On 23rd July 2013, Greenpeace published a report titled “Thirsty Coal 2: Shenhua’s Water Grab”, which put China Shenhua Energy Company Limited (China Shenhua)’s Coal-to-Liquid (CTL) Demonstration Project in Ordors, Inner Mongolia under scrutiny. The report, based on 11 site investigation trips by Greenpeace representatives between March and July 2013, disclosed the CTL project’s over-exploitation of groundwater and illegal wastewater discharge activities. [1] It was the first time that Greenpeace singled out and publicly challenged one of China’s most powerful state-owned enterprises. [2]

China Shenhua is the largest state-owned coal conglomerate in China. Commenced in 2002 [3], and located at Majiata Village in Ulan Moron Town (乌兰木伦镇) in Ordos which borders Shaanxi Province, Shenhua’s CTL project is one of the first and largest of its kind in China and also in the world, involving both direct and indirect liquefaction facilities. The CTL production base covers a total area of 1.735 square kilometers (173.5 hectares). [4] The project encompasses four areas of coal related operations, including coal mining, coal-fired thermal power, direct coal liquefaction and indirect coal liquefaction.[3] The coal used by the project comes from the Shenhua Bulianta Coal Mine and the Shenhua Shangwan Coal Mine, both of which are located in the immediate neighborhood of the project site. The main output of petroleum products include diesel, naphtha and liquefied petroleum gas, while supplementary products include industrial crude phenol and industrial sulfur.[5] The first phase of the project had a production capacity of 1.08 million tons of output a year as of 2013, which was expected to further expand to 5 million tons (phase 2 and phase 3) [2][6]. As a capital intensive project, the investment for the first phase of the project is approximately CNY 24.54 billion (USD 3.57 billion) [4][5].

According to Greenpeace, the project requires an average of 10 tons of fresh water per 1 ton of end-product output, while also producing 9 tons of carbon dioxide and 4.8 tons of waste water [5]. When the local water reserves had been exhausted near the project plant, Shenhua turned to the Haolebaoji (浩勒报吉) region in the heart of the Mu Us Desert (毛乌素沙漠), 100 km away from its plant location, to extract water. As of 2013, the project consumed approximately 14.4 million tons of water annually, while coal liquefaction accounts for the largest proportion (47%).[3] Based on the expansion plan of phase 2 and phase 3, it was expected that the project’s water use would triple to 41 million tons a year by 2017, according to Greenpeace. [2] The water extraction affects 2,402 households  (population of 5,752) from five villages (浩勒报吉村, 巴汗淖村, 阿刀亥村, 中乃村, 察汗庙嘎查) in the Haolebaoji farming and pastoral area [5][7]. Greenpeace representatives also noted seepage pits no more than 500 meters from Shenhua’s main office building, where industrial wastewater was being released and left to seep naturally into the ground. Samples of the discharged wastewater were sent to the Shanghai branch of SGS Laboratories and the Greenpeace Laboratory at the University of Exeter. The tests found high levels of harmful substances in the wastewater that was released from the discharge sites, including sulfide, Benzo(a)pyrene, and as many as 99 different types of semi-volatile organic compounds. This contradicts Shenhua’s own claim about its zero-discharge system that ensures zero pollutant discharged into the water cycle. [5]

During Shenhua’s application to build and run the CTL water extraction project, local villagers were never consulted. According to the timeline in Appendix I of Greenpeace’s report, the local villagers from Haolebaoji started to object to the project from as early as 2005.[5] Local villagers sent letters to Shenhua in their initial petition, but the project still went ahead without considering their concerns. In 2011 and 2013, local representatives of the National People’s Congress (NPC) submitted proposals twice in order to urge the municipal government to coordinate with the relevant state ministries and China Shenhua to stop extracting groundwater from the water source of Haolebaoji. [8] The NPC standing committee in Ordos (鄂尔多斯人大常委会) claimed that they were investigating the issue after receiving the feedback from the NPC representatives from Haolebaoji. [8] While the project was not stopped after villagers’ complaints and NPC representatives’ proposals, local villagers started to receive financial compensation of CNY 8,000 (USD 1,161) per year from 2012. However, this could hardly support the local villagers’ livelihood. According to a local NPC representative from Haolebaoji, the local government proposed the plan to relocate local villagers in 2005, but it was not implemented yet as of 2013. [9]

Besides, Shenhua also received fines by the local environmental protection bureaus from Ejin Horo Banner and Ordos municipality (伊金霍洛旗环保局和鄂尔多斯市环保局) in April 2013. According to a representative of Shenhua, the company had treated and reused three to four thousand tons of wastewater at a cost of CNY 120 (USD 17) per ton, as well as cleaned/restored the evaporation pond in response to the environmental protection authorities’ request.[10]

After the publication of the Greenpeace report, Shenhua responded immediately saying that the company took the allegations seriously and would start its own investigations. An environmental protection officer of the company admitted that the project had led to increasing grievances from local herders that tried to block the company’s gates. However, he denied that water extraction was the sole cause of ecological degradation in the reason. [2][6] Shenhua representatives also met with Greenpeace’s representatives to discuss the matter. On 8 August 2013, Shenhua sent to Greenpeace a document which explains the exploration activities at water origin areas and the associated ecological impact. On 16 August 2013, Shenhua followed up with another document that explains its wastewater discharge.[11]

On 26 August 2013, Greenpeace published an open letter to Shenhua to urge the company to be more transparent and respond more specifically to its inquiries regarding ecological degradation and local residents’ livelihood issues. There are three main appeals from Greenpeace: 1) Immediately stop the water pumping activities that destroy the farming and pastoral areas in Haolebaoji region where water has been extracted from 2) Publish, as soon as possible, the results of the reassessments of the impact of the Ordos coal-to-liquid project on water resources and environment 3) Carefully consider the expansion plan of the coal-to-liquid project, based on the principle of “determining production by water”.[12]

On 26 August 2013, two representatives from Greenpeace also brought their campaign to Shenhua’s mid-term financial result press release event in Hong Kong, where Shenhua is listed on the stock exchange.[13] While the Greenpeace representatives pointed to Shenhua’s water extraction and illegal wastewater discharge activities, the executive director and CEO of Shenhua, Ling Wen, denied the allegations and said that the company had obtained the approval of the state to use groundwater legally in the production process and recorded the water level data. He acknowledged that he had received Greenpeace’s open letter already and found it a pity that Greenpeace representatives still insisted on appearing at the press conference. [14] For Greenpeace, it was an occasion where they tried to convey their message to the press and investors, which they had been doing over the years on the topic of coal-related environmental issues. It was also mentioned by the representative of Greenpeace East Asia, that “We published our findings last July, only to find ourselves being faced with severe censorship. Many journalists attended our press conference - few could get their stories published.” This is also one of the reasons that they brought the campaign to Hong Kong, where there is fewer media censorship and also where Shenhua is listed.[13]

In addition to Greenpeace’s campaign efforts, a few other NGOs, including Friends of Nature (自然之友), Nature University (自然大学), the Centre for Legal Assistance to Pollution Victims, got involved and turned to public interest litigation as a tool to seek for legal justice. In mid-July 2013, two lawyers and two experts went on a trip to investigate the site in Ordos. Xie Yan, a researcher from the Chinese Academy of Sciences’ Institute of Zoology, believed that the wastewater dumped by Shenhua’s CTL project near the plant led to the soil contamination and the significant drop in groundwater levels, which echoed the findings included in Greenpeace's report that was published in late July.[10] However, both the Dongcheng District People’s Court in Beijing and the Intermediate People’s Court in Inner Mongolia refused to hear the case. [15][16] It was not a surprise to Hu Shaobo, one of the lawyers involved, since the Civil Procedure Law was only recently revised and that there was not yet detailed rules regarding the implementation, especially which types of entities are eligible to file environmental public interest litigation, as mentioned by Dongcheng District People’s Court.[10] [15] This particular case also led to a specific seminar regarding civil society’s pursuit of public interest litigation against large state-owned enterprises’ environmental pollution activities. The seminar was hosted at China Political and Legal University on 23 October 2013. The experts from environmental law and environmental NGOs agreed that it would be important to expand the scope of entities that are eligible to file environmental public interest litigations, which is a topic under discussion in the revision of the existing Environmental Protection Law of China.[15]

In April 2014, the local government of Haolebaoji announced that Shenhua would stop pumping groundwater in the neighborhood during 2014. [10] Besides, the herders living near water sources in Haolebaoji Township were told by the local government that they would be paid CNY 20,000 (USD 3,200) per person, plus 20,000 per household, as a compensation for the loss of water resources to industry, to be paid over three years. [9] In addition, Shenhua pledged that it had fitted the Ordos site with equipment that would allow it to recycle 98% of the water used there and that the water with high concentrations of pollutants would be treated in evaporation ponds.[17] However, the local villagers reacted cautiously in response to the verdict. On one hand, the villagers mentioned that since the installation of Shenhua’s pipes the Uxin Banner government had twice proposed a relocation plan of the herders, which never happened in reality. The herders also did not have full trust that the water pumping activities of Shenhua would stop in the near future, since it would be hard to find an alternative water source and that the Ordos government promised to provide a secure water supply for the CTL project in order to get the project to be located in Ordos. [10]

In 2017, Shenhua Group merged with China Guodian Corporation, which together became China Energy Investment Corporation (China Energy, 国家能源投资集团). As of 2018, it was announced by the CEO of China Energy, Ling Wen, that the phase 2 and phase 3 of the CTL project is in the preparation stage. [18] The phase 2 and phase 3 of the CTL project are also listed among the key projects in the “13th Five-Year-Plan for demonstration of deep processing of coal” (《煤炭深加工产业示范“十三五”规划》重点项目).[19] While the expansion has been long delayed, it remains unclear, if implemented, how the phase 2 and phase 3 of the Shenhua CTL project in Ordos would deal with the water access and local residents’ livelihood issues.

China Shenhua is the largest state-owned coal conglomerate in China. Commenced in 2002 [3] and located at Majiata Village in Ulan Moron Town (乌兰木伦镇) in Ordos which borders Shaanxi Province, Shenhua’s CTL project is one of the first and largest of its kind in China and also in the world, involving both direct and indirect liquefaction facilities. The CTL production base covers a total area of 1.735 square kilometers (173.5 hectares).[4]

The project encompasses four areas of coal-related operations, including coal mining, coal-fired thermal power, direct coal liquefaction and indirect coal liquefaction. [3] The coal used by the project comes from the Shenhua Bulianta Coal Mine and the Shenhua Shangwan Coal Mine, both of which are located in the immediate neighborhood of the project site. The main output of petroleum products include diesel, naphtha and liquefied petroleum gas, while supplementary products include industrial crude phenol and industrial sulfur.[5]

The first phase of the project had a production capacity of 1.08 million tons of output a year as of 2013, which was expected to further expand to 5 million tons (phase 2 and phase 3). [2][6] As a capital intensive project, the investment for the first phase of the project is approximately CNY 24.54 billion (USD 3.57 billion).[4], [5]