China's central Henan province is beginning an ambitious project that will incorporate 466 small coal mines into six large state-owned mining conglomerates in around just 40 days, the EO learned.

At a meeting held in Luoyang City on May 12th to push forward coal mine consolidation, Henan province announced its latest plan for six state-run mines to acquire 466 smaller mines with an annual output of 150,000 tons, and set the timetable for preliminary completion before the end of June this year.

The six state-run coal mines include Henan Coal Chemical Industry Group, Zhongping Energy Chemical Group, Yima Coal Industry Group, Zhengzhou Coal Industry Group, Henan Shenhuo Group and Henan Province Coal Seam Gas Development and Utilization Company.

To meet the preliminary completion requirements, the 466 small mines need to sign merger and acquisition agreements with the above-mentioned six state-run mines. After acquisition, mines who meet production safety standards will resume operation and those that do not must draw up safety improvement measures.

"Presently, some small coal mines are still taking a wait-and-see attitude [toward consolidation]; they are refusing to provide credentials are have even provided false information and believe the consolidation campaign will not be fully implemented. They are mistaken." Shi Jichun, vice governor of Henan province, said at the meeting.

"This time, Henan's coal mine consolidation campaign will be like a tornado sweeping through every corner of the province," Shi added.

The EO learned that the Henan provincial government has required the six state-run enterprises to acquire at least 51 percent of shares in these small mines and dispatch management teams to help the small mines begin technological upgrading and improve production safety.

Shi Jichun stressed that the purpose of this consolidation is to ensure safe production. After it is completed, if serious coal mining accidents still occur, the consolidation will have failed.

Consolidation Hurdles

Despite the fact that the campaign is backed by the provincial government, things have not gone as smoothly as the provincial government expected.

Some city and county governors have taken a non-cooperative attitude towards the campaign.

At the above-mentioned meeting, Shi Jichun, the vice provincial governor, sternly criticized a city for failing to push forward the coal mine consolidation.

Shi said, at present, none of small coal mines in that particular city had signed agreements with the six state-run ones; worse, the city had no knowledge of the project's aim to be completed before the end of June this year.

Shi also criticized the governors of two counties who attended the meeting (their names were not given), saying they have kept a close relationship with small local coal mines and have used every possible method to obstruct the project.

The EO obtained a list of the attendants of the meeting showing that only 5 counties including Jia County, Baofeng County, Shan County, Yingchi County and Ruyang County attended the meeting.

A source from a company due to be restructured by the Yima Coal Industry Group, told the EO that some Henan province town and county governors or their relatives are the real controllers of small coal mines or own shares in the mines.

"It is not that these local governors are unwilling to comply with the provincial government's plan, but before the mine can be acquired, information about its share-holdings must be reported to higher authorities. The local officials' participation in small coal mines will be exposed and their official posts will be affected; that's what these officials fear most."

The tax revenue of local governments will decrease as small mines are incorporated into the six large state-owned conglomerates. Addressing this issue, Li Ke, the executive vice provincial governor, said the provincial government would draw up policies that take local governments' interests into consideration.

However, for the beneficiaries of the consolidation campaign, the six large state-run coal mines, the biggest obstacle is their lack of acquisition funds and experienced personnel.

Xu Lidi, vice chairman of Dynamic Energy Holding Company, a partnership company of Henan Provincial Coal Seam Gas Development and Utilization Co. (HPCSGDUC), said Henan Yulong Energy Company, its planned joint venture with the HPCSGDUC, will acquire 22 small coal mines in Pingdingshan city. The funds required for the acquisition will approach 1 billion yuan.

Dynamic Energy will apply for bank loans and issue company bonds to raise funds for completing the acquisition, the EO learned.

Despite that all 466 small mines are required to sign acquisition agreements with the six state-run mining conglomerates before the end of June, the large amount of funds required to support the consolidation have yet to be put into use.

Therefore, the end of June will not be the end, but the beginning of Henan's coal mine consolidation campaign.