Key Issues and Best Practices for Sustainable Coal Industry

Development in China

Hu Yuhong , Deputy Director

Department of International Cooperation

State Administration of Workshop Safety

Tel/Fax:10-64464591

Email: hu2006122@163.com,huyh@chinasafety.gov.cn

• 1. The Policies for Coal Industry in ChinaThe Policies for Coal Industry in China

• 2.Development of Coal Industry2.Development of Coal Industry

• 3 Challenges for Sustainable Coal Development

• 4. Future Strategy and Measures

• NDRC issued The Policies for Coal Industry in China on 23 Nov. 2007

• Roles: ▲ Support the Health Development of National

Economy ▲ Build the New System of Coal Industry ▲ Realize the Safety Development of Coal Industry ▲ Realize the Saving Development of Coal Industry ▲ Realize the Cleaning Development of Coal Industry

1. The Policies for Coal Industry in ChinaThe Policies for Coal Industry in China

• The pilot pricing mechanism on acquisition of coal mining rights, that is being experimented in eight provinces/regions including Shanxi, Inner Mongolia, Heilongjiang, Anhui, Shandong, Henan, Guizhou and Shaanxi, should be extended to all of China.

• The Sustainable Coal Development Fund, a fee levied by the Shanxi provincial government since 2007

• Six Focus Points:

▲ The Development Principle of Coal Mining Area

▲ The Policies for Coal Chemical

▲ The Management Requirement of Coal Enterprises License

▲ The Scale of New Build, Rebuild and Enlarge Coal Mine

▲ Encourage to Organize Large Coal Enterprises

▲ Project Management of Coal Mine Building

1. The Policies for Coal Industry in ChinaThe Policies for Coal Industry in China

Economic Policies on Coal Safety• 3 Billions funds by central government on safety

programs

• Safety fee per ton of coal free of tax

• Safety risk fee

• (1) “Regulation on Exemption of Import Tax on the Articles Imported for CMM Exploration and Development Projects ”

• (2) “Tax Policies Related Encourage CMM Drainage ”• (3) “Directions on the Power Generation Using CMM”• (4)“Strengthening the Management on the Integrated Prospecting a

nd Exploration of coal and CMM Resources ”• (5) The Ministry of Finance issued “Guidelines on the Implementatio

n of Subsidy for CMM (gas) Development and Utilization ” • (6) Revising of “Regulations on Exploration of On-shore Petroleum

Resources in Cooperation with Foreign Countries ”

• I. A continuous growth of coal production, significantly ensuring national energy supply.– Coal production increased from 1,300 Mt in 2000 to 3,050 Mt

in 2009, a 1.3 times rise.

Coal Producton from 2000 to 2009 in China(100 Mt)

13 13. 8 14. 516. 7

19. 5621. 9

23. 8 25. 2327. 16

30. 5

0

510

15

20

2530

35

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

2.Development of Coal2.Development of Coal IndustryIndustry

– Main coal producing provinces: Inner Mongolia, Shanxi, Shaanxi, Henan, Shandong, Guizhou, Anhui, all with a annual coal production of 100 Mt.

2. Development of Coal Industry

Production Growth in Main Coal Producing Provinces(100 Mt)

0. 84

2. 46

0. 280. 77 0. 8

0. 37 0. 48

6. 37 6. 15

2. 982. 3

1. 44 1. 37 1. 28

0

1

2

3

4

5

6

7

内蒙古 山西省 陕西省 河南省 山东省 贵州省 安徽省

2000年 2009年

– 45 coal enterprises with an annual production over 10 Mt, totaling 1,600 Mt.

Production Growth in Main Coal Enterprises(100 Mt)

0. 36 0. 26 0. 28 0. 32 0. 16 0. 11

3. 28

1. 250. 81 0. 75 0. 67 0. 55

00. 5

11. 5

22. 5

33. 5

神华集团 中煤集团 山西焦煤集团 同煤集团 淮南矿业集团 潞安矿业集团

2000年 2009年

2. Development of Coal Industry

• A continuous growth of coal production, significantly ensuring national energy supply.

– The global total coal production was 6,690 Mt in 2009, 3,050 for China, accounting for 45.6% of the total (accounting for 28% in 2000)

2. Development of Coal Industry

Comparison of Coal Production between China and Globe(100 Mt)

13 13. 8 14. 5 16. 7 19. 56 21. 9 23. 8 25. 23 27. 1630. 5

46. 07 48. 19 48. 5251. 88

55. 8558. 87 61. 95 63. 25

67. 8 66. 9

0

10

20

30

40

50

60

70

80

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

中国 世界

2. Development of Coal Industry

• II. The economic structure reform is deepened step by step and the coal market is gradually becoming commercialized. – Accelerate resource integration and mergers and reorganization

s. Five large Coal Groups in Shanxi, Zhongping Energy Chemical Group and Henan Coal Chemical Industry Group in Henan.

– Resource integration & large coal groups crossing different regions: the western and northern part of China including Xinjiang, Inner Mongolia and Shaanxi are the priorities for coal enterprises to explore resources.

– Diversified investing bodies as more and more non-coal enterprises invest in coal industry by means of joint stock, merger and direct investment: the top five Groups of power generation, chemical groups, non-ferrous metal groups, etc.

– The annual production in Erdos of Inner Mongolia was up to 330 Mt in 2009; five large-sized coal mines are planned to be built in Qingyang of Gansu with an annual production of 60 Mt each.

2. Development of Coal Industry

• III. Coal production are transferring into great sized, large scaled and modernized.

– The production from large-and-medium sized coal mines increased to 70% of

the total.

– In 2009, the production from the top ten coal enterprises was 960 Mt,

accounting for 31.48% of the national.

– 434 large-sized coal mines with an annual production of over 1.2 Mt, with an

assessed capacity of 1,263 Mt accounting for 50.62 of the total.

– 24 super large-sized coal mines with an annual production of over 10 Mt, with

a capacity of 320 Mt.

0

10

20

30

40

50

60

年

/%

比例

重点煤矿 地方煤矿 乡镇煤矿

1990-2008,The Production Rate of Three Ownership Coal Mines

2. Development of Coal Industry

IV. An overall steady improvement of work safety situation Coal enterprises invest more on work safety, strengthen two primary

tasks of gas control and rectification & closure, and enhance their safety capacity.

• The total collieries were reduced from 24,813 in 2005 to the current 15,000 or so, with a large decrease in main coal producing provinces.

• In 2009, 6.4 billion m3 coal mine gas was extracted, over 1 billion m3 coalbed methane was extracted from surface well, with 1.9 billion m3 utilized.

• The total fatalities were reduced from 5,938 in 2005 to 2,631 in 2009, dropping by 55.6% (reduced 826 annually in average)

• The fatality rate per 1 Mt coal production was reduced from 2.811 to 0.892, dropping by68.3%.

CBM/CMM Recovery and Utilization in China

CBM Recovery with Surface Wells– Since early 90’s in 20century, China began to drill surface w

ells for CBM recovery.– By the end of 2008, a total of 3400 wells have been drilled in

China, and CBM production capacity reached about 2 billion m3. In particular,1453 CBM wells were drilled in Jincheng Anthracite Mining Group with the production capacity of 600 million m³. In 2008, Jincheng produced 376 million m³ of CBM from surface wells

0

0. 5

1

1. 5

2

2. 5

3

3. 5

4

阳泉 晋城 淮南 松藻 水城 盘江 淮北 鸡西 铁法 抚顺

20002002200420062007

CBM/CMM recovery of top ten coal mine companies （ 100 M m3 ）

2008， Jincheng coal Group,CMM/CBM output to 776Mm3 ， CMM400Mm3 ， CBM376Mm3 。

3. Challenges for Sustainable Coal Development

Coal Resource

Safety

Environment

Low Carbon and CO2 Emission

3.1 Coal Resources

Abundant Coal Resources but Undesirable Conditions Reverse distribution between coal resources and the

level of economic development as well as water resources

3.2 Safety Total number of accidents still bigger. Big gap with advanced

countries. Fatality rate is 32 times of the US and 14.6 of South

Africa, 8 of Poland,6 of India.

year Coal output Total fatalities

Fatality rate

China 2009 30.5 2631 0.892

American 2008 10.6 30 0.028

Australia 2008 4.3 0 0

UK 2008 0.18 0 0

South Africa 2007 2.48 15 0.061

Poland 2007 1.36 14 0.11

India 2007 4.78 69 0.15

1998-2008,CMM/CBM Recovery and Utilization （ 100Mm3 ）

0

10

20

30

40

50

60

70

1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

RecoveryUse

3.2 Safety

3.3 Environment

• Total subsided land area caused by coal mining has amounted to 0.8 million hm2, with annual addition at 40 thousand hectares. only 12% reclaimed.

• In 2007, waste water discharges from coal mines in China reached about 6 billion cubic meters with only 26% of them being utilized

• In 2009, coal mine methane drainage is about 6.4 billion cubic meters and 1.9 billion cubic meters are used with a utilization rate at only 30% .

3.3 Air Pollution The coal-based energy structure has caused severe environment pollution in China: In 2007, the total emissions of SO2 has amounted to 24.681-million-tons, NOx to over 20-million-tons, CO2 to being the top 2 on the world list, for which coal use contributed to 80%, 70%, and 80% .

• The percentage of coal consumed for power generation increased from 20% in 1985 to 50% in 2007. coal-fired power plants represent 45% of national SO2 emissions, 41% of NOx, 30% of particulates and 40% of national CO2 emissions.

• Coal-fired boilers with Low energy efficiency and huge waste of coal resources. the actual combustion efficiency is often lower at 60% to 65% with some as low as 30% to 40%.

3.4 Low Carbon and CO2 Emission Reduction

0

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15

20

25

30

35

40

45

50

2015 2030 2015 2030 2015 2030

参考情景 替代政策情景 高增长情景

能源需求量（亿吨标油）

生物质和废弃物水电核电天然气石油煤炭

Predictions on China Energy Demand Based on Different Scenarios (World Energy Outlook 2007)

4. Future Strategy and Measures

“Six Transformation” for China’s energy development: transformation from stressing ensuring supply to foster consumption and regulate

and control in a scientific manner; transformation from mainly depending on coal to develop diversified green and lo

w-carbon energy; transformation from excessively relying on domestic energy to lay equal stress o

n domestic development and international cooperation; transformation from ecological and environmental protection lagging behind ener

gy development to the coordinated development of both; transformation from the resources-based development mode to technological inn

ovation-driven mode; transformation from separated development of each kind of energy to compleme

ntary and systematic interconnection of all kinds.

Resources

• Continue to suspend Mineral Exploration Right:

As of March 2009, Ministry of Land and Resources issued the “Notice Concerning to Continue to Suspend Accepting the Application for Mineral Exploration Right”. The authority temporarily stopped to accept new application for mineral exploration right till March 31, 2011. It aimed to balance the oversupply of coal and keep its production steady through controlling the total amount of acceptance for mineral exploration right.

• Coal resource integration: As of April 15 2009, Shanxi Province issued the “Notice Concern

ing Relevant Issues to Further Advance Mergers, Reorganizations and Integration of Coal Enterprises”, the targeted controlled mines were reduced from the previous 1,500 to the current 1,000.

In 2010, coal resource integration will kick off in many provinces (autonomous regions) including Inner Mongolia, Shandong and Henan.

Yankuang Group developed international mergers and explore overseas re

sources of high quality. In 2004, the Group bought Australia STAR coal min

e, and its annual production in 2009 increased to 1.87 Mt; in 2009, the Grou

p bought the 100% stock of PHOENIX company with 3.3 billion Aus. Dallars,

getting 2,000 Mt coal reserves, including 4 producing coal mines, 2 coal mi

nes under construction and 3 exploration projects, and an annual productio

n scale of 20 Mt will be established within 5 years. Meanwhile, the Group h

olds 15.4% stock of Newcastle coal port and the corresponding cargo-handl

ing capacity, which was the biggest purchase in Australia for China.

Zhengzhou Coal Mining Machinery Group exported a lot of Coal Mining Ma

chineries. Russia and India are now the largest potential markets. The Grou

p, fully using its advantages of price and technology, created the brand of

“ZMJ” hydraulic support.

Accelerated overseas development of coal industry

Shenhua Group won the bid to explore coal in Mongolia, the

Tavan Tolgoi coal mine is only a few kilometers from China’s

border with a coking coal reserve of 6,400 Mt.

Kailuan Group registered and established, in December of 2

009, Zhonghe Investment Company in Canada to explore its

coking coal of high quality.

China National Coal Group exported fully mechanized roof c

aving equipment and techniques to India and Russia, and bo

ught the chain-making technology, equipment and sales cha

nnel from British Parsons Company.

• Re-construction and transformation of the main coal areas are the key points to reduce fatality

0

10000

20000

30000

40000

50000

60000

70000

山西

内蒙

陕西河南

山东贵州

安徽

黑龙江河北

云南四川

新疆

湖南辽宁

宁夏

重庆甘肃

吉林江西

江苏

福建青海

湖北北京

广西

浙江

/产量（万吨）

2008 ， total coal output up to 1380Mt injin Shaan Inner Mongolia and Ning accounts for 49.55%, fatality accounts fatality rate 0.35

Safety

0

10000

20000

30000

40000

50000

60000

70000

山西内蒙陕西河南山东贵州安徽

黑龙江 河北云南四川新疆湖南辽宁宁夏重庆甘肃吉林江西江苏福建青海湖北北京广西浙江

/产量（万吨） Coal output in Hunan Hubei Guang

xi Sichuan guizhou Yunan Jiangxi Jilin Qinghai and Beijing account for 17.8% ， but fatality accounts 58% 。

Township coal mines has serious problems on safety

• Gas special control: as of April 2009, NDRC issued the “Notice Concerning to Conduct Gas Special Control at Small Coal Mines”, targeting small-sized coal mines with a annual production of 300,000 tons and below, starting from 2009.4~2010.6.

Supply and price

• The Government stands in the middle of the thermal coal price negotiation: since 2009, NDRC basically has stood in the middle of the thermal coal price negotiation, letting the two sides of the contract negotiate by themselves, which, to some extend, is beneficial to coal enterprises.

• Increasing the efficiency of supply chain is one of the key resorts to balance the relations between coal supply and demandA coal storage system should be established covering economically developed regions. This system would transfer the current strongly-interconnected supply chain system into relatively moderately-interconnected supply chain system, which helps to ease transportation pressure and balance the relations between coal supply and demand.

• Take neighboring countries and regions as the buffer to adjust the relations between coal supply and demand.China has now become a net coal importer, however in terms of the overall balanced relations between coal resources supply and demand, it should consider to utilize the influence from economies of its neighboring countries and regions to the relations between coal supply and demand of themselves as the leverage to adjust the domestic relations between coal supply and demand.

• Build a sound coal price discovery mechanism and risk avoiding mechanism.

At present, the price discovery mechanism in domestic coal market needs to be improved. The main coal producing companies should start and build a mechanism of spot markets and future markets, so that the coal price discovery mechanism and risk avoiding mechanism can be improved through the market tool. Besides, a China Coal Price Index System will be established on the basis of the mechanism of spot markets and future

To control the gross coal consumption based on the emission caps

The control objective of the air pollutants‘ total emission is based on the whole country’s S-N deposition critical loads, atmospheric environmental quality, technology of pollution control and so on up to three factors.2015, 2020 and 2030: Sulfur dioxide emissions to be controlled at 19 million tons, 17 million tons and 14 million tons; nitrogen oxides emissions to be controlled at 21 million tons, 19 million tons and 15 million tons.

National Target of Emission Caps for Atmosphere Pollutants in a Long and Middle Term

Environment

Apply paid-use system of coal mining rights ， Quicken the reform of coal resource tax policy

Establish the eco-environment compensation system in coal mining industry Implement environment treatment security system

Further the reform and improvement of pollutant emission charge system Quicken the steps of making and implementing environmental tax system

Further the application of the electric power subsidy policy for environmental protection

Overall implementation of paid-use system for pollutant emission allowance Active experiment of emission trade in electric power industry

Promote sustainable coal mining using economic approaches

• Promoting Development Clean Coal Technology and Advanced Power Generation System

• CCS R&D and Pilots

• 山西 2007 年 4月发布《山西省煤炭工业可持续发展政策措施试点工作总体实施方案》，计划投入 1400 亿元，用 10年时间治理全省煤矿区生态环境；

• 恢复治理内容主要包括：地表沉陷治理、煤矸石治理、水资源保护、土地复垦、水土保持、矿区造林绿化、植被恢复、生物多样性保护、煤场和集运站除尘、污水处理和中水回用、矿区居民环境条件改善、生态环境监管能力建设等；

• 资金筹措渠道：矿山环境治理恢复保证金、煤炭可持续发展基金等可筹集 1000 亿元左右，其余约 400亿元资金缺口将通过中央财政转移支付、地方政府投入解决，同时将鼓励引导民间资本参与煤矿生态环境恢复治理工程

5. 煤炭与环境政策

• 2007 年内蒙古颁布《内蒙古自治区矿产资源有偿使用管理办法（试行）》

• 根据该办法，国土资源行政主管部门负责核定矿山企业的开采面积、矿产品销售量及矿山企业分年应预提的保证金，并列入企业成本，按照“企业所有、政府监督、专款专用”的原则管理

• 内蒙古矿山地质环境治理严格执行地质环境影响评价制度，如采矿权发生转让的，由获得采矿权的新采矿权人接替承担矿山地质环境治理责任。责任人已经灭失的矿山地质环境问题，由旗县级以上人民政府依据《内蒙古自治区矿山地质环境治理规划》逐步进行治理

China’s Economic Policies of CMM Drainage and Utilization

Technologies and measures for coal mine safety Preferential policies of reducing or waiving taxes and

charges Power generation onto grid with CMM Supported price policies for civilian used CMM Policies of enlarging franchises of CMM international

cooperation

Measures for coal mine safety

• Investment of 3 billion RMB/year from the central gov

ernment & 64.1 billion RMB/year from enterprises an

d local governments since 2005

• Investment of 3 billion RMB/year from the central gov

ernment in the following 3 years

• Pre-tax appropriation of safety cost: 15—20 Yuan RM

B/ton

• 40 Yuan RMB/ton in Shanxi Province; 60 Yuan RMB/t

on in Huainan, Anhui Province

Enterprises that directly explore and extract CMM on the ground can, in accordance with related government provisions, apply to reduce or waive charges of exploring and mining rights before 2020. Temporarily, no resource tax is imposed.

For CMM extracting enterprises, policy of “refund value-added tax after collection” is implemented to CMM extraction and sales. Enterprise income tax are not imposed to those that are engaged in CMM technology research and expand reproduction with the refunded tax.

Double declining balance method or sum-of-the-years-digits method are applied to the CMM extracting equipment in order for accelerated depreciation.

Preferential policies of reducing or waiving taxes and charges

Preferential policies of reducing or waiving taxes and charges

40% investment for the home equipment in the technical reconstruction projects with loan or self-possessed funds can be offset from the newly added enterprise income tax (compared with the year before the home equipment are purchased.)

As to the CMM enterprises’ research and development charges of new technologies and processes, 50% pre-tax deduction of the actual amount of the year is allowed, on the basis of 100% deduction in accordance with related provisions.

Import duty or value-added tax are not imposed to equipment, instrument, accessories and special tools for CMM exploration and extraction.

Policy of fiscal subsidies

• The central government will grant a subsidy of 0.2 Yuan/m3 net CMM to enterprises that extract CMM as civilian fuel gas, chemical industry raw materials, etc.

• On the basis of that, local governments can, according to the local condition of CMM development and utilization, grant subsidies to CMM enterprises. There is a subsidy of 0.05 Yuan/m3 for civilian used CMM in Shanxi; Hebei and Liaoning are working to make a specific subsidy standard to CMM development and utilization from local provincial governments.

Power generation onto grid with CMM

Coal mine enterprises are encouraged to generate power through CMM, and self-use is also allowed.

CMM power generating sets of over 500 kilowatts/unit capacity are encouraged.

No market auction and peak load regulation of power grid in CMM power plants.

CMM network electricity price is similar with the price of biomass power generation (A subsidy of 0.25 Yuan/kilowatt-hour was added to local standard price of network electricity of desulphurization coal combustion sets in 2005.)

Mining rights management

• The two sides should negotiate to cooperate or sign a work safety agreement, when an overlap of coal and CMM mining right happens.

• If no agreement can be reached, the land and resources department shall mediate according to related provisions. If the mediation doesn't work, the land and resources department shall, by the principle of “integrated coal mining and gas extraction & mutually considering coal mining and gas extraction ”, encourage coal mining enterprises to comprehensively explore and extract CMM.

Supported price policies for civilian used CMM

The factory gate price for civilian used CMM is negotiated and determined by suppliers and demanders.

The sales price for civilian used CMM outside the urban public gas transmission and distribution system is negotiated and determined by suppliers and demanders; the sales price for civilian used CMM inside the urban public gas transmission and distribution system and within the government management scope is determined by the principle of maintaining a reasonable price ratio relation of equivalent heat value with alternative fuel including natural gas.

Policies of enlarging franchises of CMM international cooperation

In addition to China United Coalbed Methane Corp.ltd., some other enterprises will be chosen to be experimental units of CMM cooperative exploration.

Large state-owned coal, oil and gas enterprises entitled to CMM and coal mining are highly encouraged.

CMM drainage in the process of coal enterprises’ mining is not in the scope of international cooperation franchises.

• 完善矿产资源法配套法规体系，制定国家保护性开采特定矿种管理、国家规划矿区管理、矿产资源监督管理等方面的法规。

• 为进一步提高矿产资源生产供应能力，将落实全国矿产资源规划和能源中长期发展规划，切实加强矿山生产能力建设，新建一批大中型矿产资源供应基地，加快深海海域和陆域新区油气资源开发，稳定和提高油气产量；发展一批大型矿业企业；建立矿产资源储备制度，利用外汇储备较多的条件，增加国家战略性资源的储备。”

• 我国矿产资源供应保障能力不容乐观，矿产资源管理压力加大，体制改革、机制创新、政策调整的要求非常迫切。

生产总量控制指标、出口配额、调整贸易税率

（ 1）煤矿安全经济政策 • 2005 年起，国家每年提供 30亿资金用于煤矿安全项目，其中大部分用于瓦斯抽采项目，正在申请今后3年 30亿

• 吨煤税前提取 15－ 20元／吨• 山西 40元／吨；安徽淮南 60元／吨

• (1) Economic policies for coal mine safety• Central Government provides 3 billion RMB for coal mine safety proje

cts each year, most of which is used for mine gas recovery projects.• Coal mines can collect 15-20 RMB per ton of coal from coal sales for

mine safety projects． 40 RMB in Shan Province

6. 煤层气开发利用鼓励政策 6.Policies for BM/CMM Recovery and Utilization

(2) 政府补贴政策• 上网电价比照生物质发电上网电价（当地 2005 年脱硫燃煤机组标杆

上网电价加补贴 0.25 元 /千瓦时）• 中央财政按 0.2 元 / 立方米煤层气（折纯）标准对煤层气开采企业进

行补贴• Higher price of electricity generated by use of CBM/CMM ， 0.25 RMB

/kwh over regular price of electricity with de-sulfur system

• Subsidy for methane recovery: 0.2 RMB/m3

6. 煤层气开发利用鼓励政策 6.Policies for BM/CMM Recovery and Utilization