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Structural Adjustment Policies of Korea’s Coal Industry
1 besides Jin Sung Chung
May, 2013
List of Chapters



Chapter 1

Chapter 2
Background of the Coal Industry Rationalization Policies
1. A Short History of the Coal Industry in Korea
   1.1. The Colonial Period: the Birth of the Coal Industry in Korea
   1.2. 1945-56: Growth of State-Operated Coal Mines
   1.3. 1957-68: Growth of Privately-Operated Coal Mines
   1.4. 1969-79: Increasing Production through Subsidy Policy
   1.5. 1980-86: Increase of Small Mines
2. Decline of the Coal Industry
   2.1. Structural Change of Energy Consumption
   2.2. Declining Price Competitiveness of Anthracite in the 1980s
   2.3. Deterioration of Coal Mines’ Management Performance
   2.4. Unsuccessful Coal Policies


Chapter 3

Creating the Adjustment Policies
1. The Process of Creating
   1.1. ‘The Proposal for the Development and Rationalization of Coal Mines’: the New Coal Policy
   1.2. From EPB Plan to the Final Plan
2. Law and Institution
   2.1. Legislation and Amendment of the Coal Industry Act
   2.2. Establishment of the Coal Industry Promotion Board
3. Financial Resources
   3.1. The Coal Industry Subsidy
   3.2. Coal Industry Stabilization Fund
   3.3. Coal Industry Promotion Fund


Chapter 4

Execution of the Rationalization
1. Scrap-down
   1.1. Procedure for Mine-closing
   1.2. Results of Mine-closing
   1.3. Reactions of Owners and Workers
2. Build-up
   2.1. Build-up of Promising Mines
   2.2. Support for Decreasing Production
3. Coal Price Stabilization
4. Development Policies for the Coal-mining Regions
   4.1. Absence of Development Policies for the Coal-mining Regions
   4.2. Residents’ Initiative
   4.3. The Special Law for Support of the Coal-mining Regions


Chapter 5

1. Effects on the Coal Industry
2. The Role of the Government
   2.1. The Dominant Role of the Government
   2.2. The Decentralized Organization
   2.3. Excessive Dependence upon Subsidy
3. Socio-economic Effects
   3.1. Macro-economic Effects
   3.2. Effects on the Dismissed Workers
   3.3. Revitalization of the Coal-mining Regions

Chapter 6



In the process of economic growth, some industries are growing and some industries are declining. Declining industries can be defined as industries with losing competitiveness. They are no longerable to exploit invested resources efficiently. At the level of the national economy, it is desirable to move inefficiently-used resources to a more productive industry. In the case of high exit barriers existing in the declining industry, the government may execute adjustment policies, which would lower exit barriers to facilitate the shift of resources from the declining industry to a productive industry.

In general, adjustment policies comprise the measures for re-employing the laborers employed in the declining industry, disposal or transfer of the facilities and the revitalization of the community where the declining industry is located. This study aims at scrutinizing the adjustment policies of the Korean coal industry, which proceeded rapidly from the late 1980s to the early 1990s. From the result of the study, we can also expect some solutions for the smooth execution of the adjustment policies.

The demand for anthracite coal plunged since its record high of 26 million tons in 1986. The production of anthracite coal decreased sharply especially since 1989, with the commencement of the adjustment policies, which almost resulted in the disappearance of coal mines within the next several years. Such a rapid and perfectly executed adjustment process is notable.

After the liberation of Korea from Japan, coal mines in South Korea, first under the direct supervision of the U.S. military government office, was managed by KOCOAL, the government corporation, in the 1950s. The Korean War stimulated the demand for coal, which led to the increase of coal production and the growth of private mines. The Korean government helped the establishment of large private coal mines by integrating small mines based on the Temporary Measures Law for Coal Development (legislated in 1962). In 1969, the government stimulated the production with the Temporary Measures Law for Coal Mining Promotion, and ittried to balance the supply and demand ofcoal with the Temporary Measures Law for the Supply-Demand Adjustment in 1975.

The Korean government maintained low coal price policies for price stabilization and low-income households because anthracite was the main fuel for home-heating in Korea. Because the gap between the coal price and the cost was compensated by the subsidies granted by the government, coal mining firms continued growing even with the low revenue. However, the policies prompting production by subsidies resulted in the proliferation of small, low-productivity mines and the deterioration of the coal quality. The Korean government promoted the rationalization of the coal mines with the introduction of machines in the first half of the 1980s. However it failed to restrain the increase of small mines.
Anthracite was losing its advantages as fuel despite the promotional policies for the production of coal in the 1980s. Although the production of coal reached 25 million tons in the mid-1980s, the coal industry declined, due to the change in the energy consumption structure from coal to oil, the loss of price competitiveness to oil and the low performance of the coal mining firms. Furthermore, the subsidies of the coal industry were large financial burden for the government. It became imperative to make adjustment to the coal industry. However, the government, instead of adjusting the industry by closing the inferior mines, continued taking efforts to maintain the coal production level until the middle of the 1980s.

‘The Proposal for the Development and Rationalization of Coal Mines’ (the Proposal), drafted by CIPB established in April of 1987, became the turning point to adjust the coal industry. In the proposal, CIPB suggested ‘Scrap down and build up’ policy, which promoted the high-productivity, low-cost mines and scrapped down the low-productivity, high-cost mines. In December 1987, the rationalization policies of the coal industry based on the proposal were finally approved by the Industrial Policies Council.

Establishing the criteria to classify mines into either scrap-down ones or not, was the most important topic in the proposal, as well as the measures of support for allowing scrap-down mines to exit easily from the coal mining industry. For its criteria, CIPB decided to scrap down the mines whose productivities, calculated in calories, were below the national average. As for the measures of support, CIPB determined the amount of money to be paid to the unemployed miners by compensating their re-employment and moving cost and the scrap-down mines by compensating the exit cost. However, CIPB did not provide the concrete measures for build-up mines, though the rationalization policies comprised the measures for promoting the build-up mines as well as for scrapping down.


The Coal Industry Act, legislated in January 1986, at first, did not include the contents concerning ‘build up and scrap down’, the basic concept of the rationalization policies. Since the amendment in 1988 added the clauses about measures for closing mines, the Coal Industry Act started to function as the basic law for the rationalization policies of the coal mining industry. On the basis of the Coal Industry Act, CIPB and the Coal Stabilization Fund were established. CIPB was the executing institution, and the Coal Stabilization Fund was the financial institution to supply fund for promoting the policies. The value-added-tax on bunker fuel Coil and the Petroleum Enterprise Fund were the most important resources of the Coal Stabilization Fund.

Applications for closing mines, far more than expected, rushed to CIPB as soon as the rationalization policies started. From 1989 to 1995, when the rationalization policies officially ended, 355 mines that had produced 14.4 million tons of coal and employed 33,448 laborers closed. In 1996, only 11 mines remained, producing 4.95 million tons and employing 10,725 laborers.

While it was possible to calculate the amount of money to be provided for transferring and scrapping down mine facilities, there were many difficulties in calculating the amount of money to be paidfor the laborers who lost their jobs. Many small mines did not have the labor management documents necessary to calculate the amount of compensations to laborers.

The unemployment of ex-miners and the impoverishment of the communities, where coal mines were located, were the most evident social problems accompanying the adjustment of the coal industry. The residents of the communities, who lost their livelihoods, resisted most fiercely regarding the closure of mines. However, the proposal did not provide concrete measures for revitalizing the communities. In the final plan of the rationalization determined in the end of 1988, the problems of the impoverished local communities were treated very lightly on the base of optimistic forecasts.
The residents’ autonomous efforts to revitalize their community developed into a civil movement, which resulted in the legislation of ‘the Special Law of Support for the Coal Mining Regions’ (the Special Law) in March, 1995. The purpose of the act was to revitalize the coal mining areas by developing them into tourist attractions or inviting manufacturers as alternative industries to replace the coal industry. Eventually, casinos openedin the coal mining area, attracting native people as well as foreigners.

The result of the scrap-down policies exceeded the expected outcome. It is possible to estimate the rationalization policies as successful in the sense that the decrease of coal production by the policies prevented the huge inventory of coal, which would have had profound negative effects to the coal industry. At the level of the national economy, the rationalization policies brought the effect of reducing financial burden on the government as well as increasing the consumers’ welfare. However, another aim of the policies, the maintenance of the appropriate production level and the promotion of the build-up mine, could not have been accomplished.

The negative results of the rationalization policies were rapid increase of the unemployed miners and the impoverishment of the local communities. There was no systemic training program for re-employment that may have been the only subsidy for the unemployed miners. Though the local communities could receive huge financial aid from the government under the Special Law, the local authorities and the residents could not afford to distribute the aid systemically and rationally. The rationalization policies failed to secure the lives of the unemployed and revitalize the local communities.


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