The ashes left over from coal burning are used to make cement and other construction materials, while wastewater is also purified for circulation. In addition, all coal is required to go through desulphurization before burning for power generation to protect the environment and minimize the erosion of metal equipment.

"The cyclical business model has provided a floor under our operation's efficiency and cost controls, putting profit growth on a more sustainable footing," said Jia Zhenyun, a senior official with Shenhua Ningxia Coal Industry Group Co. Ltd., a joint venture at the base between energy giant Shenhua Group Corp. Ltd. and Ningxia Coal Group. The company's methanol products have been a market hit since production began in September 2007.

"An increasing number of chemical makers here are aware of the value of environmental protection," Jiang said. "For a traditional business long ailed by heavy pollution, the change is revolutionary."

Another focus of the company is a coal-to-oil project that has received approval from the government but is still under feasibility research in collaboration with the South African Coal, Oil and Gas Corp., the world's first and biggest producer of fuels from coal.

The prospect of obtaining oil from coal is a powerful incentive for China at a time when its dependence on imported oil subjects the domestic economy to international price fluctuations. However, the technology still has several hurdles to overcome before mass production. For starters, the coal liquefaction process releases excessive amounts of carbon dioxide into the air and consumes huge amounts of energy and water.

Jia Zhenyun told Beijing Review that both companies are strengthening their efforts to properly address these challenges and are accelerating their pace to complete research by the end of 2010.

The plant is expected to start operation by 2016, converting 12.8 million tons of coal into 3.2 million tons of oil per year, according to Jia.

Coal-fired boon

Giving the base another competitive advantage is the integration of coal mining and power generation. As part of the cyclical operational chain, the purified wastewater from coal mining is reused for power generation, while waste residue from the power plants is used to refill the mine goaves.

More importantly, the base tackles the long-standing supply-and-demand imbalances for coal and electricity by removing the entrenched barriers between the two sectors. In recent years, as the economy enjoyed double-digit growth rates, exploding power demand has pushed up coal prices, making it impractical for generators. Transportation bottlenecks also inflamed coal supply tensions.

Although the ongoing downturn has significantly eased demand, coal-electricity integration is still widely believed to be an effective safeguard against future power outages once economic recovery lifts demand back up to previous levels.

"The stable and relatively low-priced coal supplies from the base have put our plant in a good competitive position with other generators," Han Chao, Vice General Manager of Lingwu Power Plant, said in an interview with Beijing Review. The thermal generator is a joint venture at the base between China Huadian Corp. and Ningxia Power Generation Group. Its first-phase project with a capacity of 1.2 million kw went into operation in June 2007.

Nevertheless, as the economic gloom dealt a heavy blow to the whole sector, the plant reported a painful loss last year, albeit 20 percent less than competitors of the same size, said Han, who declined to give exact numbers. "If the economic revival shores up power generation in the latter half of this year, our competitive edge will grow even sharper," he said.