. The CMM and CBM are not yet used on a large commercial scale in the PRC and would require the introduction of new, proven technologies for improving the drainage and capture of CMM from underground coal mines, producing CBM from surface wells in advance of mining, and use CMM as a fuel for power generation. Better drainage and use of 131
CMM will help to reduce the risk of underground gas (CMM) explosions and support the Government’s program to increase workers’ safety in coal mines.
630. The Blue Skies program of Shanxi Government and coal mine safety concerns are key initiatives for the closure and relocation of heavily polluting SCMs; stricter enforcement of pollution control standards; establishment of district heating systems; and introduction of cleaner fuels, including CMM, which is produced and vented by the numerous coal mines around Jincheng.
631. The proposed project, therefore, is expected to (i) reduce poverty due to closure of SCMs by creating new jobs; (ii) alleviate air pollution in Shanxi by reducing of in- and outdoor air pollution (emission of SO2, CO2, NOx, and PM), which causes serious environmental and health impacts (respiratory diseases), particularly for the poor; (iii) promote local industries in relation with CBM usage, and (iv) directly and indirectly strengthen the local government’s revenue.
2. The Proposed Project
a. The Objectives
632. The Coal Mine Area Development Project (CMADP) will cover important aspects of effective and efficient CMM and CBM production, capture, and use by applying the latest technologies. The CMADP will include (i) transmission and distribution of CMM for residential, commercial, and industrial use (ii) Methanol production by CBM (iii) Drilling, CMM drainage and a CMM-based 120MW power generation using combustion gas engines. The CMADP will demonstrate that apart from the direct economic returns from power generation and methanol production, CMM drainage and associated project components also reduce poverty by creating new jobs for previously laid off miners, increases safety of underground coal mining operations and provides environmental and health benefits in terms of avoided emissions associated with alternatives if the CMADP is not implemented.
b. Project Components
The selected projects are listed as below.
3. CBM/Coal Gas Transmission and Distribution
a. The Changzhi Municipal and Prefectural Gas Distribution Project
633. This component is aimed to provide environment friendly gas for households in Changzhi and surrounding counties without access to CBM or coal gas due to nonexistence of pipeline grid. The estimated total investment will amount to 1.15 billion RMB. This project, as a part of the infrastructure in the local government’s 11th five-year plan, is to set the pipelines to distribute gas to municipal and 12 counties’ end users, mostly households. The project includes a total length of the gas pipelines estimated at 800 km, auxiliary facilities, renovation of 180 coal-fired into CBM or gas-fired boilers, 2 new CBM storage cabinets with 1000 cubic meters capacity and construction of 12 CBM vehicle gas refill stations.
634. The local government expects that this project can considerably alleviate the tight demand for gas supply, improve the reliability of gas supply in Changzhi City, and greatly ensure the long-term economic development in the city. The proposed infrastructure construction of pipeline network in Changzhi can be used for the distribution of coal bed methane as cleaner fuel to the city by the end of 11th five year. The land and road 132 occupation for project construction will be temporary. The rural part of this component will set up the gas pipeline network in Lucheng township, Changzhi County, Zhangzi County, Tongliu County, Qin-xian County, Qinyuan County, Wuxiang County, Licheng County, Pingshun County, and Huguan County. The main goal is to deliver gas as a clean fuel to the rural households. It is among the local government’s top priorities and attempts to improve environment.
635. The purchase price for coke furnace gas is 0.3 Yuan/m3 while retail price is 0.73 yuan/m3 for households, 1.00 Yuan/m3 for public users, and 1.20 Yuan/m3 for industrial users.
636. The construction period will be 5 years, with investment stream for fixed costs before tax is as follows: 48.68 million CNY in 2006, 48.71 million in 2007, 48.73 million in 2008, 48.75 million in 2009 and 45.25 million in 2010. The variable costs for the construction period are, 107.63 million CNY in 2006, 114.70 million in 2007, 121.77 million in 2008, 128.85 million in 2009, 135.92 million in 2010. Annual tax starts from 14.27 million CNY since the second year of production to 21.12 million by the sixth year with incremental increases every year. Annual sale revenue amounts to 300 million CNY, with a profit of 31.42 million and tax of 58.42 million.
637. The environment benefits are obvious. The project can replace 657 kt SCE per annum, a saving of 328 kt SCE per annum, carbon dioxide reduction of 6.7 tons per annum, NOx reduction of 820 tons a year, sulfur dioxide emission reduction of 5.88 kt per annum, PM reduction of 54 kt per annum, reduction of 258 kt per annum and saving of urban transportation of 8552 kt km per annum.
638. In terms of social benefits, the project can generate direct employment of 1000 persons, in which management staff amounts for 100, engineering staff for 50 and 850 workers. The target average remuneration level is between 15 k CNY to 20k CNY per annum per head.
b. CBM Transmission Infrastructure
639. The PIA, Shanxi Coal-bed Methane Gathering and Transmission Corporation is authorized by the Shanxi Provincial Government with the sole permission of CBM collection, transportation, transmission, design, construction and management in Shanxi province. The CBM utilization and development plan as stipulated in the 11th Five Year Plan of Shanxi Province shall be implemented by the corporation.
640. Shanxi is very rich in coal bed methane resources. Around one third of the total coal bed methane reserve in China has been identified in the territories of Shanxi Province. The Qinshui Coalfield and Hedong Coalfield are the top two with the richest methane reserve, with combined reserve of more than 96.5% of Shanxi’s total CBM reserve. Presently, four companies have already started surface draining of coal bed methane in the south part of Qinshui Coalfield. The Zhonglian Group shall obtain a capacity of 11 x 108 cubic meters per annual by the year 2010, China Oil Group Corporation shall obtain a capacity of 10 x 108 cubic meters per annual by the year 2010, Jincheng Coal Ming Group Corporation shall obtain a capacity of 15 x 108 cubic meters per annual by the year 2010, while the Yamei Coal Corporation Limited shall obtain a capacity of 1 x 108 cubic meters per annual by the year 2010.
641. The project intends to transmit the CBM mined through the surface wells to Houma City and Changzhi City of Shanxi Province. The pipeline between Jincheng and Houma has a length of 140 km, short term transmission capacity of 4.95 x 108 cubic meters, and long 133 term capacity of 10 x 108 cubic meters. The Jincheng to Changzhi pipeline has a length of 140 km, short term capacity of 4.95 x 108 cubic meters and a long term capacity of 10 x 108 cubic meters. The Jincheng to West-East Pipeline has a total length of 30 km, with transmission capacity of 10 x 108 cubic meters. The project construction period is 1 year. The total investment of the project is projected to around 1.2 billion RMB Yuan.
Hebei direction
Linfen direction Changzhi, Lucheng
Houma Jincheng CBM Source Central Station
West-East Pipeline Yuncheng direction Henan direction
Figure 4. Illustration of CBM Transmission Pipelines.
642. This component of the project is applicable to the Clean Development Mechanism (CDM) under the Kyoto Protocol and could obtain 100 million Euro of carbon emission reduction compensation.
643. The benefits of this project are obvious. The project can improve coal mine safety by reducing the probability of explosion accident for coal mines substantially. The environmental benefits are mainly reduction of air pollution by substituting coal and propane as primary fuel in Changzhi, Jincheng, Linfen and Yuncheng. Indirect benefits include promotion of industries that use CBM. In evaluating these benefits, various approaches are applicable. The consultants will choose appropriate ones if the project will be advanced to PPTA stage.
4. Methanol Production
644. The chemicals of Methanol, tar, crude benzene, and ammonia sulfate, etc. are important raw materials in chemical engineering, widely useful in production of plastics, fibers, rubber, fuel, spice, medicine, and pesticides etc. At present China sees a growth of methanol production. With the tight demand for oil products, the methanol fuel is increasingly important as a fuel substitute. Therefore methanol has a bright and broad market prospect in China.
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a. Coal Gas Purification/Collection and Carbinol Production
645. This component is for coal gas purification, gas source base clean production and coke furnace gas reuse. The project site is located in the gas source base of CCGGC. The estimated total investment will be 455.18 million RMB. The project include gas purification and chemical recovery system, No.2 coke furnace and its ground dust removal station, a ground dust capturing station with more than 95% efficiency, and a wastewater treatment system with the capacity of 60 m3/h. The gas purification system includes cooling fan, electric dust capture, desulfuration and sulfur recovery, ammonia sulfate production, and crude benzene wash and elution. Tamping coke furnace will be used for coke production, including the dust removal system shared by coal loading, coke pushing and coke discharging process, the automatic control system and sludge discharge system. The A2/O2 technique of biological denitrification will be used for wastewater treatment. This project will alleviate the tight demand for municipal gas supply, upgrade the coke production technology and improve various environmental measures.
646. This gas source project as a part of public facility is entitled to preferred policies. The product sale is optimally predicted. The anticipated annual sales will be 35 million RMB, including tax and profit of 54 million RMB.
647. At the end of the 11th-five-year-plan period, the coal bed methane will be introduced to the city and large part of the coal gas will be substituted. The coke gas in surplus, if being burned at the stack outlet, will cause severe air pollution. This project is about the reutilization of the surplus coke gas after the fuel substitution by coal bed methane for pipeline grid, and for the environmental pollution abatement. The methanol production using coke gas is featured by low cost and high economic benefit. This project will newly set up a set of methanol production facility with the annual capacity of 100,000 tons, which includes the systems for coke gas transport, oxidation at non-catalytic process, methanol synthesis, circulating compression, and methanol refinery distillation, etc.
648. The general process is as follows. The coke gas is first compressed at low pressure, then de-sulfured by adding H2 to convert organic sulfur into inorganic sulfur, later sent for catalyzed oxidation through the “CO+H2” reaction under high pressure for hydrocarbon conversion into crude methanol, which will be distilled to produce refined methanol. The fundamental technology is to convert the methane and hydrocarbon from coke gas into carbon monoxide and hydrogen gas.
649. This project is a part of public gas-source infrastructure program and is therefore entitled to preferred policies. It solves the environmental pollution problem and the there is a good market for methanol, which can also be used to make dimethyl ether tank for fuel supply. The anticipated annual sales revenue will be 966.2 million RMB.
650. The environmental benefits include: 500 k m3 for about 200 thousand households, replacing 180 kt SCE, an annual reduction of carbon dioxide emission of 33 kt, reduction of NOx emission by 408 t/year, sulfur dioxide reduction of 2,187t/year, and PM reduction by 37.3kt/ year.
651. The social benefits include: a direct employment increase of 362 persons, in which 36 are management staff, 15 technicians, and 311 workers.
b. Tongzhou Methanol Production
652. Tongzhou Group presently has 4 coke furnaces of type TJL—940D (2×50 chambers) and TJL—450D (2×56 chambers) with annual production of 1.2 million tons of first-grade 135 metallurgical coke. The coke oven gas is partially used by the plant itself, but with surplus of 25,525N m3/h, along with other chemicals to be recovered. The best choice is to convert the methane in coke oven gas into ammonia for methanol production, with byproducts of tar, crude benzene, ammonia sulfate, etc. The production of methanol, tar, crude benzene, ammonia sulfate from coke oven gas is featured by short production process stream and low cost. Furthermore, the environmental benefits are eminent.
653. The major part of the project is to purify coke oven gas, in which such chemicals are produced as tar, ammonia sulfur, crude benzene, etc. The purified gas is for both self-use and for methanol production. The project nominal capacity is to annually produce 100,000 tons of methanol, 55,000 tons of tar, 15,000 tons of ammonia sulfate, and 15,000 tons of crude benzene.
654. The plant site is close to the coking plant, with convenient transportation and sufficient water and power supply. The construction mainly includes the procurement and installation of the facilities for gas purification, chemical recovery, and methanol synthesis. The total investment will be 300 million RMB. This project will yield annual sales revenue of 314 million RMB, including tax of 53 million RMB and profit of 98 million RMB.
c. CBM Drainage and 120 MW Power Plant
655. This project contains two parts, the coal bed methane extraction in Changcun and Tunliu coal mines and the construction of gas-fueled power plant. Both surface and underground extractions will be used for coal bed methane recovery. The surface drilling technology will be employed mainly for the gas from No.3 coal seam (also the lower seams if possible) before mining, and partly from the goal areas. The underground gas recovery technology will be used mainly for the seam under exploitation, partly for goaf areas (fissure zone extraction). The methodology will be “mining plus extraction” and/or “exploitation plus extraction”, known as comprehensive extraction.
656. The construction of coal bed methane extraction includes 150 surface drill holes, 10 multi-lateral horizontal wells (equivalent to 100 drill holes) in Changcun Coal Mine; and 150 surface drill holes, 10 multi-lateral horizontal wells, permanent pumping stations and gas collecting and distributing systems in Tunliu Coal Mine.
657. The gas-fueled power station will be located close to Industry Square of Tunliu Coal Mine. The total nominal capacity will be 120 MW. The power generation equipment will be gas-fueled electricity generation sets (1800kW each) of G3520 series by Caterpillar Inc., USA. Project construction period is 2006 – 2009. The project total investment is 2.12845 billion RMB. This gas-fueled power plant will annual consume 385.2 million cubic meters of gas to generate 840 million KWh of electricity.
658. The nominal electricity supply will be 782 million KWh with the unit price of 0.25 RMB/Kwh, and therefore the annual sales revenue will be 195.5 million RMB. The production cost is 0.14 RMB/ KWh × 840 million KWh = 117.6 million RMB. The annual profit will be 77.9 million RMB.
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Table 35. Investment for Each Component of the 120 MW Gas-Fired Power Plant.
Total Equipment Civil works Name investment purchases (10k CNY) (10k CNY) (10k CNY) Sub-total 212845 66311 146534 Tunliu 120MW CBM Power Plant 66786 60137 6649 CBM transmission, drainage, and drilling 134373 1256 133117 Tunliu Coal Mine 11686 4918 6768
659. Indirect benefits are also eminent. Such benefits include: (1) decreasing CBM related accidents to ensure the personal safety of coal miners; (2) keeping the fixed assets from losses by accidents; (3) realizing the coal production of safety, high yield and high efficiency; and (4) comprehensive utilization of CBM, decreasing green house gas emission, and pollution reduction. 660. The emission abatement, using local coal as substitutes as fuel, is evaluated as equivalent to reductions of 257 kt/a of carbon dioxide, 2883 t/a of sulfur dioxide, 2600 t/a of NOx, 497 t/a of PM and 71 kt/a of cinder. In terms of poverty reduction, the project can generate 80 persons for power plant alone, 720 persons for CBM drainage, 30 for equipment and pipeline maintenance and 30 for technical and management support.
d. Economic Analysis
i. Least-Cost Analysis
661. As the above project description, the proposed Project components are as follows. (i) the coal mine methane (CMM) fired power plant and production of CMM and coal bed methane (CBM), (ii) CMM transmission and distribution pipeline systems, and (iii) producing carbinol from coke furnace gas. These project components have been listed in the local eleventh-five year plan. Without the project, the area will continue to rely on coal as the primary energy source for commercial, industrial, and residential use. Provided below is a least-cost analysis for the CMM-fired power generation.
One. 662. The national economy in PRC has been growing strongly in recently years. As a result, demand for electricity was very strong. The growth in electricity demand was nearly 16% in 2004, 13.5 % in 2005, reaching 1889TWh and 2144TWh. There were 27 provinces that experienced power shortage, even though around 30,000MW of new generating capacity was added in 2005. Total electricity consumption in Shanxi province was 72.5TWh in 2005, 15.33% higher than in 2004. This was the largest annual increase in the last ten year span. 663. Similar to other regions in china, the increase of electricity demand has exceeded that of supply capacity in Shanxi for some time. The newly installed generation capacity was only 1,048.95MW between 2000 and 2004, but the peak load increased 2,449MW for the same time period. The average growth rate of electricity consumption for PRC was 13.5% from 2000 to 2004, while that of peak load was 9.8% and the installed capacity increased for about only 2.3%. Shanxi province has been experiencing great power shortages since 2002. In the past, the shortage of electric power only occurred during the peak hours and only at certain regions, but it has become regular and wide spread since 2003. 137
664. To overcome the shortage, Shanxi Province has carried out the planned power consumption policy in order to cut power consumption. The power cuts are as many as 97,723 times every day in average. The power limit is over 2,000MW every day. Industrial was the largest category of electricity consumption. It consumed around three quarters of total electricity in the province. Heavy industry including coal, steel, chemistry, machinery and materials made up most of the total industrial consumption. Among those, coal alone accounted for 40% of total industrial consumption. The historical economic and electricity consumption growth statistics are shown in Table 38.
Table 36. Economic indices and electricity consumption growth in Shanxi.
8th Five- 9th Five- 2000 2001 2002 2003 2004 Year Year The Growth Rate of GDP (%) 9.3 5.5 7.8 8.4 11.7 13.2 13 Electricity Consumption (108kwh) 502 558 629 725 790 Growth rate of power 9.32 4.73 10 11.2 12.7 15.33 11.23 consumption (%) Peak Load (MW) 7614 8367 9348 10063 10868 Growth Rate of peak load (%) 8.45 5.2 9.2 9.9 11.7 7.65 8.0
665. The TA report for the capacity strengthening of power planning process [ADB TA 4416-PRC] produced a demand forecast for electricity consumption in the Shanxi power grid. Forecast was made for the short term (3 years) and the long term (up to 2020) on a sectoral basis. The demand-side management measures, including implementation of time- of-day tariffs based on the long-run marginal cost, were taken into account in the short- and long-term forecasts. 666. The projected growth rates of electricity demand vary for different consumer categories, the highest being in construction and the lowest in agriculture. Electricity demand in gigawatt-hours is conservatively forecasted to grow at 8.1% for 2006–2010, 7.0% for 2011–2015, and 6.9% for 2016–2020.
Two. 667. The least cost analysis uses constant 2005 prices and a discount rate of 12%. Tradable commodities were valued at border prices at the prevailing exchange rate (CNY8.0= $1.0). Non-tradable commodities were valued at shadow prices, using a mix of standard and specific conversion factors. 668. Two least-cost generation expansion alternatives for the Shanxi power grid were considered. Alternative I is the base case, which is to construct the CMM-fired power plant and transmission lines to connect the plant to the Shanxi power grid. In alternative II, the CMM-fired power plant will not be constructed; instead, 120 MW of coal-fired thermal power plant is considered to meet the load requirement. The present values of cost flows (discounted to 2005 prices) for alternatives I and II are CNY771 and CNY842 million, and the average incremental economic costs (AIECs) for alternatives I and II are 0.15 yuan/Kwh and 0.17 yuan/Kwh, respectively. The results indicate that the least-cost generation expansion scenario including the CMM-fired power plant compares favorably with the one without the project.
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Table 37. Least Cost Comparison for CMM-fired vs. Coal-fired Power Plant.
Item 2005 2006 2007 2008 2009 2010 2020 2027 NPV CMM-fired power plant 60 120 120 120 120 installed capacity (MW) Electricity generation (GWH) 367 734 734 734 734 Power supply to grid (GWH) 356 712 712 712 712 4,997 Investment costs 0 0 298 397 298 Operation costs 0 0 0 17 27 27 27 27 Total costs 0 0 298 414 325 27 27 27 771 AIEC (CNY/KWH) 0.15 The alternative: 120MW coal- fired thermal Investment costs 0 77 77 129 129 104 Operation costs 0 0 0 43 43 96 96 96 Environmental costs 0 0 0 5 6 20 20 Total costs 0 77 77 172 177 206 116 116 842 AIEC (CNY/KWH) 0.17 1. Discount rate is 12% 2. All costs expressed in the economic terms at 2005 constant prices 3. NPV of alternative 1 is 899 million yuan, NPV of alternative 2 is 1018 million yuan 4. AIEC of alternative 1 is 0.18 yuan/kwh, AIEC of alternative 2 is 0.20 yuan/kwh 5. Source: ADB calculation
Three.
669. The result of the least-cost analysis is supported by equalizing discount rate (EDR) analysis. In the EDR analysis (Table 40), the CMM-fired power plant will replace coal-fired thermal for base load operation. The analysis compares the investment and operation cost of the 120 MW CMM-fired power plant with that of 120 MW coal-fired thermal between the CMM-fired power plant and the coal-fired thermal power plant. The main assumptions for the candidates, including the fuel cost and capital cost, were found to be appropriate. The results of an environmental impact were also incorporated into the EDR analysis. The EDR shows that the CMM-fired power plant is superior up to a discount rate of 15%, compared with the alternative of locating the coal-fired thermal power plant in the load center.
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Table 38. Choosing between Power Project Alternatives through the Equalizing Discount Rate.
Option I (CMM-fired power Option II (Coal-fired thermal power generation) generation) Discounted Costs Discounted Costs Cost Stream at 8% at 16% Cost Stream at 8% at 16% without rate of rate of without rate of rate of Difference Year Discounting discount discount Discounting discount discount in Costs 2005 0 0 0.00 0 0.00 0.00 0 2006 0 0 0.00 77 71.30 66.38 -77 2007 298 255 221.46 77 66.02 57.22 221 2008 414 329 265.23 172 136.54 110.19 242 2009 325 239 179.49 177 130.10 97.76 148 2010 27 18 12.86 206 140.20 98.08 -179 2011 27 17 11.08 109 68.69 44.74 -82 2012 27 16 9.55 110 64.18 38.92 -83 2013 27 15 8.24 112 60.51 34.16 -85 2014 27 14 7.10 116 58.03 30.50 -89 2015 27 13 6.12 116 53.73 26.30 -89 2016 27 12 5.28 116 49.75 22.67 -89 2017 27 11 4.55 116 46.07 19.54 -89 2018 27 10 3.92 116 42.65 16.85 -89 2019 27 9 3.38 116 39.49 14.52 -89 2020 27 9 2.91 116 36.57 12.52 -89 2021 27 8 2.51 116 33.86 10.79 -89 2022 27 7 2.17 116 31.35 9.30 -89 2023 27 7 1.87 116 29.03 8.02 -89 2024 27 6 1.61 116 26.88 6.91 -89 2025 27 6 1.39 116 24.89 5.96 2026 27 5 1.20 116 23.04 5.14 2027 27 5 1.03 116 21.34 4.43 -89 Total 1,009.01 752.94 1,254.21 740.91 15% EDR (crossover value) calculated here is 15%; Source: ADB Consultation
5. Economic Internal Rate of Return (EIRR)
Four 670. The economic internal rate of return (EIRR) calculations include (i) the CMM-fired power plant and production of CMM and coalbed methane (CBM) in Luan , (ii) CMM transmission and distribution pipeline systems for Shanxi CBM Gather and Distribution Limited Company, and Changzhi Coal Gasification General Company, respectively, (iii) Producing carbinol from coke furnace gas in Changzhi Coal Gasification General Company and Tongzhou Coal-Coke Limited Company , and (iii) the whole project including all components. The benefits of the CMMDP mainly include (i) incremental electricity supply, gas and carbinol supply, and more efficient gas supply; (ii) cost savings from meeting existing demand; and (iii) environmental benefits. 671. As in the least-cost analysis, the economic analysis applied the conversion factors to investment costs for land, generation, transmission, and distribution; fuel costs; and 140 operation and maintenance costs, where applicable. For the EIRR calculations, the benefits of energy output were valued based on consumer's willingness to pay, economic prices of gas and end-consumer tariffs.
Five 672. An economic evaluation of the environmental impacts of the CMMDP was carried out based on the benefits transfer method. The evaluation used (i) methodology adopted in the Asian Development Bank’s Workbook on Economic Evaluation of Environmental Impacts (1996) to determine the adjusted estimate of the monetary damages caused by air pollution during the study period, taking into account the location of the CMM-fired power plant, the emission level, and the population affected; and (ii) estimates of average annual climate change for carbon emissions to evaluate the monetary damage caused by greenhouse gas emissions.
Six 673. The results of the EIRR are summarized in Tables A5-1 A5-6 in Appendix 5. The EIRR calculation is a conservative approach, as it takes into account only the main benefits of different components but includes all related costs. When the accounting for estimated local environmental benefits, this approach yields an EIRR of 32.7% for the component that include the CMM-fired power plant and the production of CMM and CBM, 41.85% and 24.54% for the components that includes the CMM transmission and distribution pipeline systems by Shanxi CMM gather and distribution limited company and Changzhi coal gasification general company, 40.86% and 37.66% for producing chemical material in Changzhi coal gasification general company and Tongzhou coal gasification general company, 37.73% for the whole project. 674. For the EIRR of the whole project, sensitivity analysis (Table 41) showed that the EIRR would decrease to (i) 31% if the project were to experience a cost overrun of 20%; (ii) 23.2% if the benefits were reduced by 20%; (iii) 23.6% if the project were to experience a commissioning delay of one year; and (iv) 12.7% if (i), (ii), and (iii) all occurred.
Seven 675. If the global environmental benefits were added to the benefits of the project, the EIRR for the CMM-fired power plant and the production of CMM and CBM would increase to 37.49%, the EIRRs for CMM transmission and distribution pipeline systems by Shanxi CMM gather and distribution limited company and Changzhi coal gasification general company would increase to 45.85% and 24.71%, the EIRRs for producing chemical material in Changzhi coal gasification general company and Tongzhou coal gasification general company and the EIRR would increase to 45.26% and 37.89%, and the EIRR for the whole CMMDP would increase to 41.06%.
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Table 39. Sensitivity Analysis of EIRR for the Whole Project.
Change in NPV EIRR Sensitivity Analysis of EIRR Variable (mill. Y) (%) SI SV
Base Case 6824.8 37.7% (i) Capital Cost Overrun 20% 6020.5 31.0% 0.6 169.7 (ii) Benefit Reduction -20% 2956.4 23.2% 2.8 35.3 (iii) Implementation Delay 1 year 4496.0 23.6% (iv) Combination of (i), (ii) and (iii) 289.0 12.7%
a. The Economic Analysis
676. The financial analysis include (i) the CMM-fired power plant and production of CMM and coalbed methane (CBM) in Lu’an, (ii) CMM transmission and distribution pipeline systems for Shanxi CBM Gather and Distribution Limited Company, (iii) the CMM transmission and distribution and producing carbinol from coke furnace gas in Changzhi Coal Gasification General Company, (iv) Producing carbinol from coke furnace gas in Tongzhou Coal-Coke Limited Company, and (v) the whole project including all components. 677. The benefits of the projects mainly include the incremental electricity supply, gas and carbinol supply, and more efficient gas supply. The costs of the projects mainly include the investment cost, operation and maintenance (O&M), and tax. The annual taxes include the relevant value-added tax, corporate income tax and the staff welfare fund and etc.
i. The weighted average cost of capital (WACC) Analysis.
678. The weighted average cost of capital (WACC) represents a weighted average of the different returns (interests) paid to the various source of funds for the projects. The weighted average cost of capital was calculated after tax, in real terms, following the methodology in the Asian Development Bank’s (ADB) Guidelines for the Financial Governance and Management of Investment Projects Financed by the Asian Development Bank using actual capital mix and costs of funds. Actual interest rates of local loan funds were considered. For the ADB loan, interest rate is based on the current London inter-bank offered rate on five- year fixed-interest swap (currently at 5%) plus the ADB loan spread of 0.6%. The cost of equity was assumed to be 8.0%, based on the current yield on the long-term government bond, plus an assumed risk premium of 3.0%. Income tax was 33.0%, and the average domestic inflation rate was 2.0% per year. The real WACC is calculated at 4.6% (Table 42).
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Table 40. Calculation of the Weighted Average Cost of Capital (WACC).
Financing Component Equity ADB Loan Domestic Loan Participation Total Amount (million yuan) 2875 725.7 1758 5358.7 Weighting 53.7% 13.5% 32.8% Nominal Cost 5.6% 6.8% 8.0% Corporate Income Tax 33.0% 33.0% Tax-adjusted nominal cost 3.8% 4.6% 8.0% Inflation rate 2.0% 2.0% Real cost 3.8% 2.5% 5.9% Minimum rate test 4.0% 4.0% 5.9% Weighting Component of WACC 2.1% 0.5% 1.9% 4.6% WACC 4.6%
6. Financial Internal Rate of Return (FIRR)
679. Financial internal rate of return (FIRR) measures the financial viability of a project. The FIRR calculation is a conservative approach, as it takes into account only the main benefits of different components but includes all related costs. The results of the FIRR analyses are presented in Tables A6-1 to A6-5 and Appendix 6. Tables A6-1 to A6-2 present each component’s receipts, payments and net cash flows for 20 years of operations where it is assumed that the receipts and payments will remain constant in real terms once a steady state is reached. 680. This approach yields a FIRR of 24.10% for the production of CMM and CBM for the 120W Power Plant in Lu'an, 14.76% for the CMM transmission and distribution by Shanxi CMM Gather and Distribution Limited Company, 29.32% for the CMM transmission and distribution and producing carbinol from coke furnace gas in Changzhi Coal Gasification General Company, 18.46% for the producing chemical material from coke furnace gas in Tongzhou Coal Gasification General Company, 21.94% for the whole project. Since the FIRRs are higher than the WACC, all components are financially viable. 681. For the FIRR of the whole project, sensitivity analysis showed that the FIRR would decrease to, (i) 15.85% if the project were to experience a cost overrun of 10%; (ii) 15.23% if the benefits were reduced by 10%; (iii) 13.28% if the project were to experience a commissioning delay of one year; and (iv) 4.64% if (i), (ii), and (iii) all occurred. Sensitivity analysis shows that subjected to adverse conditions, the FIRRs remain reasonably robust, except if all adverse conditions occur simultaneously (Table 43).
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Table 41. Financial Sensitivity Analysis for the Whole Project.
Change in NPV Variable (mill. Y) FIRR (%) SI SV Base Case 4649.2 21.94% (i) Capital Cost Overrun 10% 2804.6 15.85% 2.0 50.4 (ii) Benefit Reduction 10% 2339.7 15.23% 2.5 40.3 (iii) Implementation Delay 1 year 2452.9 13.28% 0.6 159.5 (iv) Combination of (i), (ii) and (iii) (1,482) 4.64% 8.2 12.2 Notes: (i) Discount Rate is 8%. (ii) SI = sensitivity indicator, SV = switching value. (iii) Sensitivity indicator is the ratio of percentage change in the financial NPV divided by the percentage change in the given parameter. (iv) Switching value is the percentage change in a parameter for the project decision to change, that is for the financial NPV to become zero or the FIRR to fall to the cut-off rate.
7. Employment Opportunities of Projects
682. Based on the initial social impact assessment, it is estimated that the proposed projects could generate significant employment opportunities to the local communities, in particular the small coal miners. For example, the Changzhi Municipal Gas Distribution Project can generate direct employment for 1,000 persons, including 100 management staff, 50 engineering staff and 850 workers. The target average remuneration level is between CNY 15,000 yuan to CNY 20,000 yuan per person per year. For the Coal Gas Purification/Collection and Carbinol Production Project, it is estimated that the Project could generate a direct employment for 362 persons, including 36 management staff, 15 technicians, and 311 workers.
683. This employment generation situation is consistent with other similar projects. For ADB financed Liaoning Environmental Improvement Project (including CBM development, gas supply and heating supply components), it is estimated that the construction of the Project will create about 7,670 person-years of employment opportunities. The total earnings accrued from the capital construction works in conjunction with the Project will therefore amount to CNY 92.75 million yuan during the Project construction period. Of these, 3,390 fulltime employment opportunities will be filled by the poor and vulnerable groups, with an estimated CNY 32.54 million yuan wage payment to them during the Project construction period. Additional 1,020 persons of the employment opportunities during operational phase or CNY 11.02 million yuan of wage payment per year are expected to go to the poor and the vulnerable groups.
684. For the ADB Shanxi Methane Gas Demonstration Project, It is estimated that the construction of the project will create about 1,200 persons’ employment opportunities. The total earnings accrued from the capital construction works in conjunction with the project will therefore amount to CNY 17.13 million yuan during the one-year to five-year construction period. When the project goes into operation, the annual personnel requirement is estimated at 845 persons. The total earnings accrued from the operations of the Project will amount to CNY 11.64 million yuan each year. It is expected that about 780 persons or 65% of the construction-related employment opportunities or CNY 8.5 million yuan in earnings will go to the local poor and vulnerable group. On the other hand, about 340 persons or 40% of the operational positions will be unskilled labor that can be taken by the poor. 144
8. Willingness to Convert the Use of Coal to Gas
685. In Shanxi Province, most of the households use coal as energy source for cooking and heating, the burning of raw coal and coal briquettes causes serious environmental and health impacts. The provision of the clean and efficient gas supply can improve the urban living environment in the Project cities, which in turn can improve the local investment climate to attract more investment to the region, and act as a catalyst for future development. The improved gas and heating supplies and resultant improvement of environmental quality in the project areas could have provisions for the growth of other sectors in the region in addition to industry and business, such as real estate, transportation, service, recreation and tourism, and result in the increase employment opportunities and income for the local population.
686. Moreover, the greater availability and reliability of gas supply could bring in increased government revenues (tax revenues from sale revenue of the Project). The proportion of these benefits accruing to the poor could be determined by the increased percentage of government spending on poverty reduction programmes on health, education, water supply and sanitation, and employment schemes. Overall, the development of each sector will promote the region’s economic development and result in increases in employment and income to locals, thus complement the poverty reduction effort in the Project cities and PRC.
687. The random sampling survey results of Shanxi Methane Gas Demonstration Project indicate that the surveyed households spend an average of CNY 236 yuan per–capita per year on energy. This energy expenditure accounts for 7.97% of the per-capita net income. However, the rural households spend a much greater share of their income on energy (12.76%) than their urban counterparts (7.01%). Meanwhile, the status of poverty also had a significant bearing on the percentage share. For instance, the urban poor spend 12.19% of their net income on energy, compared to 5.09% for the urban non-poor.
688. Similarly the percentage share for the rural poor is 25.17%, compared to 10.82% for the rural non-poor. It is apparent that energy costs are a significant burden for both the rural households and the urban poor. The supply of clean and affordable energy supply to the rural households and the urban poor will help the cause of poverty reduction.
689. According to the results of the survey, the vast majority of both rural and urban households desire to connect to the piped coal gas. Specifically, 90.6% of the urban households and 91.0 of the rural households expressed their willingness. Taken the population of the gas supply as a whole, the total willingness to pay amounts to approximately CNY 34.33 million yuan. This indicates that the local people, including the poor are more willing to switch from coal use to gas supply.
9. Synergistic Environmental Benefits of CMADP and Small Mine Closure.
690. As introduced in section IV-E and as clarified above, the potential major indirect benefit of small coal mine closures in conjunction with the development of cleaner, alternate energy from projects such as the CMADP to regional air quality is significant. Without the development of alternate energy sources, or the development of technologies to more efficiently and cleanly covert coal into energy, the environmental benefits of closing the numerous small coal mines in Shanxi provinces are restricted to the direct local effects of improved housekeeping during the closure process.
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a. Recycling and Reuse of Coke Gas
691. The application, and use of CBM in methane production and the transmission and use of CMM exemplify good alternate ways to derive energy from coal while demonstrating obvious ways to benefit the environment through reduction in greenhouse gases. Recycling and reuse of coke gas for the development of methanol and other useful by products while very technical compared to the relatively straightforward effects of capturing and burning CBM or CMM, is nonetheless an excellent strategy to reduce characteristically harmful emissions of coke ovens such as high concentrations of total suspended particulates (TSP; dust). In addition to TSP, SOx, NOx, and H2S, coke emissions also contain high levels of benzene, toluene, xylene (BTX), polychlorinated aromatic hydrocarbons (PAH), and benzo- a-pyrenes (BaP).
692. The steel industry is also reducing coke gas emissions with the use of alternate coal- based fuels. The recent EIA of the Tongling Coking Gas Subproject in China demonstrated the potential environmental benefits to applying cleaner technology to the production and consumption of coke gas29. For the CMADP coke reuse in methanol production is good. In summary the CMADP exemplifies the means to recover energy lost from the closure of small coal mines, create employment opportunities and reduce regional air pollution from inefficient and therefore harmful combustion of hydrocarbons.
29 ADB, 2004. Summary Initial Environmental Evaluation of the Tongling Coke Gas Subproject, 146
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VIII. MONITORING INDICATORS OF ASSISTANCE PROGRAM
A. Draft Indicators of Successful Assistance Program
693. The effects of re-training and re-employment programs, and the benefits of the implementing the subprojects of the CMADP to poverty alleviation should be monitored to determine the efficacy with which they offset unemployment caused by the closure of the small coal mines. While the implementation of projects of the CMADP, and the specific location of the training and re-employment programs are unclear at this time, generic indicators of the benefits of the assistance program can be identified for future fine tuning.
694. In keeping with the principles underlying the ADB’s Project Performance Management Systems (PPMS), draft indicators30 of the assistance program successfully reducing unemployment and alleviating local poverty in small coal mine communities have been developed. For clarity the draft set of indicators have been divided into three groups defined by 1) Poverty & Social, 2) Economic & Financial, 3) Institutional & Regulatory, and 4) Environmental & Health (Table 44).
695. The indicators can be used to evaluate the social and poverty impacts of the assistance specified by the project. A feedback and reporting mechanism for effective project implementation and initial start-up activities will include a baseline survey based on random household sample to be monitored with the follow-up surveys in PPMS.
B. Data Collection & Reporting Protocols
696. The draft indicators presented in Table 44 need to be further tuned for application in the areas of Shanxi-Jincheng municipality selected for the training program, and the areas in which further development and possible implementation of projects of the CMADP will occur.
697. To conduct the monitoring activities for indicators of a successful assistance program, the EA and IA should be responsible for internal monitoring. An external organization (a qualified consulting company or a research institute) could be engaged to assist the EA to carry out the data collection and reporting. Monitoring data should be collected every six months with the results reported to the Project EA, IA and ADB.
30 Adapted from: 1) Shyamsundar, Poverty-Environment Indicators, World bank, 27 pp. 2002. 2) Okidegbe, 2000. Monitoring Rural Well-being: A Rural Score Card, World Bank, 29pp. & ADB, 2003. Agreement Between the PRC and ADB on a Poverty Reduction Partnership, 7 pp. 148
Table 42. Draft indicators for success of assistance program.
Poverty and Social • Number of small coal mine jobs lost; • Average income in affected communities before and after small mine closures; • The number & type of new employment opportunities available to displaced miners; • Change in the number & types of training courses provided to the small coal miners; • Change in frequency of accidents of coal mine workers; • Rural health expenditure (% of GDP); • Change in the number of heath clinics in affected mining areas; • Percent reduction in rural population below poverty line; • Change in the number of re-employed coal miners; • Change in number of permanent training programmes for the small coal miners; • Change in skill sets of previous miners in small coal mines; • Increase in the number of the local residents whom use gas instead of coal; • Increase in number of poor households to be connected with gas pipeline; • Change in illiteracy rate;
Economic and Financial • Change in rate of emigration of unemployed miners; • Change in number of unemployed caused by mine closures; • Change in total GDP per capita in affected mine communities; • Change in number of jobs in agricultural sector; • Per capita agricultural cereals production; • Change in agricultural GDP per agricultural worker; • Change in non-agricultural workers; • Change in non-agricultural GDP; • Consumption of coal-based methane & methanol and decreased consumption of coal • Development of local industries based on coal-based methane and methanol; • Level of export of coal-based methane and methanol; • Exports of new manufactured goods; • Change in exports of goods for agricultural and other sectors other provinces;
Institutional and Regulatory • Date of promulgation of new, specific regulations for the closure of small mines; • Date formal budgets allocated from coal mine profits for mine closure procedures; • Change in financial resources spent on small coal mine closures by government and mine owner/operators. • Level of implementation of poverty reduction by local agencies
Environment and Health • Reclaimed and restored agricultural, and other land uses in closed mine areas; • Increase in agriculture production in small coal mine communities; • Residual area of waste coal (gangue) storage areas at closed mine sites; • Improvements in local of air quality (i.e., smog, dust, NOx, SOx, CO2 ); • Reduction in total suspended solids (TSP) in streams & lakes near small coal mines; • TSP, pH, and sulfur levels in ground- and surface waters near closed mine sites; • Incidence of land subsidence over closed small mines; • Incidence of complaints of bad tasting, or lack of well water by local residents; • Prevalence of acute respiratory infections in mine communities; • Incidence of complaints of dust and poor air quality by local residents; 149
REFERENCES
General References Sources for Main Report and Appendices
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Andrews-Speed, P., 2004. Energy Policy and Regulation in the People’s Republic of China. Kluwer Law International, The Hague.
Andrews-Speed, P., Yang, M., Shen, L., Cao, S., 2003. The regulation of China’s township and village coal mines: a study of complexity. Journal of Cleaner Production 11, 185– 196. Bugnosen E.M., 1998. A Preliminary Assessment of Small scale Mining Legislation and Regulatory Frameworks. Intermediate Technology Development Group (ITDG). Brook, D., 1994. Reclamation of abandoned underground mines in the United States. Mineral Planning 61, 21-26.
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Huang, Y., 1999. Cutting the back way of illegal coal transactions on the enforcement of the regulations of coal operation and management. Coal Economic Research (8), 1 (in Chinese). International Food Policy Research Institute (IFPRI), 2002. A Standard Computable General Equilibrium (CGE) model in GAMS. Jennings, N.S., 1999. Social and Labour Issues in Small scale Mines. ILO, Geneva. Kahn, JR., Franceschi, D., Curl, A., Vale, E., 2001. Economic and financial aspects of mine closure. Natural Resources Forum 25, 265-274. 150
Kuhne, G., 1992. Abandonment and reclamation of energy sites and facilities: Germany. Journal of Energy and Natural Resources Law 10 (1), 4-20. Kumar, R., and Amaratunga, D., 1994. Government policies towards small scale mining. Resources Policy 20 (1), 15 22. Laurence, D.C., 2002. Optimizing mine closure outcomes for the community lessons learnt. Minerals and Energy 17 (1), 27-34.
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APPENDIX 1: MULTIVARIATE MODEL OF COAL DEMAND - I
1. Multiple Regression Model 1 of Coal Demand
= + − + Coal 76.00280 0.530487 *GDP 0.005551* Pcoal 0.115762* Poil + 0.569509* Steel +1.140096* Elec + 0.392358* Mate with the t-statistic for each estimated parameter being 6.443350, -4.959066. 0.084807, - 4.673184, -5.055893, 4.022847, and 3.369936. The goodness-for-fit and Durbin Watson
2 statistics are: R 2 = 0.975681 , adjusted R =0.968386, and D.W. = 1.014352, respectively.
Table A1-1. Summary Statistics of Multiple Regression 1 of Coal Demand
Dependent Variable: COAL Method: Least Squares COAL=C(1)+C(2)*GDP+C(3)*PCOAL+C(4)*POIL+C(5)*STEEL+C(6) *ELEC+C(7)*MATE
Coefficient Std. Error t-Statistic Prob.
C(1) 76.00280 11.79554 6.443350 0.0000 C(2) 0.530487 0.106973 -4.959066 0.0001 C(3) -0.005551 0.065457 0.084807 0.9333 C(4) 0.115762 0.024772 -4.673184 0.0001 C(5) 0.569509 0.112643 -5.055893 0.0001 C(6) 1.140096 0.283405 4.022847 0.0007 C(7) 0.392358 0.116429 3.369936 0.0030
R-squared 0.975681 Mean dependent var 189.2589 Adjusted R-squared 0.968386 S.D. dependent var 60.56761 S.E. of regression 10.76916 Akaike info criterion 7.809663 Sum squared resid 2319.494 Schwarz criterion 8.145621 Log likelihood -98.43045 Durbin-Watson stat 1.014352
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APPENDIX 2: MULTIVARIATE MODEL OF COAL DEMAND - 2
Summary Statistics of Multiple Regression Analysis of Coal Demand - 2
1. Multiple Regression Model 2 of Coal Demand
Table A2-1. Summary Statistics of Multiple Regression 1 of Coal Demand
Dependent Variable: COAL Method: Least Squares Date: 03/17/06 Time: 15:36 Sample: 1978 2004 Included observations: 27 COAL=C(1)+C(2)*GDP+C(3)*POIL+C(4)*STEEL+C(5)*ELEC+C(6) *MATE
Coefficient Std. Error t-Statistic Prob.
C(1) 76.46660 10.20112 7.495900 0.0000 C(2) 0.533309 0.099233 -5.374309 0.0000 C(3) 0.114962 0.022358 -5.141812 0.0000 C(4) 0.574292 0.095172 -6.034282 0.0000 C(5) 1.141037 0.276413 4.128009 0.0005 C(6) 0.398776 0.086371 4.617020 0.0001
R-squared 0.975673 Mean dependent var 189.2589 Adjusted R-squared 0.969880 S.D. dependent var 60.56761 S.E. of regression 10.51151 Akaike info criterion 7.735949 Sum squared resid 2320.328 Schwarz criterion 8.023912 Log likelihood -98.43531 Durbin-Watson stat 1.021551
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APPENDIX 3: STATISTICS OF WHITE HETEROSCEDASTICITY TEST
The empiric model estimated is summarized below:
2 µ =45.31552+9.018162*GDP−0.007627*GDP2 −1.398074*Poil+0.000354*Poil2 +16.87538*Steel− 0.022328* 2 −21.38632*Elec−0.025532* 2 −3.216665*Mate+0.003483* 2 + Steel Elec Mate εi
Complete summary statistics for the White Heteroscedasticity Test are found in Table A3.
Table A3-1. White Heteroskedasticity Test
White Heteroscedasticity Test:
F-statistic 1.758061 Probability 0.162296 Obs*R-squared 13.91725 Probability 0.176800
Variable Coefficient Std. Error t-Statistic Prob.
C 45.31552 355.6946 0.127400 0.9004 GDP 9.018162 4.844638 1.861473 0.0838 GDP^2 -0.007627 0.004851 -1.572338 0.1382 POIL -1.398074 1.305463 -1.070941 0.3023 POIL^2 0.000354 0.000617 0.572878 0.5758 STEEL 16.87538 8.404728 2.007844 0.0644 STEEL^2 -0.022328 0.011713 -1.906300 0.0773 ELEC -21.38632 7.967280 -2.684268 0.0178 ELEC^2 0.025532 0.014050 1.817321 0.0906 MATE -3.216665 4.058762 -0.792524 0.4413 MATE^2 0.003483 0.003755 0.927515 0.3694
R-squared 0.556690 Mean dependent var 66.28932 Adjusted R- squared 0.240040 S.D. dependent var 95.47630 S.E. of regression 83.23211 Akaike info criterion 11.98133 Sum squared resid 96986.18 Schwarz criterion 12.51763 Log likelihood -138.7666 F-statistic 1.758061 Durbin-Watson stat 2.187065 Prob(F-statistic) 0.162296
By White test, the null hypothesis can be accepted, i.e., we reject the assumption that there is heteroscedasticity, at 1% significance level. 156
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APPENDIX 4: COMPUTABLE GENERAL EQUILIBRIUM MODEL (CGE)
Computable General Equilibrium Modeling
(1) Partial equilibrium vs. general equilibrium
Partial equilibrium analysis illustrates results for one market at a time. However, there often exist market interactions and thus market feedbacks. As Nicholson suggests, pricing outcomes in one market usually have effects in other markets, and these effects, in turn, create ripples throughout the economy, perhaps even to the extent of affecting the price- quantity equilibrium in the original market. To represent this complex set of economic relationships, it is necessary to go beyond partial equilibrium analysis and construct a model that permits viewing many markets simultaneously. The general equilibrium model is a framework for analyzing linkages between markets and thus interactions between industries, factor resources and institutions.
De Melo and Tarr (1992) argue that inter-industry linkages are best captured in a general equilibrium framework. Although partial equilibrium may yield accurate estimates for particular sectors, estimates of aggregate costs of regional policies across sectors, for example, require a general equilibrium model to account for region-wide budget and resource constraints.
In the past, implementation of general equilibrium analysis was constrained by inadequate data and computational resources. Currently, however, the existence of large-capacity computer technology has made possible applications of such models to actual market situations. By recommending general equilibrium analysis, we do not mean that econometric estimates representing different sectors have little value. Rather, the two approaches should be viewed as complementary because it is neither feasible nor desirable to estimate, as a system of simultaneous equations, the full set of conditions describing a multisector economy model (de Melo and Tarr, 1992). In many cases, general equilibrium analysis borrows parameter estimates from partial equilibrium econometric studies.
(2) General equilibrium economic models
Several approaches have been used to represent the regional macroeconomy interactions among sectors and, hence, the analysis of impacts of alternative policies. Most general equilibrium procedures are broadly categorized into fixed-price (multiplier) impact analysis and the endogenous price, quantity and income computable general equilibrium (CGE) methods. This section provides an overview and comparison of these model types and their variants.
Input-output analysis, attributed to Leontief, has been used for assessing the impact of a change in the demand conditions for a given sector of the economy. The basic relationship in these models is represented by
Xij = aij Xj (1) 158
Where Xij the amount of sector i’s output required for the production of sector j’s output, is assumed to be proportional to sector j’s output Xj, and aij is the relevant input-output coefficient. Summing over sectors and adding final demand Fi to equation (1) produces the I- O model:
n =+ X iijji∑aX F (2) i=1 which is also assumed to hold in first-difference form (depicting changes in the variables). An increase in final demand in a particular sector by, say, ∆Fi will initially increase production for that sector, which in turn raises the intermediate demand for all sectors. To produce these intermediate inputs, however, more intermediate inputs are required. Although sectoral outputs keep on rising in several rounds, these increases become smaller and smaller such that their total always has a limit (Sadoulet and de Janvry, 1995). Equation (2) is often written in matrix notation:
X = (I – A) –1F (3) where X is the vector of outputs, F is the vector of final demands, A is the matrix of input- output coefficients, and I is the identity matrix (with ones on the diagonal and zeros elsewhere). The matrix (I – A)–1 represents a multiplier used to calculate overall changes in sectoral outputs caused by changes in final demand.
Input-output analysis hinges on the crucial assumption that sectoral production is completely demand-driven, implying that there is always excess capacity in all sectors that is capable of meeting increased demand with no price increase. Because this assumption is likely to be unrealistic, input-output models are more useful as guidelines to potential induced linkage effects, and as indicators of likely bottlenecks that may occur in a growing economy, than as predictive models (Sadoulet and de Janvry, 1995).
Further, I-O models assume a constant returns to scale production function with no substitution among the different inputs. Prices are also assumed constant, which is not a major problem as substitution among factors is expected to be induced only by nonexistent relative price movements.
Extension of the I-O model to a social accounting matrix (SAM) framework is performed by partitioning the accounts into endogenous and exogenous accounts and assuming that the column coefficients of the exogenous accounts are all constant. According to Sadoulet and de Janvry (1995), endogenous accounts are those for which changes in the level of expenditure directly follow any change in income, while exogenous accounts are those for which we assume that the expenditures are set independently of income. In determining exogenous accounts, it is common practice to pick one or more among the government, capital, and the rest of the world accounts based on macroeconomic theory and the objectives of the study.
Although I-O and SAM models have typically been used for impact analyses, they do not consider the special case where productive capacity of a sector is curtailed or eliminated (Seung, et al.1997). This concern has led to the emergence of mixed exogenous/endogenous I-O models where the production capacity of a sector is exogenously reduced (Petkovich and Ching, 1978). To examine the impacts of timber production potentials on income distribution, Marcouiller, Schreiner and Lewis (1993) demonstrated an application of a SAM version of 159 the mixed exogenous/endogenous model, the supply-determined SAM (SDSAM) model, to the analysis of forest products.
However, these mixed exogenous/endogenous models, though relatively easy to implement, have limitations similar to fixed-price models. These are fixity of prices and no factor substitution in production and no commodity substitution in consumption. Seung et al. contend that, by these restrictive assumptions, the SDSAM model lacks micro-theoretic foundation. Thus, such models are internally inconsistent because outputs for some sectors are forced to be fixed and final demands for the same sectors are assumed endogenous.
To circumvent the limitations posed by the SDSAM model, regional economists have turned to using the more theoretically sound computable general equilibrium (CGE) models as a tool for policy and impact analyses. In CGE analysis, output in all sectors is endogenously determined and prices are assumed sufficiently flexible to clear the commodity and factor markets. An empirical comparison of the SDSAM and CGE approaches by Seung et al. indicates that, compared to the CGE model, the SDSAM model tends to overestimate the policy impacts and to estimate production decreases in sectors where production may not change or may increase. The authors conclude that a regional CGE model is theoretically sounder than mixed exogenous/endogenous fixed price models for impact analyses where productive capacity of sectors is curtailed or eliminated.
Partridge and Rickman argue that fixed-price regional models are limiting cases of the more general Walrasian general equilibrium system. In fixed-price models, which are characterized by perfectly elastic supply, the total change in the regional economy is always predicted to be proportionate to the exogenous change. The Walrasian general equilibrium procedure, which is grounded in neoclassical theory, specifies less than elastic supply with equilibration of demand and supply achieved through flexible prices. In these models, the total response in an economy to an exogenous change is not necessarily proportionate and depends upon the various elasticities of demand and supply.
(3) Overview of CGE Model
Standard CGE model explains all of the payments recorded in the SAM. The model therefore follows the SAM disaggregation of factors, activities, commodities, and institutions. It is written as a set of simultaneous equations, many of which are nonlinear. There is no objective function.
The equations define the behavior of the different actors. In part, this behavior follows simple rules captured by fixed coefficients (for example, ad valorem tax rates). For production and consumption decisions, behavior is captured by nonlinear, first-order optimality conditions — — that is, production and consumption decisions are driven by the maximization of profits and utility, respectively. The equations also include a set of constraints that have to be satisfied by the system as a whole but are not necessarily considered by any individual actor. These constraints cover markets (for factors and commodities) and macroeconomic aggregates (balances for Savings – Investment, the government, and the current account of the rest of the world).
This section summarizes the basic characteristics of the model. Unlike the more detailed presentation in Chapter 5, it uses no mathematical notation. 160
Activities, Production, and Factor Markets
Each producer (represented by an activity) is assumed to maximize profits, defined as the difference between revenue earned and the cost of factors and intermediate inputs. Profits are maximized subject to a production technology, the structure of which is shown in Figure A4- 1. At the top level, the technology is specified by a constant elasticity of substitution (CES) function or, alternatively, a Leontief function of the quantities of value-added and aggregate intermediate input. The Leontief alternative is the default. The CES alternative may be preferable for particular sectors if empirical evidence suggests that available techniques permit the aggregate mix between value-added and intermediate inputs to vary. Value-added is itself a CES function of primary factors whereas the aggregate intermediate input is a Leontief function of disaggregated intermediate inputs.
Figure A4-1: Production Technology
Each activity produces one or more commodities according to fixed yield coefficients. As noted, a commodity may be produced by more than one activity. The revenue of the activity is defined by the level of the activity, yields, and commodity prices at the producer level.
As part of its profit-maximizing decision, each activity uses a set of factors up to the point where the marginal revenue product of each factor is equal to its wage (also called factor price or rent). Factor wages may differ across activities, not only when the market is segmented but also for mobile factors. In the latter case, the model incorporates discrepancies that stem from exogenous causes (for example, wage differences across activities resulting from considerations such as status, comfort, or health risks).
We can choose between alternative factor market closures (mechanisms for equilibrating supplies and demands in factor markets). According to the default closure, the quantity supplied of each factor is fixed at the observed level. An economywide wage variable is free to vary to assure that the sum of demands from all activities equals the quantity supplied. 161
Each activity pays an activity-specific wage that is the product of the economywide wage and an activity-specific wage (distortion) term. For the default closure, the latter terms are fixed.
Alternatively, it is possible to assume that a factor is unemployed and the real wage is fixed. This assumption may, for example, be appropriate in settings where there is considerable unemployment for a given labor category. Compared with the default closure, the only change is that the economywide wage variable is fixed (or exogenized) while the supply variable is .flexed (or endogenized). Each activity is free to hire any desired quantity at its fixed, activity-specific wage (which, implicitly, is indexed to the model numéraire). In this setting, the supply variable is superfluous; it merely records the total quantity demanded.
Under a third closure, the factor market is segmented and each activity is forced to hire the observed, base-year quantity – that is, the factor is activity-specific. This closure may be preferred in short-run analyses or when there are significant quality differences between the units of a factor that are used in different activities – for example, units of nonagricultural capital used in different industrial and service activities. For this case, the quantities of activity-specific factor demands and the economywide wage are fixed while the activity- specific wage terms and the supply variables are flexible.
Institutions
In the CGE model, institutions are presented by households, enterprises, the government, and the rest of the world (ROW).
The households (disaggregated as in the SAM) receive income from the factors of production (directly or indirectly via the enterprises) and transfers from other institutions. Transfers from the rest of the world to households are fixed in foreign currency. In fact, all transfers between the rest of the world and domestic institutions and factors are fixed in foreign currency. The households use their income to pay direct taxes, save, consume, and make transfers to other institutions. In the basic model version, direct taxes and transfers to other domestic institutions are defined as fixed shares of household income whereas the savings share is flexible for selected households. The treatment of direct tax and savings shares is related to the choice of closure rule for the government and savings – investment balances. This topic is discussed further in the final section of this chapter, on macroeconomic balances. The income that remains after taxes, savings, and transfers to other institutions is spent on consumption.
Household consumption covers marketed commodities, purchased at market prices that include commodity taxes and transaction costs, and home commodities, which are valued at activity-specific producer prices.31 Household consumption is allocated across different commodities (both market and home commodities) according to linear expenditure system (LES) demand functions, derived from maximization of a Stone – Geary utility function (for details, see Blonigen et al. 1997, and Dervis et al. 1982).
Instead of being paid directly to the households, factor incomes may be paid to one or more enterprises. Enterprises may also receive transfers from other institutions. Enterprise incomes are allocated to direct taxes, savings, and transfers to other institutions. Enterprises do not
31 In the standard SAM, home consumption is only disaggregated by activity and household, not by commodity, activity, and household. When households consume from activities that produce multiple output, extraneous, non-SAM data are needed to allocate home consumption across the commodities produced by each relevant multiple-output activity. 162 consume. Apart from this, the payments to and from enterprises are modeled in the same way as the payments to and from households.
The government collects taxes and receives transfers from other institutions. In the basic model version, all taxes are at fixed ad valorem rates. The government uses this income to purchase commodities for its consumption and for transfers to other institutions. Government consumption is fixed in real (quantity) terms whereas government transfers to domestic institutions (households and enterprises) are CPI-indexed. Government savings (the difference between government income and spending) is a flexible residual.
The final institution is the rest of the world (ROW). As noted, transfer payments between the rest of the world and domestic institutions and factors are all fixed in foreign currency. Foreign savings (or the current account deficit) is the difference between foreign currency spending and receipts.
Commodity trade with the rest of the world is discussed in the next section. Thereafter, the final section of this chapter discusses the rules for clearing the macroeconomic balances (the macroclosures) - that is, how equilibrium is achieved in the balances for the government, the rest of the world, and the Savings – Investment account (where institutional savings are aggregated and allocated to domestic investment).
Commodity Markets
With the exception of home-consumed output, all commodities (domestic output and imports) enter markets. Figure A4-2 shows the physical flows for marketed commodities along with the associated quantity and price variables as defined in the model equations discussed in the following section. 163
Figure A4-2: Flows of Marketed Commodities
164
Domestic output may be sold in the market or consumed at home. For marketed output, the first stage in the chain consists of generating aggregated domestic output from the output of different activities of a given commodity. These outputs are imperfectly substitutable as a result of, for example, differences in timing, quality, and distance between the locations of activities. A CES function is used as the aggregation function. The demand for the output of each activity is derived from the problem of minimizing the cost of supplying a given quantity of aggregated output subject to this CES function. Activity-specific commodity prices serve to clear the implicit market for each disaggregated commodity.
At the next stage, aggregated domestic output is allocated between exports and domestic sales on the assumption that suppliers maximize sales revenue for any given aggregate output level, subject to imperfect transformability between exports and domestic sales, expressed by a constant elasticity of transformation (CET) function. In the international markets, export demands are infinitely elastic at given world prices. The price received by domestic suppliers for exports is expressed in domestic currency and adjusted for the transaction costs (to the border) and export taxes (if any). The supply price for domestic sales is equal to the price paid by domestic demanders minus the transaction costs of domestic marketing (from the supplier to the demander) per unit of domestic sales. If the commodity is not exported, total output is passed to the domestic market.
Domestic demand is made up of the sum of demands for household consumption, government consumption, investment (the determination of which is discussed below), intermediate inputs, and transactions (trade and transportation) inputs.
To the extent that a commodity is imported, all domestic market demands are for a composite commodity made up of imports and domestic output, the demands for which are derived on the assumption that domestic demanders minimize cost subject to imperfect substitutability. This is also captured by a CES aggregation function.32 Total market demand is directed to imports for commodities that lack domestic production and to domestic output for non- imported commodities.
The derived demands for imported commodities are met by international supplies that are infinitely elastic at given world prices. The import prices paid by domestic demanders also include import tariffs (at fixed ad valorem rates) and the cost of a fixed quantity of transactions services per import unit, covering the cost of moving the commodity from the border to the demander.33 Similarly, the derived demand for domestic output is met by domestic suppliers. The prices paid by the demanders include the cost of transactions services, in this case reflecting that the commodity was moved from the domestic supplier to the domestic demander. The prices received by domestic suppliers are net of these transaction costs. Flexible prices equilibrate demands and supplies of domestically marketed domestic output.
32 This function is also referred to as an Armington function, named after Paul Armington who introduced imperfect substitutability between imports and domestic commodities in economic models (Armington 1969).
33 Note that these transaction costs are not ad valorem. The rates – the ratio between the margin and the price without the margin – change with changes in the prices of transactions services and/or the commodities that are marketed. 165
Compared with the alternative assumptions of perfect substitutability and transformability, the assumptions of imperfect transformability (between exports and domestic sales of domestic output) and imperfect substitutability (between imports and domestically sold domestic output) permit the model to better reflect the empirical relations of most countries and regions. The assumption used give the domestic price system a degree of independence from international prices and prevent unrealistic export and import responses to economic shocks. At the disaggregated commodity level, these assumptions allow for a continuum of tradability and two-way trade, which is commonly observed even at very fine levels of disaggregation.
Macroeconomic Balances
The CGE model includes three macroeconomic balances: the (current) government balance, the external balance (the current account of the balance of payments, which includes the trade balance), and the Savings – Investment balance. In the GAMS code, one chooses among a relatively large number of pre-programmed alternative closure rules for these balances. The choices made have no influence on the solution to the base simulation but will typically influence the results for other simulations. The closures are summarized in Table 3.34
For the government balance, the default closure (GOV-1) is that government savings (the difference between current government revenues and current government expenditures) is a flexible residual while all tax rates are fixed. Under the two alternative government closures, the direct tax rates of domestic institutions (households and enterprises) are adjusted endogenously to generate a fixed level of government savings. For the first of these alternative closures (GOV-2), the base-year direct tax rates of selected domestic non- government institutions (households and enterprises) are adjusted endogenously by the same number of percentage points. For the second (GOV-3), the rates of selected institutions are multiplied by a flexible scalar.35 For these three government closures, government consumption is fixed, either in real terms or as a share of nominal absorption, depending on the treatment of the Savings–Investment balance, discussed below. In other words, we do not specify a closure where government savings and direct tax rates are both fixed and government consumption is the adjusting variable.
For the external balance, which is expressed in foreign currency, the default closure (ROW-1) is that the real exchange rate is flexible while foreign savings (the current account deficit) is fixed. Given that all other items are fixed in the external balance (transfers between the rest of the world and domestic institutions), the trade balance is also fixed. If, ceteris paribus,
34 Macro-closure of CGE models id a contentious topic with a large literature. For summaries, see Robinson (1991), Rattsø (1982), and Taylor (1990).
35 The difference between these two closures in terms of simulated changes in post-tax incomes may be substantial, as illustrated by an example with two institutions— an enterprise and a household that each, under base conditions, have incomes of 200 and face direct tax rates of 20 percent and 10 percent, respectively. Assume that total direct tax collection has to increase from 60 to 90 to reach a fixed level of government savings (assuming, for simplicity, no income changes). Under the first closure, the rates would increase by 7.5 percentage points for both entities, to 27.5 percent for the enterprise and 17.5 percent for the household. The payments would increase by 15 percentage points for both. Under the second closure, the new tax rates would be 30 percent and 15 percent (multiplying both base rates by 1.5), respectively. The tax payments increase by 20 percentage points for the enterprise and 10 percentage points for the household. 166 foreign savings are below the exogenous level, a depreciation of the real exchange rate would correct this situation by simultaneously (i) reducing spending on imports (a fall in import quantities at fixed world prices) and (ii) increasing earnings from exports (an increase in export quantities at fixed world prices). Under an alternative closure (ROW-2), the real exchange rate (indexed to the model numéraire) is fixed while foreign savings (and the trade balance) is flexible.36
For the Savings–Investment balance, closures are either investment-driven (the value of savings adjusts) or savings-driven (the value of investment adjusts). The default closure (SI- 1) is investment-driven. Real investment quantities are fixed. In order to generate savings that equal the cost of the investment bundle, the base-year savings rates of selected nongovernment institutions are adjusted by the same number of percentage points. Implicitly, it is assumed that the government is able to implement policies that generate the necessary private savings to finance the fixed real investment quantities.
Four additional closures are also specified. The first alternative (SI-2) is also investment- driven. It differs from the default in that, instead of adjusting base-year savings rates by a fixed number of percentage points, the rates of selected institutions are multiplied by a scalar (compare with the above discussion of the treatment of direct tax rates under alternative government closures). The second alternative (SI-3) is savings-driven. All non-government savings rates are fixed. The quantity of each commodity in the investment bundle is multiplied by a flexible scalar to ensure that the investment cost equals the savings value.
The last two alternatives (SI-4 and SI-5) are “balanced” closures, which may be viewed as variants of investment-driven closures although they also impose an adjustment rule for government consumption. Under these, adjustments in absorption are spread across all of its components (household consumption, investment, and government consumption).37 The nominal absorption shares of investment and government consumption are fixed at base levels, although this could be generalized. (Except for SI-4 and SI-5, government consumption is fixed in real terms.) Given this specification, the residual share for household consumption is also fixed. For the first balanced closure (SI-4), the savings rates of selected institutions are adjusted by an equal number of percentage points (compare with SI-1). For the second balanced closure (SI-5), the savings rates of selected institutions are scaled so as to generate enough savings to finance investment (compare with SI-2). The balanced closures are compatible with any combination of the pre-programmed closures for the government and the rest of the world.
The appropriate choice between the different macroclosures depends on the context of the analysis. Given that this is a single-period model, a closure combining fixed foreign savings, fixed real investment, and fixed real government consumption may be preferable for simulations that explore the equilibrium welfare changes of alternative policies. In terms of the rules in Table 3, this closure combines ROW-1 with SI-1 or SI-2 and any one of the three specified government closures. In the literature on macroclosures, this is known as “Johansen
36 For a discussion of the real exchange rate in neoclassical, trade-focused CGE model, see Devarajan et al. (1993). 37 Under the other investment-driven closures, the quantities of investment and government consumption are both fixed. Hence, household consumption id the only part of absorption that adjusts ( in response to change in savings rates). Under the savings-driven closure, bulk of the adjustment is carried by investment. 167 closure.”18 Such a closure avoids the misleading welfare effects that appear when foreign savings and real investment change in simulations with a single-period model— ceteris paribus, for the simulated period, increases in foreign savings and decreases in investment raise household welfare (and vice versa for decreases in foreign savings and increases in investment). This result is misleading because the analysis does not capture welfare losses in later periods that arise from a larger foreign debt and a smaller capital stock. With regard to government consumption, the model does not capture its direct and indirect welfare contributions; to avoid misleading results, it is also preferable in welfare analysis to keep this variable fixed.
Another macro-closure often used in applied work is the savings-driven “neoclassical closure” in which investment is determined by the sum of private, government, and foreign savings. It is distinguished from the Johansen closure in that it uses SI-3 instead of SI-1 or SI- 2. Both the savings-driven neoclassical closure and the investment-driven Johansen closure seem extreme when looking at the historical experience of countries adjusting to macro shocks. If the analysis aims at capturing the likely effects of an exogenous shock or policy change in a given (historical, current, or future) setting, perhaps in order to explore the role for complementary policies, it is generally preferable to impose a closure that more closely mimics the real world, with simultaneous adjustments in the three components of absorption. Under these circumstances, a macro-scenario that incorporates a balanced closure (in Table 3, SI-4 or SI-5) is a useful option.
The Johansen, neoclassical, and balanced closures all assume no link between macrovariables and aggregate employment. If full-employment is assumed in the factor markets, these closures will yield different effects of shocks on the composition of aggregate demand, but with little or no effect on aggregate GDP. It is also feasible in the standard model to specify a “Keynesian” closure in which aggregate employment is linked to macrovariables through a Keynesian multiplier process. This closure is an example of a structuralist macromodel of the type advocated by Lance Taylor (1990). In this Keynesian closure, investment is fixed in real terms. In the labor market (in one of the labor markets if labor is disaggregated), it is assumed that the real wage is flexible in a setting with unemployment. Adjustment in the real wage induces firms to change their labor demand and employment sufficiently to generate incomes and savings that are needed to finance the fixed quantity of real investment. In this model, an increase in exogenous real investment (or in real government expenditure) will generate a fall in the wage, an increase in employment, an increase in income, and an increase in savings to finance the increased investment. In the context of the standard model, the easiest way to implement this closure is to (i) introduce a modified investment-driven macro-closure that is identical to SI-1 except that the MPS adjustment variable is fixed; and (ii) for one labor type, introduce a modified version of the default factor-market closure where not only the wage variable, WF, but also the labor supply variable, QFS, is flexible.
Finally, it is often informative to explore the impact of experiments under a set of alternative macroclosures. The results provide important insights into the real-world tradeoffs that are associated with alternative macroeconomic adjustment patterns. 168
Table 3: Alternative closure rules for macro-system constraints
Notes: For the specified closure rules, the choice for one of the three constraints does not constrain the choice for the other two. MPS is marginal propensity to save.
169
A2 Computable General Equilibrium Model of the Shanxi Economy38
The SAM presented above provides a description of the circular flow of income in the Shanxi economy from activities to factors of production, to institutions, to commodities, and back to activities. The role of the CGE model is to specify the market, behavioral, and system relationships embodied in each account of the SAM. This section presents the equations of CGE that capture these relationships. Equations defining the price system are presented, followed by equations defining production technology, value added, and the mapping of value added into institutional income. Then equations specifying the balance between supply and demand for goods by the different agents complete the circular flow. Finally, the market clearing conditions and the macro closure rules, often referred to as system constraints that the model economy must satisfy, are presented.
Some notational conventions are followed consistently. Endogenous variables are presented in upper case, while parameters and exogenous variables are always lower case or Greek letters. Indices appear as lower case subscripts, and consist of sectors (i and j), primary factors of production (f), and households (h). In a few equations, an index is replaced by a specific entry from the set.
A2.1 Price Equations
The price system of the model is rich, primarily because of the assumed quality differences among commodities of different origins and destinations (exports, imports, and domestic outputs used domestically). The price block consists of equations in which endogenous model prices are linked to other prices (endogenous or exogenous) and to non-price model variables.
38 The CGE equations and modeling refer to the standard CGE model of IFPRI. 170
Import Price
=⋅+⋅+ ⋅ ∈ PMcc pwm (1 tm c ) EXR∑ PQ ccc′′ icm c CM (1) cCT′∈
⎡import ⎤ ⎡import ⎤ ⎡tariff ⎤ ⎡cost of trade⎤ exchange ⎢ ⎥ = ⎢ ⎥ ⋅ ⎢ −⎥ ⋅ ⎡ ⎤ + ⎢ ⎥ ⎢ price ⎥ ⎢ price ⎥ ⎢adjust ⎥ ⎢ ⎥ ⎢input per ⎥ ⎣rate(LCU per FCU )⎦ ⎣⎢(LCU )⎦⎥ ⎣⎢(FCU )⎦⎥ ⎣⎢ment ⎦⎥ ⎣⎢import unit ⎦⎥
Where
c ∈C = a set of commodities(also referred to as c′ and C′), c ∈CM (⊂ C) = a set of imported commodites, c ∈CT (⊂ C) = a set of domestic trade inputs(distribution commodities), PM import price in LCU(local- currency units)including transaction costs, c = pwm c c.i.f. import price in FCU (foreign - currency units), = tm c import tariff rate, EXR = exchange rate(LCU per FCU), = PWc composite commodity price(including sales tax and transaction costs), and = ′ icm c′c quantity of commodity c as trade input per imported unit of c.
The import price in RMB (renminbi) is the price paid by domestic users for imported commodities (exclusive of the sales tax). Equation (1) states that it is a transformation of the world price of these imports, considering the exchange rate and import tariffs plus transaction costs (the cost of trade inputs needed to move the commodity from the border to the demander) per unit of the import. For all commodities, the market price paid by domestic commodity demanders is the composite price, PQ; in this equation, PQ applies only to payments for trade inputs. The domain of the equation is the set of imported commodities (a subset of the commodity set). The model includes one equation like (1) for every imported commodity.
Note that the notational principles make it possible to distinguish between variables (upper- case Latin letters) and parameters (lower-case Latin letters). This means that the exchange rate and the domestic import price are flexible, while the tariff rate and the world import price are fixed. The fixedness of the world import price stems from the “small-country” assumption. That is, for all its imports, the assumed share of world trade for the modeled country is so small that it faces an infinitely elastic supply curve at the prevailing world price.
Export Price
The export price in RMB is the price received by domestic producers when they sell their output in export markets. This equation is similar in structure to the import price definition. The main difference is that the tax and the cost of trade inputs reduce the price received by the domestic producers of exports (instead of adding to the price paid by domestic demanders of imports). The domain of the equation is the set of exported commodities, all of which are produced domestically. 171
=⋅−⋅− ⋅ ∈ PEcc pwe (1 te c ) EXR∑ PQ ccc′′ ice cC E (2) cCT′∈
⎡ export⎤ ⎡ export⎤ ⎡ tariff ⎤ ⎡ cost of trade⎤ exchange rate ⎢ ⎥ = ⎢ ⎥ ⋅ ⎢ ⎥ ⋅ ⎡ ⎤ − ⎢ ⎥ ⎢ pricer ⎥ ⎢ price ⎥ ⎢ adjust -⎥ ⎢ ⎥ ⎢ inputs per ⎥ ⎣(LCU per FCU)⎦ ⎣⎢(LCU )⎦⎥ ⎣⎢(FCU )⎦⎥ ⎣⎢ ment ⎦⎥ ⎣⎢export unit ⎦⎥
where c∈CE(⊂ C) = a set of exported commodities(with domestic production), = PE c export price(LCU), = pwec f.o.b. export price(FCU), = tec export tax rate, = ′ icec′c quantity of commodity c as trade input per exported unit of c.
Demand Price of Domestic Non-traded Goods
=+ ⋅ ∈ PDDcc PDS∑ PQccc′′ icd c C D (3) cCT′∈
⎡ domestic⎤ ⎡ domestic⎤ ⎡ cost of trade ⎤ ⎢ ⎥ = ⎢ ⎥ + ⎢ ⎥ ⎢ demand ⎥ ⎢ supply ⎥ ⎢ inputs per unit ⎥ ⎣⎢ price ⎦⎥ ⎣⎢ price ⎦⎥ ⎣⎢of domestic sales⎦⎥
where c∈CD(⊂ C) = a set of commodities with domestic sales of domestic output, = PDDc demand price for commodity produced and sold domestically, = PDSc supply price for commodity produced and sold domestically,and = ′ icdc′c quantity of commodity c as trade input per unit of c produced and sold domestically.
The model includes distinct prices for domestic output that is used domestically. In the presence of transaction costs, it is necessary to distinguish between prices paid by demanders and those received by suppliers. Equation (3) defines the demand prices as the supply price plus the cost of trade inputs per unit of domestic sales of the commodity in question.
Absorption
⋅− ⋅ = ⋅ + ⋅ ∈ ∪ PQccccccc (1 tq ) QQ PDD QD PM QM c (C D CM) (4)
⎡ absorption ⎤ domestic demand price import times ⎢ ⎥ = ⎡ ⎤ + ⎡ ⎤ ⎢ (at demand price⎥ ⎢ ⎥ ⎢ ⎥ ⎣times domestic sales quantity⎦ ⎣import quantity⎦ ⎣⎢net of sales tax) ⎦⎥ 172
where = QQc quantity of goods supplied to domestic market(composite supply), = QDc quantity sold domestically of domestic output, = QMc quantity of imports of commodity,and = tq c rate if sales tax(as share of composite price inclusive of sales tax).
Absorption is total domestic spending on a commodity at domestic demander prices. Equation (4) defines it exclusive of the sales tax. Absorption is expressed as the sum of spending on domestic output and imports at the demand prices, PDD and PM. The prices PDD and PM include the cost of trade inputs but exclude the commodity sales tax (compare with equations 1 and 3).
The equation as a whole applies to all commodities that are imported and/or have domestic sales of domestic output (the union of the sets CD and CM). It does not apply to commodities for which the entire output volume is exported. Each of the two terms on the right-hand side applies only to its relevant set (CD and CM, respectively). In the GAMS code, PM and QM are fixed at zero for commodities that are not elements in the set CM; similarly PDD and QD are fixed at zero for commodities that are not elements in the set CD. This approach is followed throughout: all variables that should be excluded from the model are fixed at zero. The equation would be transformed into an explicit definition of absorption at market prices or of the composite price (the price paid by domestic demanders, inclusive of the sales tax) if it were divided by (1-tq) or (1-tq).QQ.
Marketed Output Value
For each domestically produced commodity, the marketed output value at producer prices is stated as the sum of the values of domestic sales and exports. Domestic sales and exports are valued at the prices received by the suppliers, PDS and PE, both of which have been adjusted downwards to account for the cost of trade inputs (compare with equations 2 and 3).
⋅= ⋅+⋅ ∈ PXcc QX PDS cc QD PE cc QE cC X (5)
produce price times domestic supply price times export price times ⎡ ⎤ = ⎡ ⎤ + ⎡ ⎤ ⎢ ⎥ ⎢ ⎥ ⎢ ⎥ ⎣marketed output quantity⎦ ⎣domestic sales quantity ⎦ ⎣export quantity ⎦
where = PX c aggergate producer price for commodity, = QXc aggregate marketed quantity of domestic output of commodity, = QEc quantity of exports,and c∈CX(⊂ C) = a set of commodities with domestic output.
The domain limitation to domestically produced commodities (the elements in the set CX) has to be stated explicitly given that the model includes a category of imported commodities without domestic production. The domestic part applies only to elements in CD whereas the export part applies only to elements in CE. In the GAMS code, the variables PE and QE are fixed at zero for commodities that are not elements in the set CE. PX and QX are referred to as “aggregate” values since they may apply to an aggregation of output from different 173 domestic producers of the same commodity. By dividing through by QX, this equation could be rewritten as an explicit definition of PX.
Activity Pricer
=⋅∈θ PAaacac∑ PXAC a A (6) cC∈
activvity producer price ⎡ ⎤ = ⎡ ⎤ ⎢ ⎥ ⎢ ⎥ ⎣price ⎦ ⎣times yields ⎦
where a ∈A = a set of activities, = PA a activity price(gross revenue per activity unit), = PXACac producer price of commodity c for activity a,and θ = ac yield of output c per unit of activity a.
The gross revenue per activity unit, the activity price, is the return from selling the output or outputs of the activity, defined as yields per activity unit multiplied by activity-specific commodity prices, summed over all commodities. This allows for the fact that activities may produce multiple commodities.
Aggregate Intermediate Input Price
The activity-specific aggregate intermediate input price shows the cost of disaggregated intermediate inputs per unit of aggregate intermediate input. It depends on composite commodity prices and intermediate input coefficients, which show the quantity of input commodity c per unit of aggregate intermediate input (not per unit of output).
=⋅ ∈ PINTAacca∑ PQ ica a A (7) cC∈
⎡ aggregate ⎤ ⎡ intermediate input cost⎤ ⎢ ⎥ = ⎢ ⎥ ⎢intermediate⎥ ⎢per unit of aggregate ⎥ ⎣⎢input price ⎦⎥ ⎣⎢intermediate input ⎦⎥
where = PINTAa aggregate intermediate input price for activity a,and = ica ca quantity of c per unit of aggregate intermediate input a. 174
Activity Revenue and Costs
For each activity, total revenue net of taxes is fully exhausted by payments for value-added and intermediate inputs. Given the above definition of PA and PINA, equation (8) implicitly defines the value-added price, PVA.
⋅− ⋅ = ⋅ + ⋅ ∈ PAaaaaa (1 ta ) QA PVA QVA PINTA a QINTA a a A (8)
⎡ activity price ⎤ value- added aggregate intermediate ⎢ ⎥ = ⎡ ⎤ + ⎡ ⎤ ⎢(net of taxes) ⎥ ⎢ ⎥ ⎢ ⎥ ⎣price times quantity⎦ ⎣input times quantity ⎦ ⎣⎢times activity level⎦⎥
where = ta a tax rate for activity, QA = quantity(level)of activity, a = QVAa quantity of(agreegate)value- added, = QINTAa quantity of aggergate intermediate input,and = PVAa price of(aggregate)value- added.
Consumer Price Index
=⋅ CPI∑ PQcc cwts (9) cC∈
consumer prices times ⎡ ⎤ = ⎡ ⎤ ⎢ ⎥ ⎢ ⎥ ⎣price index⎦ ⎣weights ⎦
where = cwtsc weight of commodity c in the consumer price index,and CPI = consumer price index(exogenous variable).
Producer Price Index for Non-traded Market Output
=⋅ DPI∑ PDScc dwts (10) cC∈
producer price index prices times ⎡ ⎤ = ⎡ ⎤ ⎢ ⎥ ⎢ ⎥ ⎣for non - trade outputs⎦ ⎣weights ⎦
where = dwtsc weight of commodity c in the producer price index,and DPI = producer price index for domestically marketed output.
Equations (9) and (10) define the consumer price index and the producer price index for domestically marketed output. The CPI is fixed and functions as the numéraire in the basic 175 model version; alternatively, the DPI may be fixed. A numéraire is required since the model is homogeneous of degree zero in prices - a doubling of the value of the numéraire would double all prices but leave all real quantities unchanged. All simulated price and income changes should be interpreted as changes vis-à-vis the numéraire price index.
A2.2 Production and Trade Block
The production and trade block covers four categories: domestic production and input use; the allocation of domestic output to home consumption, the domestic market, and exports; the aggregation of supply to the domestic market (from imports and domestic output sold domestically); and the definition of the demand for trade inputs that is generated by the distribution process.
Production is carried out by activities that are assumed to maximize profits subject to their technology, taking prices (for their outputs, intermediate inputs, and factors) as given. In other words, it acts in a perfectly competitive setting. The CGE model includes the first-order conditions for profit-maximization by producers. As noted in the preceding section (see Figure A4-1), two alternative specifications are permitted at the top level of the technology nest: the activity level is either a CES or a Leontief function of the quantities of value-added and aggregate intermediate input use.
CES Technology: Activity Production Function
− 1 −ρ a −ρ a ρ a = α a δ a ⋅ a + − δ a ⋅ a a α ∈ QAa a (a QVAa (1 a ) QINTAa ) ACES (11)
activity quantity of aggregate value added, ⎡ ⎤ = ⎡ ⎤ ⎢ ⎥ CES⎢ ⎥ ⎣ level ⎦ ⎣quantity of aggregate intermediate input⎦
CES Technology: Value-Added– Intermediate-Input Ratio
1 a −ρ a QVA ⎛ PINTA δ ⎞ 1 a a = ⎜ a ⋅ a ⎟ α ∈ ACES (12) ⎜ − δ a ⎟ QINTAa ⎝ PVAa 1 a ⎠
value- added -intermediate - intermediate -input ⎡ ⎤ = ⎡ ⎤ ⎢ ⎥ f ⎢ ⎥ ⎣input quantity ratio ⎦ ⎣value- added price ratio⎦
where a ∈ACES(⊂ A) = a set of activities with a CES function at the top of the technology nest, α a = a CES efficiency parameter in the CES activity function, δ a = a CES CES activity function share parameter,and ρ a = a CES CES activity function exponent.
The user specifies the activities, if any, that belong to the set ACES. If not in ACES, an activity belongs to the set ALEO, which is introduced below. Activities in ACES have CES technology at the top level of the technology nest. In other words, the activity level is a CES 176 function of value-added and aggregate intermediate input use (equation 11). The optimal mix of intermediate inputs and value-added is a function of the relative prices of value-added and the aggregate intermediate input (equation 12). Below, in equation (18), the activity level ρ a determines the quantity of commodity outputs produced by each activity. The exponent, a , is a transformation of the elasticity of substitution between value-added and the aggregate ρ a intermediate input: the higher this elasticity, the smaller the value of a and the larger the optimal change in the ratios between the quantities of value-added and the intermediate input aggregate in response to changes in their relative prices.39
Leontief Technology: Demand for Aggregate Value-Added
= ⋅ α ∈ QVAa tvaa QAa ALEO (13)
demand for activity ⎡ ⎤ = ⎡ ⎤ ⎢ ⎥ f ⎢ ⎥ ⎣value added⎦ ⎣level ⎦
Leontief Technology: Demand for Aggregate Intermediate Input
= ⋅ α ∈ QINTAa intaa QAa ALEO (14)
demand for aggergate ⎡ ⎤ = [] ⎢ ⎥ f activity level ⎣intermediate input ⎦
where a ∈ALEO(⊂ A) = a set of activities with a Leontief function at the top of the technology nest, = iva a quantity of value- added per acitvity unit,and = inta a quantity of aggregate intermediate input per activity unit.
For the alternative model version with a Leontief function at the top of the technology nest, equations (11) and (12) are replaced by equations (13) and (14) where the demands for value- added and the aggregate intermediate inputs are defined as Leontief functions of the activity level. Each activity is an element in either ACES or ALEO, but not both.
Value-Added and Factor Demands
− 1 ρ va ⎛ −ρ va ⎞ a QVA = α va ⋅ ⎜ δ va ⋅ QF a ⎟ α ∈ A (15) a a ⎜ ∑ fa fa ⎟ ⎝ f ∈F ⎠
quantity of aggregate factor ⎡ ⎤ = ⎡ ⎤ ⎢ ⎥ CES⎢ ⎥ ⎣value added ⎦ ⎣inputs⎦
1 39 For CES function, σ = , where is the elasticity of substitution and the exponent. 1+ ρ 177
Factor Demand
−1 ⎛ −ρ va ⎞ −ρ va − va a va a 1 WF ⋅WFDIST fa = PVA (1 − tva ) ⋅ QVA ⋅ ⎜ δ • QF ⎟ ⋅ δ ⋅ QF f a a a ⎜ ∑ fa fa ⎟ fa fa ⎝ f ∈F′ ⎠ α ∈ A f ∈ F (16)
marginal cost of marginal revenue product ⎡ ⎤ = ⎡ ⎤ ⎢ ⎥ ⎢ ⎥ ⎣factor f in activity a⎦ ⎣of factor f in activity a ⎦
where f ∈F(= F′) = a set of factors, = tva a rate of value- added tax for activity a, α va = a efficiency parameter in the CES value- added function, δ va = fa CES value- added function share parameter for factor f in activity a, = QFfa quantity demanded of factor f from activity a, ρ va = a CES value- added function exponent = WFf average price of factor,and
WFDISTfa = wage distortion factor for factor f in activity a(exogenous variable).
Equation (15) states that, for each activity, the quantity of value-added is a CES function of disaggregated factor quantities. According to equation (16), activities demand factors at the point where the marginal cost of each factor (defined on the left-hand side as the activity- specific factor price) is equal to the marginal revenue product (net of intermediate input costs) of the factor. In the GAMS code, the domain of equation (16) is limited to the factor- activity combinations that appear in the base-year SAM. Similar domain restrictions apply to other equations that are defined over mappings between multiple indices (for example, ρ va equation 17). The exponent, a , is a transformation of the elasticity of factor substitution: the ρ va higher this elasticity, the smaller the value of a and the larger the optimal change in the ratios between different factor quantities in response to changes in relative factor prices.
The fact that the average factor price is an endogenous variable while the activity-specific “wage-distortion” factor is equation 39 below).
Disaggregated Intermediate Input Demand
= ⋅ α ∈ ∈ QINTca icaca QINTAa A c C (17)
intermediate demand for aggergate intermediate ⎡ ⎤ = ⎡ ⎤ ⎢ ⎥ f ⎢ ⎥ ⎣commodity c from activity a⎦ ⎣input quantity for activity a⎦ where QINTca = quantity of commodity c as intermediate input to activity a. 178
For each activity, the demand for disaggregated intermediate inputs is determined via a standard Leontief formulation as the level of aggregate intermediate input use times a fixed intermediate input coefficient.
Commodity Production and Allocation
+ =θ ⋅ α ∈ ∈ QXACac ∑QHAach ac QAa A c CX (18) h∈H
⎡ marketed quantity⎤ ⎡ household home ⎤ ⎡ production ⎤ ⎢ ⎥ + ⎢ ⎥ = ⎢ ⎥ ⎢of commodity c ⎥ ⎢consumption of commodity c⎥ ⎢of commodity c⎥ ⎣⎢from activity a ⎦⎥ ⎣⎢from activity a ⎦⎥ ⎣⎢from activity a ⎦⎥ where
QXACac = marketed output quantity of commodity c from activity a, and
QHAach = quantity of household home consumption of commodity c from activity a for household h.
Output Aggregation Function
1 ρ ac − ⎛ −ρ ac ⎞ c 1 = α ac ⋅ δ ac ⋅ c ∈ QX c c ⎜∑ ac QXACac ⎟ c CX (19) ⎝ a∈A ⎠
aggregate marketed activity -specific marketed ⎡ ⎤ = ⎡ ⎤ ⎢ ⎥ CES⎢ ⎥ ⎣production of commodity c⎦ ⎣production of commodity c⎦
where α ac = shift parameter for domestic commodity aggregation function, c δ ac = ac share parameter for domestic commodity aggregation function,and ρ ac = c domestic commodity aggregation function exponent.
First-Order Condition for Output Aggregation Function
−1 ⎛ −ρ ac ⎞ −ρ ac − = ⋅ δ ac ⋅ c ⋅δ ac c 1 ∈ ∈ PXACac PX c QX c ⎜ ∑ ac QXACac ⎟ ac QXACac a A c CX (20) ⎝ a∈A′ ⎠ marginal cost of com - marginal revenue production ⎡ ⎤ = ⎡ ⎤ ⎢ ⎥ ⎢ ⎥ ⎣odity c from activity a ⎦ ⎣of comodity c from activity a ⎦
Aggregate marketed production of any commodity is defined as a CES aggregate of the marketed output levels of the different activities producing the commodity (equation 19). The optimal quantity of the commodity from each activity source is inversely related to the activity-specific price (equation 20). QX appears as the output, sold at the price, PX, and produced with the inputs, QXAC, that are purchased at the prices, PXAC. More specifically, the choice between commodities from different sources is cast as an optimization problem. 179
Equations (19) and (20) are the first-order conditions for maximizing profits from selling the aggregate output, QX, at the price, PX, subject to the aggregation function and the disaggregated commodity prices, PXAC. A decline in the price, PXAC, of one activity relative to others would shift demand in its favor without totally eliminating demand for other, higher-price sources. The degree of substitutability between different producers ρ ac depends on the value of c , which is a transformation of the elasticity of substitution. Its values, and those of the elasticity, are restricted to assure that the corresponding isoquant is convex to the origin. In terms of production economics, this is equivalent to a diminishing technical rate of substitution.
It should be noted that, for the case where there is a single producer of a given commodity, δ ac the value of the share parameter, ac , would be unity and, as a result, QXAC = QX and PXAC = PX, irrespective of the values for the elasticity and the exponent.
Output Transformation (CET) Function
1 ρ t ρ t ρ t = α t ⋅ δ t ⋅ c + − δ t ⋅ c c ∈ ∩ QX c c ( c QEc (1 c ) QDc ) c (CE CD) (21)
where α t = c a CET function shift parameter,
δ t = c a CET function share parameter,and ρ t = c a CET function exponent.
Equations (21) and (22) address the allocation of marketed domestic output, defined in equation (19), to two alternative destinations: domestic sales and exports. Equation (21) reflects the assumption of imperfect transformability between these two destinations. The CET function, which applies to commodities that are both exported and sold domestically, is identical to a CES function except for negative elasticities of substitution. The elasticity of ρ t transformation between the two destinations is a transformation of c , for which the lower limit is one. The values are restricted to assure that the isoquant corresponding to the output transformation function is concave to the origin.
Export-Domestic Supply Ratio
1 − δ t ρ t −1 QEc ⎛ PEc 1 c ⎞ c = ⎜ ⋅ ⎟ c ∈(CE ∩ CD) (22) ⎜ δ t ⎟ QDc ⎝ PDS c c ⎠
export - domestic export - domestic ⎡ ⎤ = ⎡ ⎤ ⎢ ⎥ f ⎢ ⎥ ⎣supply ratio ⎦ ⎣price ratio ⎦
Equation (22) defines the optimal mix between exports and domestic sales. Equations (5), (21), and (22) constitute the first-order conditions for maximization of producer revenues given the two prices and subject to the CET function and a fixed quantity of domestic output. Note that equation (22) assures that an increase in the export-domestic price ratio generates an increase in the export-domestic supply ratio (that is, a shift toward the destination that offers the higher return). 180
Output Transformation for Domestically Sold Outputs without Exports and for Exports without Domestic Sales = + ∈ ∩ ∪ ∩ QX c QDc QEc c (CD CEN ) (CE CDN ) (23)
⎡ domestic market sales⎤ aggregate marketed export ⎡ ⎤ = ⎢ ⎥ + ⎡ ⎤ ⎢ ⎥ ⎢of domestic output ⎥ ⎢ ⎥ ⎣domestic output ⎦ ⎣[for c∈(CD ∩ CEN)]⎦ ⎣⎢[for c∈(CD ∩ CEN)] ⎦⎥ where
cCENC∈⊂() = non-exported commodities (complement of CE), and
cCDNC∈⊂() = commodities without domestic market sales of domestic output (complement of CD).
This equation replaces the CET function for domestically produced commodities that do not have both exports and domestic sales. It allocates the entire output volume to one of these two destinations.
Composite Supply (Armington) Function
1 ρ q ρ q ρ q = α q ⋅ δ q ⋅ c + − δ q ⋅ c c ∈ ∩ QQc c ( c QM c (1 c ) QDc ) c (CM CD) (24)
where α q = c an Armington function shift parameter,
δ q = c an Armington function share parameter, and q = pc an Armington function exponent.
Imperfect substitutability between imports and domestic output sold domestically is captured by a CES aggregation function in which the composite commodity that is supplied domestically is “produced” by domestic and imported commodities entering this function as “inputs”. When the domain of this function is limited to commodities that are both imported and produced domestically, it is often called an “Armington” function, named after the originator of the idea of using a CES function for this purpose. The elasticity of substitution between commodities from these two sources is a transformation of for which the lower limit is minus one
Import-Domestic Demand Ratio
1 q + ρ q QM ⎛ PDD δ ⎞ 1 c c = ⎜ c ⋅ c ⎟ c ∈(CE ∩ CD) (25) ⎜ − δ q ⎟ QDc ⎝ PM c 1 c ⎠ import - domestic domestic -import ⎡ ⎤ = ⎡ ⎤ ⎢ ⎥ f ⎢ ⎥ ⎣demand ratio ⎦ ⎣price ratio ⎦ 181
Equation (25) defines the optimal mix between imports and domestic output. Its domain is thus limited to imports with domestic production. Note that the equation assures that an increase in the domestic-import price ratio generates an increase in the import-domestic demand ratio (that is, a shift away from the source that becomes more expensive). Together, equations (4), (24), and (25) constitute the first-order conditions for cost-minimization given the two prices and subject to the Armington function and a fixed quantity of the composite commodity.
Composite Supply for Non-imported Outputs and Non-produced Imports
= + ∈ ∩ ∪ ∩ QQc QDc QM c c (CD CMN) (CM CDN) (26)
⎡ domestic use of marketed⎤ composite import[for ⎡ ⎤ = ⎢ ⎥ + ⎡ ⎤ ⎢ ⎥ ⎢domestic output ⎥ ⎢ ⎥ ⎣supply ⎦ ⎣c∈(CM ∩ CDN)]⎦ ⎣⎢[for c∈(CD ∩ CMN)] ⎦⎥
Where c∈CMN(⊂ C) =a set of non-imported commodities.
The Armington function is replaced by equation (26) for the union of commodities that have either imports or domestic sales of domestic output but not both. For any commodity in this category, it imposes equality between .composite supply. and one of the variables on the right-hand side.
Demand for Transactions Services
= ⋅ + ⋅ + ⋅ ∈ QTc ∑ (icmcc′ QM c′ icecc′ QEc′ icd cc′ QDc′ ) c CT (27) c′∈C′ ⎡ demand for⎤ ⎡ sum of demands ⎤ ⎢ ⎥ = ⎢ ⎥ ⎢transactions⎥ ⎢for imports,exports,⎥ ⎣⎢services ⎦⎥ ⎣⎢and domestic sales ⎦⎥ where
QTc = quantity of commodity demanded as transactions services input.
Total demand for trade inputs is the sum of the demands for these inputs that are generated by imports (from moving commodities from the border to domestic demanders), exports (from moving commodities from domestic producers to the border), and domestic market sales (from moving commodities from domestic producers to domestic demanders). In all three cases, fixed quantities of one or more transactions service inputs are required per unit of the traded commodity.
A2.3 Institution Block
Factor Income 182
= ⋅ ⋅ ∈ YFf ∑WFf WFDIST fa QF fa f F (28) a∈A
⎡ sum of activity payments⎤ income of ⎡ ⎤ = ⎢ ⎥ ⎢ ⎥ ⎢(activity -specific wages ⎥ ⎣factor f ⎦ ⎣⎢times empolyment levels)⎦⎥ where YFf = income of factor f.
Institutional Factor Incomes = ⋅ − ⋅ − ⋅ ∈ ∈ YIFif shif if [ (1 tf f ) YFf trnsfrrow f EXR ] i INSD, f F (29)
⎡ income of ⎤ ⎡ share of income⎤ ⎡ income of factor f ⎤ ⎢ ⎥ = ⎢ ⎥ ⋅ ⎢ ⎥ ⎢institution i ⎥ ⎢of factor f to ⎥ ⎢(net of tax and ⎥ ⎣⎢from factor f ⎦⎥ ⎣⎢institution i ⎦⎥ ⎣⎢transfer to ROW) ⎦⎥
where i∈INS = a set of institutions(domestic and rest of the world), i∈INSD()⊂ INS = a set of domestic institutions, = YIFif income of domestic institution i in income of factor f, = shifif share of domestic institution i in income of factor f, = tff direct tax rate for factor f,and = trnsfrif transfer from factor f to institution i.
Equation (28) defines the total income of each factor. In equation (29), this income is split among domestic institutions in fixed shares after payment of direct factor taxes and transfers to the rest of the world. The latter are fixed in foreign currency and transformed into RMB by multiplying by the exchange rate. This equation makes reference to the set of domestic institutions (households, enterprises, and the government), a subset of the set of institutions, which also includes the rest of world.
Income of Domestic Non-government Institutions
= + + ⋅ + ⋅ ∈ YI i ∑YIFif ∑TRII ii′ trnsfri gov CPI trnsfri row EXR i INSDNG (30) f ∈F i′∈INSDNG′ ⎡ transfers from ⎤ ⎡ transfers ⎤ ⎡ transfers⎤ income of factor ⎢other domestic ⎥ ⎡ ⎤ = ⎡ ⎤ + ⎢ ⎥ + ⎢ ⎥ + ⎢ ⎥ ⎢ ⎥ ⎢ ⎥ ⎢from ⎥ ⎢from ⎥ ⎣institution i⎦ ⎣income ⎦ ⎢non - goverment⎥ ⎢ ⎥ ⎣⎢government⎦⎥ ⎣⎢ROW ⎦⎥ ⎣institutions ⎦ 183
where i∈INSDNG()= INSDNG′ ⊂ INSD = a set of domestic nongovernment institutions, = YIi inome of institution i(in the set of INSDNG),and = ′ TRIIii' transfers from institution i to i(both in the set INSDNG )
Domestic nongovernment institutions form a subset of the set of domestic institutions. The total income of any domestic nongovernment institution is the sum of factor incomes (defined in equation 29), transfers from other domestic nongovernment institutions (defined below in equation 31), transfers from the government (indexed to the CPI), and transfers from the rest of the world.
Infra-Institutional Transfers
= ⋅ − ⋅ − ⋅ ∈ ′∈ ′ TRII ii′ shiiii′ (1 MPSi′ ) (1 TINS i′ ) YIi′ i INSDNG i INSDNG (31) transfer from share of net income of income of institution i′, ⎡ ⎤ = ⎡ ⎤ ⋅ ⎡ ⎤ ⎢ ′ ⎥ ⎢ ′ ⎥ ⎢ ⎥ ⎣institution i to i⎦ ⎣institution i transfered to i⎦ ⎣net of savings and direct taxes⎦
where = ′ ′∈ ′ ∈ shiiii share of net income of i to i(i INSDNG ;i INSDNG), = MPSi marginal propensity to save for domestic nongovernment institution(exogenous variable),and = ∈ TINSi direct tax rate for institution i(i INSDNG).
Transfers between domestic nongovernment institutions are paid as fixed shares of the total institutional incomes net of direct taxes and savings. The values of MPS and TINS are defined in separate equations, discussed below.
Household Consumption Expenditure
= ⎛ − ⎞ ⋅ − ⋅ − ⋅ ∈ EH h ⎜1 ∑ shiiih ⎟ (1 MPSh ) (1 TINS h ) YI h h H (32) ⎝ i∈INSDNG ⎠
⎡ household income⎤ ⎡ household income,net of direct ⎤ ⎢ ⎥ = ⎢ ⎥ ⎢disposable for ⎥ ⎢taxes,savings,and transfers to ⎥ ⎣⎢consumption ⎦⎥ ⎣⎢other non - government institutions⎦⎥ where
iH∈⊂() INSDNG= a set of household, and
EHh = household consumption expenditures.
Among the domestic nongovernment institutions, only households demand commodities. In equation (32), the total value of consumption spending is defined as the income that remains after direct taxes, savings, and transfers to other domestic nongovernment institutions. 184
Household Consumption Spending on Marketed Commodities
⋅ = ⋅γ m + β m ⋅⎛ − ⋅γ m − ⋅γ h ⎞ ∈ ∈ PQc QH ch PQc ch ch ⎜ EH h ∑ PQc′ c′h ∑∑PXACac′ ac′h ⎟ c C h H (33) ⎝ c′∈C aC∈∈A c′ ⎠ ⎡ household consumption⎤ ⎡ total household consumption ⎤ ⎢ ⎥ = ⎢ ⎥ ⎢spending on market ⎥ f ⎢spending,market price of c,and other⎥ ⎣⎢commodity c ⎦⎥ ⎣⎢commodity prices(market and home) ⎦⎥
where = QHch quantity of consumption of marketed commodity c for household h, γ m = ch subsistence consumption of marketed commodity c for household h, γ h = ach subsistence consumption of marketed commodity c from activity a for household h,and β m = ch marginal share of consumption spending on marketed commodity c for household h.
Household Consumption Spending on Home Commodities
⋅ = ⋅γ h + β h PXACac QHAach PXACac ach ach
⋅⎛ − ⋅γ m − ⋅γ h ⎞ ∈ ∈ ∈ ⎜ EH h ∑ PQc′ c′h ∑∑PXACac′ ac′h ⎟ a A,c C,h H (34) ⎝ c′∈C aC∈∈A c′ ⎠
⎡ household consumption ⎤ ⎡ total household consumption spending,⎤ ⎢ ⎥ = ⎢ ⎥ ⎢spending on home commodity⎥ f ⎢producer price,and other ⎥ ⎣⎢c from activity a ⎦⎥ ⎣⎢commodity prices(market and home) ⎦⎥
where β h = ach marginal share of consumption spending on home commodity c from activity a for household h.
It is assumed that each household maximizes a “Stone.Geary” utility function subject to a consumption expenditure constraint. The resulting first-order conditions, equations (33) and (34), are referred to as LES (linear expenditure system) functions since spending on individual commodities is a linear function of total consumption spending, EH. Two functions are needed since household consumption is for two types of commodities: (i) consumption of marketed commodities (purchased at market prices; equation 33) and (ii) consumption of home production (valued at their opportunity cost, the activity-specific producer price not including marketing costs; equation 34). Explicit demand functions may be derived by dividing both sides of each equation by the relevant price.
Investment Demand
= ⋅ ∈ QINVc IADJ qinvc c C (35)
fixed investment demand adjustment factor times ⎡ ⎤ = ⎡ ⎤ ⎢ ⎥ ⎢ ⎥ ⎣for commodity c ⎦ ⎣base - year fixed investment⎦ 185
where = QINVc quantity of fixed investment demand for commodity,
IADJ = investment adjustment factor(exogenous variable),and = qinvc base - year quantity of fixed investment demand.
Fixed investment demand is defined as the base-year quantity multiplied by an adjustment factor. For the basic model version, the adjustment factor is exogenous, in effect also making the investment quantity exogenous. Inventory investment is also included in the model, but is treated as an exogenous demand (see equation 40 below).
Government Consumption Demand
= ⋅ ∈ QGc GADJ qg c c C (36)
govenment consumption adjustment factor times base ⎡ ⎤ = ⎡ ⎤ ⎢ ⎥ ⎢ ⎥ ⎣demand for commodity c ⎦ ⎣- year govenment consumption⎦
where = QG c government consumption demand for commodity,
GADJ = government consumption adjustment factor(exogenous variable),and = qgc base - year quantity of government demand.
Similarly, government consumption demand, in which the main component tends to be the services provided by the government labor force, is also defined as the base-year quantity multiplied by an adjustment factor. This factor is also exogenous and, hence, the quantity of government consumption is fixed.
Government Revenue
= ⋅ + ⋅ + ⋅ ⋅ YG ∑TINSi YIi ∑ tf f YFf ∑ tvaa PVAa QVAa i∈INSDNG f ∈F a∈A + ⋅ ⋅ + ⋅ ⋅ ⋅ + ⋅ ⋅ ⋅ ∑ taa PAa QAa ∑ tmc pwmc QM c EXR ∑ tec pwec QEc EXR a∈A c∈CM c∈CE + ⋅ ⋅ + + ⋅ ∑ tqc PQc QQc ∑YIFgov f trnsfrgov row EXR (37) c∈C f ∈F
government direct taxes direct taxes value ⎡ ⎤ = ⎡ ⎤ + ⎡ ⎤ + ⎡ ⎤ ⎢ ⎥ ⎢ ⎥ ⎢ ⎥ ⎢ ⎥ ⎣revenue ⎦ ⎣from institutions⎦ ⎣from factors⎦ ⎣added - tax⎦ activity import export + ⎡ ⎤ + ⎡ ⎤ + ⎡ ⎤ ⎢ ⎥ ⎢ ⎥ ⎢ ⎥ ⎣tax ⎦ ⎣tarriffs ⎦ ⎣taxes ⎦ ⎡ transfers⎤ sales factor + ⎡ ⎤ + ⎡ ⎤ + ⎢ ⎥ ⎢ ⎥ ⎢ ⎥ ⎢from ⎥ ⎣tax ⎦ ⎣income⎦ ⎣⎢ROW ⎦⎥ where YG = government revenue. 186
Total government revenue is the sum of revenues from taxes, factors, and transfers from the rest of the world.
Government Expenditure
= ⋅ + ⋅ EG ∑ PQc QGc ∑trnsfri gov CPI (38) c∈C i∈INSDNG
⎡ transfers to domestic⎤ government government ⎡ ⎤ = ⎡ ⎤ + ⎢ ⎥ ⎢ ⎥ ⎢ ⎥ ⎢non - government ⎥ ⎣spending ⎦ ⎣consumption⎦ ⎣⎢institutions ⎦⎥
Where EG = government expenditures.
Total government spending is the sum of government spending on consumption and transfers.
A2.4 System Constraint Block
Factor Markets
= ∈ ∑QF fa QFS f f F (39) a∈A
demand for supply of ⎡ ⎤ = ⎡ ⎤ ⎢ ⎥ ⎢ ⎥ ⎣factor f ⎦ ⎣factor f ⎦ where
= QFS f = quantity supplied of factor (exogenous variable).
Equation (39) imposes equality between the total quantity demanded and the total quantity supplied for each factor. In the basic model version, all demand variables are flexible while the supply variable is fixed. The factor wage, WFf, is the equilibrating variable that assures that this equation is satisfied: an increase in WFf raises the wage paid by each activity,WFf . WFDIST fa , which is inversely related to the quantities of factor demand, QFfa. All factors are mobile between the demanding activities.
Two other factor-market closures are programmed in the GAMS version. To specify the case with unemployment at a given wage for a factor, the supply variable for the factor is unfixed
(QFSf) while its economywide wage is fixed (WF f ). The model remains square (one endogenous variable is added but another is removed). Each activity is free to employ the quantity it desires (QFfa) at a fixed wage (WFf ⋅ WFDIST fa ). The free supply variable, QFSf, records the total employment level. 187
Alternatively, to specify the case of a fully segmented factor market with fixed factor demands (for example, short-run fixity of nonagricultural capital use), the variables for factor demand and the economywide wage are fixed (written QFfa and WF f ) while the variables for supply and wage distortions are unfixed (written QFSf and WFDISTf a). The model again remains square – that is, the economywide wage variable and a set of activity-specific factor- demand variables are fixed while the supply variable and a set of activity-specific wage- distortion variables are unfixed.
⋅ Activity-specific wages,WFf WFDISTfa , vary to assure that the fixed activity- specific employment level, QF fa , is consistent with profit-maximization (compare with equation 16). Also for this formulation, the endogenous aggregate factor supply variable merely records the total employment level.
Composite Commodity Markets
= + + + + + ∈ QQc ∑QINTca ∑QH ch QGc QINVc qdstc QTc c C (40) a∈A h∈H
composite intermediate household government ⎡ ⎤ = ⎡ ⎤ + ⎡ ⎤ + ⎡ ⎤ ⎢ ⎥ ⎢ ⎥ ⎢ ⎥ ⎢ ⎥ ⎣supply ⎦ ⎣use ⎦ ⎣consumption⎦ ⎣consumption⎦
fixed stock + ⎡ ⎤ + ⎡ ⎤ + [] ⎢ ⎥ ⎢ ⎥ trade input use ⎣investment⎦ ⎣change⎦ where qdstc = quantity of stock change.
Equation (40) imposes equality between quantities supplied (from equations 24, 25, and 26) and demanded of the composite commodity. The demand side includes endogenous terms (from equations 17, 27, 33, 35, and 36) and a new exogenous term for stock change. Among the endogenous terms, QG and QINV are fixed in the basic model version (compare with equations 35 and 36). The composite commodity supply, QQ, drives demands for domestic marketed output, QD, and imports, QM. The market-clearing variables are the quantities of import supply, for the import side, and the two interrelated domestic prices, PDD and PDS, for domestic market output.
Current Account Balance for the ROW (in Foreign Currency)
⋅ + = ⋅ + + ∑ pwmc QM c ∑ trnsfrrow f ∑ pwec QEc ∑ trnsfri row FSAV (41) c∈CM f ∈F c∈CE i∈INSD
⎡ factor ⎤ ⎡ institutional⎤ imort export foreign ⎡ ⎤ + ⎢ ⎥ = ⎡ ⎤ + ⎢ ⎥ + ⎡ ⎤ ⎢ ⎥ ⎢transfers⎥ ⎢ ⎥ ⎢transfers ⎥ ⎢ ⎥ ⎣spending⎦ ⎣revenue⎦ ⎣savings ⎦ ⎣⎢to ROW ⎦⎥ ⎣⎢from ROW ⎦⎥ where
FSAV = foreign savings (FCU) (exogenous variable). 188
The current-account balance, balance, which is expressed in foreign currency, imposes equality between the Shanxi spending and its earning of foreign exchange. For the basic model version, foreign savings is fixed; the real exchange rate (EXR) serves the role of equilibrating variable to the current-account balance. The fact that all items except imports and exports are fixed means that, in effect, the trade deficit also is fixed. Alternatively, the exchange rate may be fixed and foreign savings unfixed. In this case, the trade deficit is free to vary.
Government Balance
YG = EG + GSAV (42)
government government government ⎡ ⎤ = ⎡ ⎤ + ⎡ ⎤ ⎢ ⎥ ⎢ ⎥ ⎢ ⎥ ⎣revenue ⎦ ⎣expenditure ⎦ ⎣savings ⎦ where GSAV = government savings.
The government balance imposes equality between current government revenue and the sum of current government expenditures (not including government investment) and savings. Savings may be negative. The alternative mechanisms for maintaining this balance are associated with equation (43).
Direct Institutional Tax Rates
= ⋅ ( + ⋅ )+ ⋅ ∈ TINS i tinsi 1 TINSADJ tins01i DTINS ti i INSDNG (43)
where = TINSi rate of direct tax on domestic institutions i, = tinsi exogenous direct tax rate for domestic institution i, TINSADJ = direct tax scaling factor(= 0 for base;exogenous variable), = − tins01i 0 1 parameter with 1 for institutions with potentially flexed direct tax rates,and
DTINSi = change in domestic institution tax share(= 0 for base;exogenous variable).
Equation (43) defines the direct tax rates of domestic non-government institutions. For the basic model version, all variables on the right-hand side are fixed, in effect fixing the values for the direct tax rate variable for all institutions. In this setting, government savings is the endogenous variable that clears the government balance.
In the GAMS implementation of the standard model, two alternative closure rules are coded for the government balance (see Macroeconomic Balances). For both alternatives, government savings is fixed. In the first case, DTINS is the flexible variable that clears the government balance by scaling the base-year tax rates of each tax-paying institution. In this setting, the rates will change by a uniform number of (percentage) points for all institutions with a value of 1 for the parameter tins01 (that is, for all institutions with potentially flexed direct tax rates). Hence, the initial tax rate has no impact on the rate change. In the second case, TINSADJ becomes a variable 189 while DTINS is fixed. For this closure, the changes in TINS are relatively large for institutions with relatively large base-year rates (if they have a value of 1 for tins01).
Notice that when GSAV is fixed for the two alternative closure rules, another variable is made endogenous, thus maintaining a model with an equal number of variables and equations. The choice between alternative closure rules should depend on the empirical context. For example, if the government pursues a policy of raising effective direct tax rates to maintain fixed savings in a setting with reduced other revenues and/or increased government spending, will it raise rates for all or only a subset of the nongovernment institutions? For the targeted institutions, will the government aim at uniform point increases or will it raise rates in proportion to current rates?
Institutional Savings Rates
= ⋅ ( + ⋅ )+ ⋅ ∈ MPSi mpsi 1 MPSADJ mps01i DMPS mps01i i INSDNG (44)
⎡ savings ⎤ ⎡ base rate adjusted ⎤ ⎡ point changes⎤ ⎢ ⎥ = ⎢ ⎥ + ⎢ ⎥ ⎢rate for ⎥ ⎢for scaling for ⎥ ⎢for selected ⎥ ⎣⎢institution i⎦⎥ ⎣⎢selected institutions⎦⎥ ⎣⎢institutions ⎦⎥
where = mpsi base savings rate for domestic institution i, MPSSDJ = savings rate scaling factor(= 0 for base),
= MPS01i 0 -1 parameter with 1 for institutions with potentially flexed direct tax rates,and DMPS = changd in domestic institution savings rates(= 0 for base;exogenous variable).
Equation (44) defines the savings rates of domestic nongovernment institutions. Its structure is the same as that of equation (43). Whether one or none of the variables MPSADJ and DMPS is flexible depends on the closure rule for the Savings-Investment balance. For the basic model version, DMPS is flexible, permitting MPS to be adjusted by a uniform rate for selected (one or more) nongovernment institutions.
Savings – Investment Balance
⋅ ()− ⋅ + + ⋅ ∑ MPSi 1 TINS i YIi GSAV EXR FSAV ∈ i INSDNG = ⋅ + ⋅ ∑ PQc QINVc ∑ PQc qdstc (45) c∈C c∈C
non - government government foreign fixed stock ⎡ ⎤ + ⎡ ⎤ + ⎡ ⎤ = ⎡ ⎤ + ⎡ ⎤ ⎢ ⎥ ⎢ ⎥ ⎢ ⎥ ⎢ ⎥ ⎢ ⎥ ⎣savings ⎦ ⎣savings ⎦ ⎣savings⎦ ⎣investment⎦ ⎣change⎦
Equation (45) states that total savings and total investment have to be equal. Total savings is the sum of savings from domestic nongovernment institutions, the government, and the rest of the world, with the last item converted into domestic currency. Total investment is the sum of the values of fixed investment (gross fixed capital formation) and stock changes. 190
In the basic model version, the flexible variable, DMPS, performs the task of clearing this balance (compare with equation 44). None of the other items in the Savings-Investment balance is free to vary to assure that the balance holds. Given that the balancing role is performed by the savings side, this closure represents a case of “investment-driven” savings. In the GAMS code, additional Savings-Investment closures have also been programmed. Under closure 2 (see Table 3), DMPS is fixed and MPSADJ is flexible. For closure 3, in which investment is savings-driven, IADJ is flexible whereas both MPSADJ and DMPS are fixed.
Up to this point, the model as stated is not square; the number of equations exceeds the number of variables by one. However, the model satisfies Walras’ law: one equation is functionally dependent on the others and can be dropped. The Savings-Investment balance or the current-account balance is commonly eliminated.) After eliminating one equation, the model is square and, in the absence of errors in formulation, a unique solution typically exists. Instead of dropping one equation, it is also possible to add one variable to the macroeconomic balance equations. The solution value of this variable should be zero. If not, one or more equations are not satisfied and a general equilibrium solution has not been found. This is the approach followed in the GAMS version of the model. A variable called WALRAS is added to the Savings-Investment balance. No equation is dropped. After this adjustment, the model presented is complete and self-contained. In the basic model version, three more equations (and three new variables that appear in them) are added. The reason for including these is that they permit the formulation of the .balanced. Savings- Investment closures 4 and 5. We will return to the closure issue later, after presenting the new equations and their notation.
Total Absorption
= ⋅ + ⋅ TABS ∑∑PQc QH ch ∑∑∑PXACac QHAach ∈∈ ∈∈∈ hCH c aCA cHh + ⋅ + ⋅ + ⋅ ∑ PQc QGc ∑ PQc QINVc ∑ PQc qdstc (46) c∈C c∈C c∈C
total household market household home ⎡ ⎤ = ⎡ ⎤ + ⎡ ⎤ ⎢ ⎥ ⎢ ⎥ ⎢ ⎥ ⎣absorption⎦ ⎣consumption ⎦ ⎣consumption ⎦
government fixed stock + ⎡ ⎤ + ⎡ ⎤ + ⎡ ⎤ ⎢ ⎥ ⎢ ⎥ ⎢ ⎥ ⎣consumption⎦ ⎣investment⎦ ⎣change⎦ where
TABS = total nominal absorption.
Total absorption is measured as the total value of domestic final demands, which equals GDP at market prices plus imports minus exports. The new variable, TABS, records this value.
Ratio of Investment to Absorption
⋅ = ⋅ + ⋅ INVSHR TABS ∑ PQc QINVc ∑ PQc qdstc (47) c∈C c∈C 191
investment - total fixed stock ⎡ ⎤ ⋅ ⎡ ⎤ = ⎡ ⎤ + ⎡ ⎤ ⎢ ⎥ ⎢ ⎥ ⎢ ⎥ ⎢ ⎥ ⎣absorption ratio⎦ ⎣absorption⎦ ⎣investment⎦ ⎣change⎦ where
INVSHR = investment share in nominal absorption.
The right-hand side of this equation defines the total investment value (compare with equation 45). On the left-hand side, total absorption is multiplied by a new free variable, INVSHR. At equilibrium, this variable measures the ratio between investment and absorption.
Ratio of Government Consumption to Absorption
⋅ = ⋅ GOVSHR TABS ∑ PQc QGc (48) c∈C
government consumption - total government ⎡ ⎤ ⋅ ⎡ ⎤ = ⎡ ⎤ ⎢ ⎥ ⎢ ⎥ ⎢ ⎥ ⎣absorption ratio ⎦ ⎣absorption⎦ ⎣consumption⎦ where
GOVSHR = government consumption share in nominal absorption.
This final equation is similar to equation (47) except that investment is replaced by government consumption. The right-hand side defines the value of government consumption (compare with equation 38). On the left-hand side, total absorption is multiplied by a new free variable, GOVSHR, which measures the ratio between government consumption and absorption.
The presence of equations (46), (47), and (48) and the three new variables makes it possible to specify Savings-Investment closures 4 and 5, which represent versions of “balanced” macroeconomic adjustment that may be preferable for model simulations aimed at generating plausible, real-world responses to shocks (compare with discussion of Macroeconomic Balances). For the investment-driven, Savings -investment closures 1 and 2, the burden of adjusting to absorption shocks is assumed in full by household consumption.29 Under closure 3, with savings- driven investment, the adjustment burden falls on investment.
Savings-Investment closures 4 and 5 in Table 3, which are also programmed in the GAMS version of the model, impose a balanced adjustment in the aggregate components of absorption. Under both, the shares of nominal absorption for investment and government consumption (INVSHR and GOVSHR) are fixed at base levels while the quantity adjustment factors for fixed investment demand and government consumption (IADJ and GADJ) are endogenized. The two closures differ as to whether DMPS or MPSADJ is the flexible variable that generates the Savings-Investment equilibrium.
Under these two closures, any change in total absorption would, in nominal terms, be spread evenly across all three components of absorption; given the shares for investment and government consumption, the share for household consumption is implicitly defined. Adjustments in the nongovernment savings value clear the savings- investment balance. The 192 magnitude of the savings adjustment, which is influenced by changes in investment and government consumption (for the latter via changes in government savings), determines the availability of resources for household consumption.
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APPENDIX 5: RESULTS OF EIRR ANALYSES
Table A5-1. EIRR for Production of CMM and CBM for the 120W Power Plant in Lu'an
Item 2008 2009 2010 2011 2012 2013 2014 2015 2019 2020 2025 2026 2027 2028 NPV Economic Internal Rate of Return Calculation I. Benefits (CNY million) Economic Benefits Cost Saving of Coal 35 69 69 69 69 69 69 69 69 69 69 69 69 433 power Generation Benefit 71 114 142 142 142 142 142 142 142 142 142 142 142 977 Gas Benefit 248 396 495 495 495 495 495 495 495 495 495 495 495 Total Benefits - 353 579 706 706 706 706 706 706 706 706 706 706 706 4339 II. Costs (CNY Million) 0 Investment Costs 0 653 990 337 1612 Operating Costs 0 Fixed Costs 75 75 75 75 75 75 75 75 75 75 75 75 75 558 Variable Costs 35 35 35 35 35 35 35 35 35 35 35 35 35 259 TotalOperatingCosts - 109 109 109 109 109 109 109 109 109 109 109 109 109 729 TotalCosts 653 1,099 446 109 109 109 109 109 109 109 109 109 109 109 2341 III. Economic Internal Rate of Return 0 Net Benefits (CNY million) (653) (746) 133 597 597 597 597 597 597 597 597 597 597 597 1998 EIRR (%) 30.4% 0 National Environmental Benefit (CNY million) 0 National Environmental Benefit - 21 34 43 43 43 43 43 43 43 43 43 43 43 262 Net Benefits (653) (725) 167 640 640 640 640 640 640 640 640 640 640 640 2260 EIRR-Environment + National(%) 32.7% 0 Global Environmental Benefit (CNY million) 0 Global Environmental Benefit - 44 70 87 87 87 87 87 87 87 87 87 87 87 535 Net Benefits (653) (681) 237 727 727 727 727 727 727 727 727 727 727 727 2795 EIRR-Environment + National + Global(%) 37.49% NPV = net present value, O&M = operation and maintenance, SI = sensitivity indicator, SV = switching value. (i) Discount rate 12% (ii) Standard Conversion Factor (SCF): 0.93 (iii) Willingness to Pay for Electricity is converted at the SCF (iv) Sensitivity indicator is the ratio of percentage change in the economic NPV divided by the percentage change in the given parameter. (v) Switching value is the percentage change in a parameter for the project decision to change, that is for the economic NPV to become zero or the EIRR to fall to the cut-off rate
194
Table A5-2. EIRR for CMM Transmission and Distribution by Shanxi CMM Gather and Distribution Limited Company
Item 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2025 2028 NPV Economic Internal Rate of Return Calculation I. Benefits (CNY million) Economic Benefits Cost Saving of Coal - 205 205 205 205 205 205 205 205 205 205 205 205 205 205 1370 Revenue from Production 291 291 291 291 291 291 291 291 291 291 291 291 291 291 2175 Total Benefits - 496 496 118 496 496 496 496 496 496 496 496 496 496 496 3071 II. Costs (CNY Million) 0 Investment Costs 0 558 558 943 Operating Costs 0 Fixed Costs 73 73 73 73 73 73 73 73 73 73 73 73 73 73 547 Variable Costs 33 33 33 33 33 33 33 33 33 33 33 33 33 33 246 Total Operating Costs - 106 106 106 106 106 106 106 106 106 106 106 106 106 106 708 Total Costs 558 664 106 106 106 106 106 106 106 106 106 106 106 106 106 1651 III. Economic Internal Rate of Return 0 Net Benefits (CNY million) (558) (168) 390 12 390 390 390 390 390 390 390 390 390 390 390 1420 EIRR (%) 34.51% 0 National Environmental Benefit (CNY million) 0 National Environmental Benefit - 64 64 64 64 64 64 64 64 64 64 64 64 64 64 425 Net Benefits (558) (104) 454 76 454 454 454 454 454 454 454 454 454 454 454 1845 EIRR-Environment+National(%) 41.85% 0 Global Environmental Benefit (CNY million) 0 Global Enviornmental Benefit - 33 33 33 33 33 33 33 33 33 33 33 33 33 33 222 Net Benefits (558) (71) 487 109 487 487 487 487 487 487 487 487 487 487 487 2067 EIRR-Environment+National+Global(%) 45.85% NPV = net present value, O&M = operation and maintenance, SI = sensitivity indicator, SV = switching value. (i) Discount Rate 12% (ii) Standard Conversion Factor(SCF): 0.93 (iii) Sensitivity indicator is the ratio of percentage change in the economic NPV divided by the percentage change in the given parameter. (iv) Switching value is the percentage change in a parameter for the project decision to change, that is for the economic NPV to become zero or the EIRR to fall to the cut-off rate.
195
Table A5-3. EIRR for CMM Transmission and Distribution in Changzhi Coal Gasification General Company
Item 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2025 2028 NPV Economic Internal Rate of Return Calculation I. Benefits (CNY million) Economic Benefits Cost Saving of - 39 79 118 157 197 197 197 197 197 197 197 197 197 197 1031 Revenue from Production 56 112 167 223 279 279 279 279 279 279 279 279 279 279 1636 Total Benefits - 95 190 118 381 476 476 476 476 476 476 476 476 476 476 2385 II. Costs (CNY Million) 0 Investment Costs 0 214 214 214 214 214 771 Operating Costs 0 Fixed Costs 45 45 45 45 42 42 42 42 42 42 42 42 42 42 324 Variable Costs 100 107 113 120 126 126 126 126 126 126 126 126 126 126 891 Total Operating Costs - 145 152 159 165 168 168 168 168 168 168 168 168 168 168 1085 Total Costs 214 359 366 372 379 168 168 168 168 168 168 168 168 168 168 1856 III. Economic Internal Rate of 0 Net Benefits (CNY million) (214) (264) (176) (254) 2 307 307 307 307 307 307 307 307 307 307 529 EIRR (%) 19．97％ 0 National Environmental Benefit (CNY 0 National Environmental - 12 24 37 49 61 61 61 61 61 61 61 61 61 61 320 Net Benefits (214) (252) (151) (218) 50 368 368 368 368 368 368 368 368 368 368 848 EIRR-Environment +National(%) 24．54％ 0 Global Environmental Benefit (CNY million) 0 Global Environmental - 0 1 1 2 2 2 2 2 2 2 2 2 2 2 12 Net Benefits (214) (251) (150) (216) 52 371 371 371 371 371 371 371 371 371 371 860 EIRR-Environment+National+Global(%) 24．71％ NPV = net present value, O&M = operation and maintenance, SI = sensitivity indicator, SV = switching value. (i) Discount Rate 12% (ii) Sensitivity indicator is the ratio of percentage change in the economic NPV divided by the percentage change in the given parameter. (Iii) Switching value is the percentage change in a parameter for the project decision to change, that is for the economic NPV to become zero
196
Table A5-4. EIRR for Producing Carbinol from Coke Furnace Gas in Changzhi Coal Gasification General Company Item 2008 2009 2010 2011 2012 2013 2014 2015 2016 2020 2025 2028 NPV Economic Internal Rate of Return Calculation I. Benefits (CNY million) Economic Benefits Cost Saving of Coal - 48 60 60 60 60 60 60 60 60 60 60 391 Revenue from Production 570 712 712 712 712 712 712 712 712 712 712 5194 Total Benefits - 618 772 772 772 772 772 772 772 772 772 772 5028 II. Costs (CNY Million) 0 Investment Costs 0 254 169 362 Operating Costs 0 Fixed Costs 93 95 95 95 95 89 89 89 87 87 87 682 Variable Costs 316 589 589 589 589 589 589 589 589 589 589 4154 TotalOperatingCosts - 409 684 684 684 684 678 678 678 676 676 676 4318 TotalCosts 254 578 684 684 684 684 678 678 678 676 676 676 4679 III. Economic Internal Rate of Return 0 Net Benefits (CNY million) (254) 39 89 89 89 89 94 94 94 96 96 96 349 EIRR (%) 30.85% 0 National Environmental Benefit (CNY million) 0 National Enviornmental Benefit - 36 25 25 25 25 25 25 25 25 25 25 176 Net Benefits (254) 76 114 114 114 114 120 120 120 121 121 121 525 EIRR-Environment+National(%) 40.86% 0 Global Environmental Benefit (CNY million) 0 Global Enviornmental Benefit - 12 12 12 12 12 12 12 12 12 12 12 81 Net Benefits (254) 88 126 126 126 126 132 132 132 133 133 133 606 EIRR-Environment+National+Global(%) 45.26% NPV = net present value, O&M = operation and maintenance, SI = sensitivity indicator, SV = switching value. Notes: (i) Discount Rate 12% (ii) Sensitivity indicator is the ratio of percentage change in the economic NPV divided by the percentage change in the given parameter. (Iii) Switching value is the percentage change in a parameter for the project decision to change, that is for the economic NPV to become zero or the EIRR to fall to the cut-off rate.
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Table A5-5. EIRR for Producing Chemical Material from Coke Furnace Gas in Tongzhou Coal Gasification General Company
Item 2008 2009 2010 2011 2012 2013 2014 2015 2016 2020 2025 2028 NPV Economic Internal Rate of Return Calculation I. Benefits (CNY million) Economic Benefits Cost Saving of Fuel - 125 157 157 157 157 157 157 157 157 157 157 1020 Revenue from Production 208 260 260 260 260 260 260 260 260 260 260 1899 Total Benefits - 125 417 417 417 417 417 417 417 417 417 417 2549 II. Costs (CNY Million) 0 Investment Costs 0 198 198 334 Operating Costs 0 Fixed Costs 63 63 63 63 63 63 63 63 63 63 63 469 Variable Costs 185 185 185 185 185 185 185 185 185 185 185 1385 Total Operating Costs - 248 248 248 248 248 248 248 248 248 248 248 1656 Total Costs 198 446 248 248 248 248 248 248 248 248 248 248 1990 III. Economic Internal Rate of Return 0 Net Benefits (CNY million) (198) (321) 169 169 169 169 169 169 169 169 169 169 559 EIRR (%) 29.10% 0 National Environmental Benefit (CNY million) National Environmental Benefit - 34 42 42 42 42 42 42 42 42 42 42 274 Net Benefits (198) (287) 211 211 211 211 211 211 211 211 211 211 834 EIRR-Environment +National(%) 37.66% 0 Global Environmental Benefit (CNY million) Global Environmental Benefit - 1 1 1 1 1 1 1 1 1 1 1 7 Net Benefits (198) (286) 212 212 212 212 212 212 212 212 212 212 841 EIRR-Environment +National +Global(%) 37.89% Notes: (i) Discount Rate 12% (ii) Sensitivity indicator is the ratio of percentage change in the economic NPV divided by the percentage change in the given parameter. (iii) Switching value is the percentage change in a parameter for the project decision to change, that is for the economic NPV to become zero or the EIRR to fall to the cut-off rate.
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Table A5-6. EIRR for the Whole Project
Item 2008 2009 2010 2011 2012 2013 2014 20152016 2017 2018 2019 2020 2025 2028 NPV Economic Internal Rate of Return Calculation I. Benefits (CNY million) Economic Benefits Cost Saving of Fuel - 453 570 609 649 688 688 688 688 688 688 688 688 688 688 4244 Revenue from Production - 1,444 1,885 2,069 2,125 2,180 2,180 2,180 2,180 2,180 2,180 2,180 2,180 2,180 2,180 13641 Total Benefits - 1,896 2,455 2,678 2,773 2,868 2,868 2,868 2,868 2,868 2,868 2,868 2,868 2,868 2,868 17885 II. Costs (CNY Million) 0 Investment Costs 0 1,877 2,129 550 214 214 - - - - 4021 Operating Costs 0 Fixed Costs - 349 351 351 351 348 342 342 342 342 342 340 340 340 340 2304 Variable Costs - 669 948 955 962 968 968 968 968 968 968 968 968 968 968 6192 Total Operating Costs - 1,018 1,299 1,306 1,312 1,316 1,310 1,310 1,310 1,310 1,310 1,308 1,308 1,308 1,308 8496 Total Costs 1,877 3,147 1,850 1,520 1,526 1,316 1,310 1,310 1,310 1,310 1,310 1,308 1,308 1,308 1,308 12517 III. Economic Internal Rate of Return 0 Net Benefits (CNY million) (1,877) (1,250) 606 1,158 1,247 1,552 1,558 1,558 1,558 1,558 1,558 1,560 1,560 1,560 1,560 5368 EIRR (%) 32.19% 0 National Environmental Benefit (CNY million) 0 National Environmental Benefit - 167 190 210 223 235 235 235 235 235 235 235 235 235 235 1457 Net Benefits (1,877) (1,083) 795 1,368 1,469 1,787 1,793 1,793 1,793 1,793 1,793 1,795 1,795 1,795 1,795 6825 EIRR-Environment +National(%) 37.73% 0 Global Environmental Benefit (CNY million) 0 Global Environmental Benefit - 90 117 135 136 136 136 136 136 136 136 136 136 136 136 858 Net Benefits (1,877) (993) 913 1,504 1,605 1,923 1,929 1,929 1,929 1,929 1,929 1,931 1,931 1,931 1,931 7682 EIRR-Environment + National +Global(%) 41.06% NPV = net present value, O&M = operation and maintenance, SI = sensitivity indicator, SV = switching value. Notes: (i) Discount Rate 12% (ii) Sensitivity indicator is the ratio of percentage change in the economic NPV divided by the percentage change in the given parameter. (iii) Standard Conversion Factor(SCF): 0.93 (iv) Willingness to Pay for Electricity is converted at the SCF (v) Switching value is the percentage change in a parameter for the project decision to change, that is for the economic NPV to become zero or the EIRR to fall to the cut-off rate.
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Table 11. Sensitivity Analysis of EIRR for the Whole Project
Sensitivity Analysis of EIRR Change NPV EIRR SI SV
in (mill. Y) (%)
Variable
Base Case 6824.8 37.7%
(i) Capital Cost Overrun 20% 6020.5 31.0% 0.6 169.7
(ii) Benefit Reduction -20% 2956.4 23.2% 2.8 35.3
(iii) Implementation Delay 1 year 4496.0 23.6%
(iv) Combination of (i), (ii) and (iii) 289.0 12.7% 200
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APPENDIX 6: RESULTS OF FIRR ANALYSES
Table A6-1: FIRR for Production of CMM and CBM for the 120W Power Plant in Lu'an Item 2008 2009 2010 2011 2012 20132014 2015 2020 2026 2027 2028 NPV I. Benefits (CNY million) Financial Benefits 77 122 153 153 153 153 153 153 153 153 153 1302 Power Generation Benefit Gas Benefit 266 426 532 532 532 532 532 532 532 532 532 4526 Total Benefits 343 548 685 685 685 685 685 685 685 685 685 5828 II. Costs (CNY Million) 0 Investment Costs 702 1,064 362 1850 O&M Costs 117 117 117 117 117 117 117 117 117 117 117 1065 Tax - 40 40 40 40 40 40 40 40 40 40 40 368 Total Costs 702 1,222 520 158 158 158 158 158 158 158 158 158 3284 III. Financial Internal Rate of Return 0 Net Benefits (CNY million) (702) (879) 29 528 528 528 528 528 528 528 528 528 2544 FIRR = 24.10% Notes: (i) NPV = net present value, O&M = operation and maintenance. (ii) Discount Rate is 8%.
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Table A6-2: FIRR for CMM Transmission and Distribution by Shanxi CMM Gather and Distribution Limited Company Item 2008 2009 2010 2011 2012 2013 2014 2015 2020 2026 2027 2028 NPV Financial Internal Rate of Return Calculation I. Benefits (CNY million) Financial Benefits Revenue from Production - 313 313 313 313 313 313 313 313 313 313 313 2846 Total Benefits - 313 313 313 313 313 313 313 313 313 313 313 2846 II. Costs (CNY Million) 0 Investment Costs 600 600 1070 O&M Costs - 114 114 114 114 114 114 114 114 114 114 114 1036 Tax - 22 22 22 22 22 22 22 22 22 22 22 200 Total Costs 600 736 136 136 136 136 136 136 136 136 136 136 2306 III. Financial Internal Rate of Return 0 Net Benefits (CNY million) (600) (423) 177 177 177 177 177 177 177 177 177 177 539 FIRR = 14.76% Notes: (i) NPV = net present value, O&M = operation and maintenance. (ii) Discount Rate is 8%.
Table A6-3: FIRR for CMM Transmission / Distribution and Producing Carbinol from Coke Furnace Gas in CCGGC Item 2008 2009 2010 2011 2012 2013 2014 2015 2020 2025 2026 2027 2028 NPV Financial Internal Rate of Return Calculation I. Benefits (CNY million) Financial Benefits Revenue from Production - 760 1,266 1,266 1,266 1,266 1,266 1,266 1,266 1,266 1,266 1,266 1,266 11076 Total Benefits - 760 1,266 1,266 1,266 1,266 1,266 1,266 1,266 1,266 1,266 1,266 1,266 11076 II. Costs (CNY Million) 0 Investment Costs 230 230 230 230 230 918 O&M Costs - 596 898 906 913 916 910 910 908 908 908 908 908 7992 Tax - 65 104 106 108 109 109 109 109 109 109 109 109 948 Total Costs 230 892 1,233 1,241 1,250 1,025 1,019 1,019 1,017 1,017 1,017 1,017 1,017 9858 III. Financial Internal Rate of Return Net Benefits (CNY million) (230) (132) 34 25 16 241 247 247 249 249 249 249 249 1218 FIRR = 29.32% Notes: (i) NPV = net present value, O&M = operation and maintenance. (ii) Discount Rate is 8%.
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Table A6-4: FIRR for Producing Chemical Material from Coke Furnace Gas in Tongzhou Coal Gasification General Company Item 2008 2009 2010 2011 2012 2013 2014 2015 2020 2024 2025 2026 2027 2028 NPV Financial Internal Rate of Return Calculation I. Benefits (CNY million) Financial Benefits Revenue from Production - 300 375 375 375 375 375 375 375 375 375 375 375 375 3345 Total Benefits - 300 375 375 375 375 375 375 375 375 375 375 375 375 3345 II. Costs (CNY Million) 0 Investment Costs 213 213 379 O&M Costs - 267 267 267 267 267 267 267 267 267 267 267 267 267 2427 Tax - 21 21 21 21 21 21 21 21 21 21 21 21 21 191 Total Costs 213 501 288 288 288 288 288 288 288 288 288 288 288 288 2997 III. Financial Internal Rate of Return 0 Net Benefits (CNY million) (213) (201) 87 87 87 87 87 87 87 87 87 87 87 87 348 FIRR = 18.46% Notes: (i) NPV = net present value, O&M = operation and maintenance. (ii) Discount Rate is 8%.
Table A6-5. FIRR for the Whole Project Item 2008 2009 2010 2011 2012 2013 2014 2015 2020 2025 2026 2027 2028 NPV Financial Internal Rate of Return Calculation I. Benefits (CNY million) Financial Benefits Revenue from Production - 1,715 2,503 2,640 2,640 2,640 2,640 2,640 2,640 2,640 2,640 2,640 2,640 23095 Total Benefits - 1,715 2,503 2,640 2,640 2,640 2,640 2,640 2,640 2,640 2,640 2,640 2,640 23095 II. Costs (CNY Million) 0 Investment Costs 1,745 2,107 592 230 230 ------4217 O&M Costs - 1,094 1,397 1,404 1,411 1,414 1,408 1,408 1,406 1,406 1,406 1,406 1,406 12521 Tax - 149 188 189 191 193 193 193 193 193 193 193 193 1707 Total Costs 1,745 3,350 2,176 1,823 1,832 1,607 1,601 1,601 1,599 1,599 1,599 1,599 1,599 18446 III. Financial Internal Rate of Return 0 Net Benefits (CNY million) (1,745) (1,635) 326 817 808 1,032 1,038 1,038 1,040 1,040 1,040 1,040 1,040 4649 FIRR = 21.94% Notes: (i) NPV = net present value, O&M = operation and maintenance. (ii) Discount Rate is 8%.
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APPENDIX 7: MINUTES OF TRIPARTITE MEETING IN BEIJING MAY 19, 2006
Poverty Reduction in Coal Mine Areas of Shanxi Province ADB TA 4566: PRC
Minutes for Project Review Meeting
LMI International Inc. Beijing Office
May 15 - 19, 2006
Participants: Madame Wang Hong Ya, Shanxi DRC Mr. Daniel Shao, Consultant Mr. Li APing, Shanxi DRC Mr. Huang Shengchu, Consultant Mr. Wang Weizhong, Shanxi DRC Dr. Wei Songxian, Consultant Dr. Bo Q. Lin, ADB Dr. Wang Cheng, Consultant Dr. J. Don. Meisner, Team Leader Dr. Wei Weixian, Consultant Ms. Li Mou, Consultant Dr. Shi Qingyan, Consultant Mr. Baomin Dong, Consultant Ms. Hu Yuhong, Consultant Dr. Peng Jianliang Consultant
Purpose: Review of TA implementation progress and findings of recent data/ information collection mission to Shanxi province and Jincheng.
Agenda: 1. Proposal of EA to add employment-development project in project scope. 2. Training program 3. Project management needs 4. Project workshops/seminars 5. Reporting schedule 6. Equipment procurement
1. Requests of EA to do some additional work of assessing energy related project
The EA requested and ADB agreed to include in the TA study some additional work to assess the feasibility of one energy related project to include re-employment opportunities for displaced coal miners and to supplement the training activities of the TA. The EA will submit a list of candidate projects to the consultants for review as soon as possible. Because of difficulties in identifying relevant coal mines for the study, it was further agreed that TA work will not be restricted to Jincheng Municipality. The proposed project will likely be in the same areas of Shanxi province in which the training programs will be implemented.
2. Training programs
The training programs will focus on mine operators and selected agencies responsible for small coal mine operation at the provincial and local levels. Given the project timeline and resources, a comprehensive training plan will be beneficial and needed to be developed quickly by the consultants in consultation with the EA. It was agreed that two training seminars will be held; one at provincial and one at local level. The consultants will assist the EA to determine the most effective venues for the training seminars, including participants, locations, and cost estimates. 3. Project management needs 206
The consulting team will continue to manage well organized missions to Shanxi province as needed. The EA will assist with the logistics of developing and implementing the training seminars including participant lists. All project correspondence with the EA must be submitted to Mr. Wang with copies to Bo Lin and the team leader. The EA will ensure that the data/information coordinator will respond quickly and effectively to future requests by the consultant team. All data/information requests will be submitted directly to Mr. Wang with copy to the team leader. Future field trip requests of individual team members will be submitted to the team leader.
4. Project workshops/seminars
It was agreed that workshops as indicated in the TA paper will be integrated into the training programs. A workshop on the draft final report will be held together with one of the training seminars. A final reporting workshop, possibly involving the Coal Mining Administration Bureau, to disseminate the TA findings and recommendations will be considered in a later stage.
5. Reporting and implementation schedule
As envisaged during the TA contract negotiation, the TA completion date would be June 2006. Because of difficulties in (i) identification of the locations for pilot studies and (ii) data collection, it was decided that TA completion date would be extended to November 2006. Given the TA progress, it was agreed that the consultants will not submit the interim report. Instead, the draft final report will be submitted to the EA and ADB by the end of July 2006. The consultant team members must have their completed inputs to the team leader by July 15 2006. After the review of draft final report by ADB and the EA, the first training seminar will be delivered. The EA requests that the second training seminar occurs in October or November 2006 after the submission of final report. It was agreed that the consultants will send ADB a request for contract variation quickly to accommodated inclusion of procurement of office equipment, additional study for macroeconomic impact on growth and poverty, and the recruitment of the data/ information coordinator.
6. Equipment procurement
The EA will submit a list of office equipment to be procured under the TA to ADB. After approval of the requested equipment list, the EA can procure the office equipment and submit to ADB three quotes from separate commercial suppliers with recommendations and rationale for selected suppliers. Upon submission of receipts for purchased equipment, the EA will be reimbursed the cost of the equipment by ESSA Technologies Ltd. by wire transfer.
______Date: ______
Wang Hong Ya Shanxi Development & Reform Commission
______Date: ______
Bo Q. Lin Asian Development Bank
______Date: ______J. Don Meisner Team Leader 207
APPENDIX 8: TERMS OF REFERENCE FOR TA 4566: PRC
Phase 1: Initial Data Gathering, Preliminary Data Analysis, and Preparation of Outline Policy Recommendations Phase I will involve the collection of initial data, their preliminary analysis, and the preparation of outline policy recommendations to assist redundant coal miners and local communities affected by the closure of small coal mines. (i) Determine the current unemployment and economic trends in coal mining areas in Shanxi province and develop a suitable methodology for forecasting employment needs in poor rural and urban communities where extensive closures of small-scale coal mines are planned. (ii) Identify the key political, social, economic, and environmental impacts of the closure of small coal mines, review existing mitigation and other relevant policies, and formulate appropriate policy recommendations to address the gaps. Discuss any existing policy conflicts with local government officials and seek their views on the practicality of the recommendations, likely costs of implementation, and possible sources of financial assistance. Identify barriers to implementation of the proposed policy. (iii) Review existing retraining and job creation programs in the PRC aimed at low- income, rural areas and assess their likely effectiveness and applicability to poor coal mining areas in Shanxi province. (iv) Finalize the selection of a demonstration study area—likely to be a county administration near to Jincheng, Analyze the existing poverty reduction and unemployment policies applicable at county level including the program coverage, effectiveness, numbers of people involved, costs, sources of funding, and methods of monitoring and auditing impacts. (v) Obtain data to enable the socioeconomic fabric of the demonstration county area to be characterized and analyzed in respect of the expected impacts of closures of small coal mines. Assess the capacity of the local authorities to manage the closures and their impacts, and highlight any shortcomings and resource constraints. (vi) Visit selected surface sites of small coal mines, both working and closed, and examine the environmental, social, and economic conditions. Interview mine workers and determine their aspirations, interests, and concerns. Assess the range of educational and vocational backgrounds and skills. Record observations on the environmental impacts of the mines including surface stability, buildings, waste disposal, water quality, coal storage and transport, and on air quality resulting from local use of the coal. (vii) Analyze private sector business activity, identify growth areas within the county, and assess the scope for stimulating further employment by seeding now business and providing start-up support and training for redundant miners. Indicate suitable support delivery and monitoring mechanisms. (viii) Conduct stakeholder consultations and activities to obtain data from low-income households, including small-scale miners and other vulnerable sectors of the community in the study area to determine the issues and concerns of the poor regarding alternative employment, temporary social support needs, and educational and training requirements. 208
(ix) Determine the general numbers of itinerant workers employed in local, small coal mines, their living standards, contributions to the local economy, and implications to them and their families of job losses. (x) Report on the findings to Shanxi provincial government and AD13 and obtain confirmation that the demonstration site area is acceptable to all parties and that there is general agreement on what constitutes the key Issues. Discuss the outline policy recommendations with all stakeholders, invite feedback from concerned government agencies, and amend appropriately.
Phase II: Identification of Options for Training and Reemployment Programs Based on International Experience Phase II will build on the factual information obtained in phase I and will focus on the selected demonstration area around Jincheng. (i) Review and analyze international best practice examples of mine closure policy, environmental protection, and social mitigation programs including recent internationally assisted work in Romania, Bulgaria, and other Eastern European countries supported by the World Bank and European Union. In addition, examine research undertaken to develop a response to the social and environmental problems associated with artisanal mining in poor areas within Africa and other developing countries. (ii) Identify policy and mitigation response options of possible relevance to the study area, Use this analysis in conjunction with results from phase I as a basis for developing recommendations on a policy framework for implementation at provincial and local levels in the PRC and involve government officials in this process.
Phase III: Development of Specific Assistance Programs for the Area around Jincheng Including a Plan for Monitoring its Social, Economic, and Environmental Impacts During Phase III the consultants will design a specific assistance program to carry out education and training and devise a monitoring and evaluation system to audit and confirm its effectiveness. The tasks will include: (i) Determine capacity-building requirements among local government departments responsible for the administration of poverty reduction and social mitigation programs. (ii) Assess the potential job creation and employment opportunities in the area around Jincheng, highlighting possible barriers. (iii) Classify the potential recipients in terms of their abilities, willingness to participate, and their education and training needs. (iv) Determine human and financial resource requirements for training including numbers and qualification of staff and support workers, buildings and accommodation. teaching materials, catering, overheads, and temporary social support during training and pending placement. (v) Establish links to job creation schemes, new business incubation programs, and any other relevant social mitigation programs. In particular, close liaison should be established with large, responsible coal mining companies that have expressed interest in investing in consolidation and transformation of small coal mines into large, industrial-scale coal mines, 209
(vi) Prepare and undertake an awareness campaign to share the proposals with all stakeholders and the general public and invite feedback and participation. (vii) Consult with the provincial Environmental Protection Bureau, Coal Mining Administration Bureau, and Workers Safety Bureau with regard to training standards, qualifications, and recognition of courses related to the requirements of current legislation and the needs of large coal mines. (viii) Identify required training facilities, trainers, and funding- prepare training programs and curricula; and develop selection criteria for the trainees.
Phase IV: Implementation of the Developed Mechanisms and Programs in the Area around Jincheng and Application throughout the PRC During phase IV the consultants will Initiate the developed training program(s); establish a monitoring and audit system; and assess the practicality, limitations, benefits, costs, and socioeconomic implications of wider application throughout the PRC. The consultants' tasks will include: i) Discuss with Shanxi provincial government the implementation of the proposed poverty reduction and training programs and provide training to the personnel of provincial, municipal, and county authorities with responsibilities for poverty reduction and training of redundant miners in the area around Jincheng. (ii) Assist Shanxi provincial government with the selection of appropriate management and training staff and the identification and establishment of suitable training facilities, and provide training for the trainers. (iii) Develop a monitoring and audit scheme for both the training elements and the impacts of the program on the local communities. Determine an appropriate set of mid- and long-term monitoring indicators in the areas of economic growth, institutional reforms, poverty and social aspects, and environmental improvement. (iv) Review progress in training of administrative staff in implementing policy and teaching staff in delivering training programs in accordance with planned schedules and the requirements of potential employees. (v) Assess the expected national number of redundant miners due to the envisaged closure of small coal mines; estimate the social, economic and environmental impacts and mitigation costs of such closures: and assess the financial and human resource requirements, local government capacity- building needs, and required removal of barriers and further policy and reform to promote the closure of small coal mines with minimal social, economic, and environmental impacts. Indicate a practical time scale for wider application of the developed training programs and mitigation measures and suggest an action plan to accelerate implementation. (vi) Organize and carry out a consultation workshop with stakeholders to present the final draft report and recommendations of the TA and a final workshop to present and disseminate the final report that will incorporate the feedback and comments received with regard to the draft final report at the consultation workshop.