Illegal Power Plants in China

Illegal Power Plants, Coal Mines In China Pose Challenge for Beijing
Dec 27, 2006

Illegal Power Plants, Coal Mines In China Pose Challenge for Beijing
Dec 27, 2006
Wall Street Journal, Print Edition
SHAI OSTER
JUBAO VILLAGE, China -- On the edge of this dusty farming hamlet, the massive smokestack of the half-finished Xinfeng Power Plant looms as a monument to China's out-of-control demand for energy.
Unlike two other power plants nearby, Xinfeng isn't supposed to exist. China's electricity regulators never authorized the $362 million coal-burning plant. But in 2004, the provincial government here in northern China's Inner Mongolia ignored Beijing's call to slow down investment and started building the plant anyway, hoping to ensure enough juice for the region's supercharged industrialization by tapping its rich reservoirs of coal.
Inner Mongolia's disobedience might have escaped notice. But in July 2005, in the rush to finish the plant before regulators found out about it, the housing for a turbine collapsed, killing six workers. During the yearlong investigation that followed, the central government discovered that Inner Mongolia had illegally built about 10 power plants, or 8.6 gigawatts of electricity-generating capacity -- equal to about a 10th of the United Kingdom's total capacity.
The illegal plants have had unintended -- and detrimental -- consequences. By eschewing even basic environmental safeguards, they stand out as polluters even in an industry that is one of China's leading sources of emissions, officials say. They also have driven up the demand for and price of coal, the country's most abundant source of fuel. That, in turn, has spawned thousands of illegal coal mines that have contributed to more than 4,000 coal-mining deaths in China this year.
The illegal power plants show how China's economic transformation is outpacing Beijing's ability to manage it. Never before has a country with such a big population grown as rapidly as China. The country's economy has expanded an average 10% a year since the late 1970s. The process of economic modernization is happening twice as fast in China as it did in the U.S. or Japan, where it took half a century or more.
One fifth of the power plants in China are illegal, according to government estimates -- enough to light up all of the U.K. While the electricity they supply is essential to power China's growth, the uncontrolled manner in which they are multiplying, often under the protection of local authorities, poses a challenge to Beijing's authority and its grip on energy policy.
"It is impossible for our central government to go everywhere to see, when the small power plants start building," said Zhang Guobao, vice chairman of the National Development and Reform Commission, China's top energy policy planner, in an interview.
The central government is likewise finding it hard to crack down on illegal coal mines. In past years it has shut down thousands of mines -- only to see thousands more spring up in their place. The primary reason: the soaring profits to be made from selling coal to China's power plants are a powerful temptation. Many regions have embraced coal mining to boost their growth rates, including Inner Mongolia, one of China's most coal-rich provinces.
Infuriated by the illegal Xinfeng power plant, central-government officials earlier this year demanded that the province's top leadership present self-criticisms before China's powerful State Council, or cabinet. Under China's Communist system, that's an unusually public form of rebuke, designed to send a message to others against defying Beijing's will.
Even so, construction continues today at the Xinfeng plant nearly a year after Beijing ordered it stopped. Officials at the company building the plant say they expect to get approval to complete it "sooner or later."
In China, more power plants almost invariably mean more coal consumption. The country has been unable to diversify away from coal, which is cheaper than alternative fuels, some of which are imported.
But China's coal consumption is costly in human and environmental terms. Amid the push to feed the country's power plants last year, 5,938 coal miners were killed in accidents, mostly in smaller, illegal mines. Such accidents are so commonplace here that only the larger ones rank as news.
Coal is one of the biggest pollution sources in China, which some experts think is on the verge of an environmental crisis. This year, the central government set a target of reducing the amount of energy the country consumes relative to its economic output. But the soaring demand for coal-fueled electricity has upended Beijing's efforts to rein in pollution.
"It will be very difficult to realize our targets of saving energy and reducing pollution," Ma Kai, China's top economic policy planner, said this fall.
The implications of China's mushrooming hunger for energy go far beyond its own borders. As incomes rise in China, energy use per person is starting to catch up with the richer West. The typical American consumes about eight metric tons of oil a year, or its equivalent in coal and other fuels. Japanese consume about half that sum. In China, per capita energy consumption now stands at just 1.2 metric tons.
It would require a doubling of world oil production -- an impossible feat -- for every Chinese to live the energy-intensive lifestyle of an American, as well as more coal than some believe China could ever dig up.
"We can't copy the big home and the big car" that so many Americans enjoy, said Zhou Dadi, a top researcher with the Energy Research Institute, a government-backed think tank. "It's just not doable."
China's current energy predicament is rooted in the decision it made three decades ago when it began to embrace a market economy. For the first 20 years of its transition, as China shifted from a mostly agrarian country to light industry, it was able to quadruple the size of its economy while only doubling its energy needs.
Throughout the 1990s, however, a new and faster phase of expansion quietly took hold as the government loosened restrictions on investment and the mobility of its citizens, accelerating China's industrialization and urbanization. Manufacturing accounted for a steadily greater share of the economy. Energy-intensive heavy industries boomed, from petrochemicals to auto production, aided by China's entry into the World Trade Organization in 2001.
Low energy prices, made possible in part by government controls, encouraged consumers to use more. Coal consumption initially crept up slowly, to around 1.5 billion metric tons a year in the mid-1990s, from just under one billion metric tons a year a decade earlier. Last year, however, China consumed about 2.2 billion metric tons of coal, one-third of the world's total and more than any other country.
Beijing's efforts to reduce reliance on coal have largely failed. China has plenty of coal -- an estimated 114.5 billion metric tons of recoverable reserves. Only the U.S. and Russia have more. Natural gas, which burns more efficiently and causes far less pollution, has proved too expensive to compete effectively. Planned increases in nuclear-power production would fill only a fraction of China's energy demand. Even China's more-ambitious plans for hydropower power and wind farms won't seriously challenge coal's dominance.
Coal miners are on the front lines of the battle to meet China's energy needs. It is dangerous work. As with power plants, China's government has had great difficulty regulating coal mines. In the U.S., which produces about half as much coal as China, 47 miners have been killed so far this year, up from 22 last year. In China, the number of deaths has declined slightly this year, but it is still enormous: 4,236 dead so far.
The number of casualties goes up in the winter. More than 400 miners died in November alone. "In winter, demand goes up, the market prices go up, and the profit motive goes up," said Huang Yi, spokesman for the State Administration of Worker Safety, the agency that investigates mine accidents.
Smaller, often inefficient, and dangerous mines account for about a third of China's coal production. They are so important to meeting its energy needs that the central government recently delayed plans to improve safety by shuttering many of them.
Whole regions of China are pockmarked with tiny, illegal mines like the one in Wangyu in central China's gritty Shanxi province, where an accident in early November killed 34 miners. Four tons of demolition explosives illegally stored in a shaft caught fire and destroyed the small mine, according to government safety officials. The dead, who had just started the night shift, were mostly from the same village some 250 miles away.
Wang Chenliang, from Sichuan province, had just ended his shift when the explosion occurred. He rushed back to help with rescue efforts. He and others pulled survivors from the wreckage and pumped air into the mine to aid anyone who was trapped but still alive.
"This work is tiring and dangerous," Mr. Wang said a few days after the accident, only moments before police detained a journalist attempting to interview survivors. Like others, he got his job through introductions from fellow villagers. "We came here to earn money. The money here is much higher than back home in Sichuan."
The mine's safety certificate and production permit had both expired, according to central-government officials. But the local government was protecting it, they said, because it held a financial interest in the mine.
That sort of corruption is common. Last year, the central government found that more than 4,500 government officials illegally held stakes in coal mines and frequently covered up safety violations. Many of these mines lack basic safety equipment. Workers scrabble down narrow pits, where the most modern tools may be the sticks of dynamite used to dislodge the coal. At the accident site in Wangyu, there was no rescue equipment on hand, another common problem.
Over the past few years, provincial officials in Inner Mongolia have decided to build power plants and encourage heavy industry to relocate to the region to take advantage of its coal resources. The strategy has paid off in economic terms.
Last year, the province's economy grew 21.6%, roughly double the national rate. In 2004, it grew 19.4%. Industrial output has grown an average 30% a year over the past four years. Such unbridled growth caught China's central government off guard.
In 2003 and 2004, massive power shortages in the south led to rolling blackouts. Local authorities across China decided to build power plants, often illegally, to keep their local economies humming. Around that time, officials in Inner Mongolia approved a plan to build the Xinfeng Power Plant in the small town of Fengzhen, in a bid to attract more factories.
"Inner Mongolia has a lot of coal. Other parts of China need the electricity. Of course Inner Mongolia should take advantage of its natural resources," said Yan Keji, a construction worker at one of the three power plants near Jubao.
It isn't just heavy industry that needs power. China's consumers are using more, too. Mr. Yan's hometown in the mountains of Hunan didn't have electricity until 1990. At first, his house had one light bulb. Now, the money he earns from construction has paid for a television, washing machine, refrigerator and air conditioning, a pattern repeated in millions of homes across China as people get richer.
China's sprawling cities are also driving up power demand. Inner Mongolia now provides Beijing with 20% of its electricity, according to Jim Brock, an independent energy consultant in the Chinese capital.
Nearly two years ago, China's central government started cracking down on the unauthorized power plants because they feared a surplus of power. In Inner Mongolia, local officials ignored orders to stop building the Xingfeng plant, figuring they could always get retroactive approval, according to the official Xinhua news agency. But the death of the six workers in July 2005 set in motion the investigation that culminated in the public castigation of the provincial chief and the order to stop work on Xinfeng.
Some construction work on the plant continues. Workers interviewed at the site said the plant would be able to produce electricity next year. They declined to give their names.
Na Guiting, an official at Inner Mongolia Energy Generation Investment Co. Ltd., the plant's owner, said the company is eager to finish building and has reapplied for approval. "Mongolia still has a very serious power shortage. If Xinfeng would be approved, it could be generating in three or four months," the official said.
--Kersten Zhang contributed to this article.
Write to Shai Oster at shai.oster@dowjones.comSHAI OSTER
JUBAO VILLAGE, China -- On the edge of this dusty farming hamlet, the massive smokestack of the half-finished Xinfeng Power Plant looms as a monument to China's out-of-control demand for energy.
Unlike two other power plants nearby, Xinfeng isn't supposed to exist. China's electricity regulators never authorized the $362 million coal-burning plant. But in 2004, the provincial government here in northern China's Inner Mongolia ignored Beijing's call to slow down investment and started building the plant anyway, hoping to ensure enough juice for the region's supercharged industrialization by tapping its rich reservoirs of coal.
Inner Mongolia's disobedience might have escaped notice. But in July 2005, in the rush to finish the plant before regulators found out about it, the housing for a turbine collapsed, killing six workers. During the yearlong investigation that followed, the central government discovered that Inner Mongolia had illegally built about 10 power plants, or 8.6 gigawatts of electricity-generating capacity -- equal to about a 10th of the United Kingdom's total capacity.
The illegal plants have had unintended -- and detrimental -- consequences. By eschewing even basic environmental safeguards, they stand out as polluters even in an industry that is one of China's leading sources of emissions, officials say. They also have driven up the demand for and price of coal, the country's most abundant source of fuel. That, in turn, has spawned thousands of illegal coal mines that have contributed to more than 4,000 coal-mining deaths in China this year.
The illegal power plants show how China's economic transformation is outpacing Beijing's ability to manage it. Never before has a country with such a big population grown as rapidly as China. The country's economy has expanded an average 10% a year since the late 1970s. The process of economic modernization is happening twice as fast in China as it did in the U.S. or Japan, where it took half a century or more.
One fifth of the power plants in China are illegal, according to government estimates -- enough to light up all of the U.K. While the electricity they supply is essential to power China's growth, the uncontrolled manner in which they are multiplying, often under the protection of local authorities, poses a challenge to Beijing's authority and its grip on energy policy.
"It is impossible for our central government to go everywhere to see, when the small power plants start building," said Zhang Guobao, vice chairman of the National Development and Reform Commission, China's top energy policy planner, in an interview.
The central government is likewise finding it hard to crack down on illegal coal mines. In past years it has shut down thousands of mines -- only to see thousands more spring up in their place. The primary reason: the soaring profits to be made from selling coal to China's power plants are a powerful temptation. Many regions have embraced coal mining to boost their growth rates, including Inner Mongolia, one of China's most coal-rich provinces.
Infuriated by the illegal Xinfeng power plant, central-government officials earlier this year demanded that the province's top leadership present self-criticisms before China's powerful State Council, or cabinet. Under China's Communist system, that's an unusually public form of rebuke, designed to send a message to others against defying Beijing's will.
Even so, construction continues today at the Xinfeng plant nearly a year after Beijing ordered it stopped. Officials at the company building the plant say they expect to get approval to complete it "sooner or later."
In China, more power plants almost invariably mean more coal consumption. The country has been unable to diversify away from coal, which is cheaper than alternative fuels, some of which are imported.
But China's coal consumption is costly in human and environmental terms. Amid the push to feed the country's power plants last year, 5,938 coal miners were killed in accidents, mostly in smaller, illegal mines. Such accidents are so commonplace here that only the larger ones rank as news.
Coal is one of the biggest pollution sources in China, which some experts think is on the verge of an environmental crisis. This year, the central government set a target of reducing the amount of energy the country consumes relative to its economic output. But the soaring demand for coal-fueled electricity has upended Beijing's efforts to rein in pollution.
"It will be very difficult to realize our targets of saving energy and reducing pollution," Ma Kai, China's top economic policy planner, said this fall.
The implications of China's mushrooming hunger for energy go far beyond its own borders. As incomes rise in China, energy use per person is starting to catch up with the richer West. The typical American consumes about eight metric tons of oil a year, or its equivalent in coal and other fuels. Japanese consume about half that sum. In China, per capita energy consumption now stands at just 1.2 metric tons.
It would require a doubling of world oil production -- an impossible feat -- for every Chinese to live the energy-intensive lifestyle of an American, as well as more coal than some believe China could ever dig up.
"We can't copy the big home and the big car" that so many Americans enjoy, said Zhou Dadi, a top researcher with the Energy Research Institute, a government-backed think tank. "It's just not doable."
China's current energy predicament is rooted in the decision it made three decades ago when it began to embrace a market economy. For the first 20 years of its transition, as China shifted from a mostly agrarian country to light industry, it was able to quadruple the size of its economy while only doubling its energy needs.
Throughout the 1990s, however, a new and faster phase of expansion quietly took hold as the government loosened restrictions on investment and the mobility of its citizens, accelerating China's industrialization and urbanization. Manufacturing accounted for a steadily greater share of the economy. Energy-intensive heavy industries boomed, from petrochemicals to auto production, aided by China's entry into the World Trade Organization in 2001.
Low energy prices, made possible in part by government controls, encouraged consumers to use more. Coal consumption initially crept up slowly, to around 1.5 billion metric tons a year in the mid-1990s, from just under one billion metric tons a year a decade earlier. Last year, however, China consumed about 2.2 billion metric tons of coal, one-third of the world's total and more than any other country.
Beijing's efforts to reduce reliance on coal have largely failed. China has plenty of coal -- an estimated 114.5 billion metric tons of recoverable reserves. Only the U.S. and Russia have more. Natural gas, which burns more efficiently and causes far less pollution, has proved too expensive to compete effectively. Planned increases in nuclear-power production would fill only a fraction of China's energy demand. Even China's more-ambitious plans for hydropower power and wind farms won't seriously challenge coal's dominance.
Coal miners are on the front lines of the battle to meet China's energy needs. It is dangerous work. As with power plants, China's government has had great difficulty regulating coal mines. In the U.S., which produces about half as much coal as China, 47 miners have been killed so far this year, up from 22 last year. In China, the number of deaths has declined slightly this year, but it is still enormous: 4,236 dead so far.
The number of casualties goes up in the winter. More than 400 miners died in November alone. "In winter, demand goes up, the market prices go up, and the profit motive goes up," said Huang Yi, spokesman for the State Administration of Worker Safety, the agency that investigates mine accidents.
Smaller, often inefficient, and dangerous mines account for about a third of China's coal production. They are so important to meeting its energy needs that the central government recently delayed plans to improve safety by shuttering many of them.
Whole regions of China are pockmarked with tiny, illegal mines like the one in Wangyu in central China's gritty Shanxi province, where an accident in early November killed 34 miners. Four tons of demolition explosives illegally stored in a shaft caught fire and destroyed the small mine, according to government safety officials. The dead, who had just started the night shift, were mostly from the same village some 250 miles away.
Wang Chenliang, from Sichuan province, had just ended his shift when the explosion occurred. He rushed back to help with rescue efforts. He and others pulled survivors from the wreckage and pumped air into the mine to aid anyone who was trapped but still alive.
"This work is tiring and dangerous," Mr. Wang said a few days after the accident, only moments before police detained a journalist attempting to interview survivors. Like others, he got his job through introductions from fellow villagers. "We came here to earn money. The money here is much higher than back home in Sichuan."
The mine's safety certificate and production permit had both expired, according to central-government officials. But the local government was protecting it, they said, because it held a financial interest in the mine.
That sort of corruption is common. Last year, the central government found that more than 4,500 government officials illegally held stakes in coal mines and frequently covered up safety violations. Many of these mines lack basic safety equipment. Workers scrabble down narrow pits, where the most modern tools may be the sticks of dynamite used to dislodge the coal. At the accident site in Wangyu, there was no rescue equipment on hand, another common problem.
Over the past few years, provincial officials in Inner Mongolia have decided to build power plants and encourage heavy industry to relocate to the region to take advantage of its coal resources. The strategy has paid off in economic terms.
Last year, the province's economy grew 21.6%, roughly double the national rate. In 2004, it grew 19.4%. Industrial output has grown an average 30% a year over the past four years. Such unbridled growth caught China's central government off guard.
In 2003 and 2004, massive power shortages in the south led to rolling blackouts. Local authorities across China decided to build power plants, often illegally, to keep their local economies humming. Around that time, officials in Inner Mongolia approved a plan to build the Xinfeng Power Plant in the small town of Fengzhen, in a bid to attract more factories.
"Inner Mongolia has a lot of coal. Other parts of China need the electricity. Of course Inner Mongolia should take advantage of its natural resources," said Yan Keji, a construction worker at one of the three power plants near Jubao.
It isn't just heavy industry that needs power. China's consumers are using more, too. Mr. Yan's hometown in the mountains of Hunan didn't have electricity until 1990. At first, his house had one light bulb. Now, the money he earns from construction has paid for a television, washing machine, refrigerator and air conditioning, a pattern repeated in millions of homes across China as people get richer.
China's sprawling cities are also driving up power demand. Inner Mongolia now provides Beijing with 20% of its electricity, according to Jim Brock, an independent energy consultant in the Chinese capital.
Nearly two years ago, China's central government started cracking down on the unauthorized power plants because they feared a surplus of power. In Inner Mongolia, local officials ignored orders to stop building the Xingfeng plant, figuring they could always get retroactive approval, according to the official Xinhua news agency. But the death of the six workers in July 2005 set in motion the investigation that culminated in the public castigation of the provincial chief and the order to stop work on Xinfeng.
Some construction work on the plant continues. Workers interviewed at the site said the plant would be able to produce electricity next year. They declined to give their names.
Na Guiting, an official at Inner Mongolia Energy Generation Investment Co. Ltd., the plant's owner, said the company is eager to finish building and has reapplied for approval. "Mongolia still has a very serious power shortage. If Xinfeng would be approved, it could be generating in three or four months," the official said.
--Kersten Zhang contributed to this article.
Write to Shai Oster at shai.oster@dowjones.com