A state-owned enterprise in Yibin, Sichuan auctions off a sand quarry and layers of subcontracting ensue; contractors “over-extract” according to contract, leading to 8 arrests.

A company engaged in sand mining under contract is facing criminal charges for “illegal mining” due to over-extraction and exceeding time limits. Han Bo, the actual person in charge of Yibin Huahui Commerce and Trade Co., Ltd. (hereinafter referred to as Huahui Company), had contracted a labor mining business in a sand mining project led by the government and state-owned enterprises. The company has invested hundreds of millions of yuan but has not yet recovered its costs, and eight investors have been accused of “illegal mining” and are under investigation.

Prosecutors accused them of “over-extracting and exceeding the time limit” by mining more than 5 million tons of sand and gravel from the Yangtze River after the “River Sand Mining License” expired. Their destructive mining behavior caused the riverbank to be eroded and destroyed by the river, causing irreversible damage to the ecosystem. They should be held criminally responsible for illegal mining.

Han Bo recently told The Paper (www.thepaper.cn) that as a labor contracting company, they operated in accordance with the contract requirements and were previously unaware of the “over-extraction”. They had obtained a licensing authorization for the mining business contracted from a state-owned enterprise and were mining sand under the supervision of relevant law enforcement departments. Now, they are under investigation by the public security department and have been approved for arrest, while the upstream state-owned enterprises that contracted the work to them are “unscathed”.

An informed source from the Nanxi District Water Conservancy Bureau confirmed some of Han Bo’s statements. On August 14, 2024, the Nanxi District People’s Procuratorate initiated a public prosecution against the Nanxi District People’s Court for “illegal mining”.

On December 3, Han Bo told The Paper that the Nanxi District People’s Court decided to postpone the trial of the case on November 25. According to the “Postponement of Trial Decision” issued by the Nanxi District People’s Court, “During the trial, the Nanxi District People’s Procuratorate of Yibin City, Sichuan Province, suggested a postponement of the trial due to the need for supplementary investigation in this case.” The court made the above decision in accordance with relevant laws and regulations.

The sand and gravel project was subcontracted layer by layer, and mining restrictions were gradually lifted.

In 2014, the sand and gravel mining rights for the Yangtze River in Nanxi District were auctioned by the Yibin Water Conservancy Bureau, and the general contracting was awarded to a state-owned enterprise in Nanxi District – Yibin Nanxi Xingnan Resource Development Co., Ltd. (hereinafter referred to as “Xingnan Company”). The company won the bidding for the sand and gravel mining rights of 5 mining areas and 9 mining points in the Yangtze River channel of Nanxi District, with a period from May 25, 2014, to May 31, 2015. The approved total mining volume was 930,000 tons, and the total auction fee was 4.5 million yuan.

After obtaining the sand and gravel mining rights, Xingnan Company did not directly carry out the mining but signed a “Cooperative Operating Agreement” with its holding company, Yibin Nanxi Jiangfeng Resource Development Co., Ltd. (hereinafter referred to as “Jiangfeng Company”), transferring all the mining projects to Jiangfeng Company. The term was from September 2, 2014, to May 31, 2015.

The agreement stipulated that Jiangfeng Company would organize the mining (production, processing) and sales of sand and gravel in the project area and bear the expenses incurred during the mining and sales process. Xingnan Company would receive a profit share of 3.5 yuan per ton, with the remaining profits going to Jiangfeng Company.

Jiangfeng Company then conducted an external tender in the form of labor contracting, and Yibin Nanxi Zhongxin Equipment Leasing Co., Ltd. (hereinafter referred to as “Zhongxin Company”) won the bidding for the sand and gravel mining business at the Tuonihao mining point in Sanshe and Sishe of Jiangnan Town. This was one of the mining points in a mining area of the entire project.

On December 12, 2014, both parties signed the “Machinery Leasing and Labor Contract for Maliuwan”. The project mainly involved machinery leasing and labor contracting for the incoming material processing points in Sanshe and Sishe of Peishi Township. The contract required a monthly mining output of no less than 5,000 tons at the dry mining point and no less than 150,000 tons at the Tuonihao water mining point. The contract was renewed annually, which meant that it had been signed until December 2015, far exceeding the approved mining period.

The supplementary contract between the two parties stipulated that Zhongxin Company was responsible for coordinating and resolving issues related to the construction site and its surroundings (including land leasing, compensation for damaged crops, etc.) and bearing all expenses incurred.

Subsequently, on January 9, 2015, Huahui Company signed the “Labor Contract for Tuonihao Sand and Gravel Mining” with Zhongxin Company, contracting all the labor work for the sand and gravel mining and transportation project in Sanshe of Tiantang Village. The contract term was “from the date of signing to May 31, 2015”.

The contract also required a monthly water mining output of no less than 300,000 tons, without specifying a maximum mining limit. The compensation for damaged crops at the stockyard, which should have been borne by Zhongxin Company in the previous contract, was now the responsibility of Huahui Company.

On June 6, 2015, Zhongxin Company, Huahui Company, and a third party (Party C), Mr. He, signed another “Contract for Tuonihao Sand and Gravel Mining”. The contract stipulated that if the mining volume was less than 1 million tons, the resource fee would be 4.8 yuan per ton; if it exceeded 5 million tons, the fee would be 1 yuan per ton.

The contract did not specify the mining period or mining volume limit but explicitly stated that the larger the mining volume, the lower the resource fee per ton.

The upstream companies couldn’t pay, and the cooperation continued to “expand without sufficient funds”.

According to the contract, Huahui Company intensified its sand mining efforts and mined millions of tons in just a few months.

During this period, on May 4, 2015, the Yibin Water Conservancy Bureau issued the “Notice on Strengthening River Sand Mining Management”, stipulating that sand mining would be comprehensively prohibited in the Yangtze River channels within the jurisdiction of Yibin City from July 1 of that year. However, on June 6, 2015, Zhongxin Company still signed the aforementioned “Contract for Tuonihao Sand and Gravel Mining” with Huahui Company and the third party, Mr. He.

Han Bo stated that at that time, Jiangfeng Company and Zhongxin Company were unable to pay the labor fees, while Huahui Company had previously invested a lot in manpower and equipment and had also advanced the land leasing and crop compensation fees for the villagers. Without receiving the labor fees, the company faced the risk of losing all its investments.

An informed source from the Nanxi District Water Conservancy Bureau also confirmed that due to severe fund shortages at Jiangfeng Company, they were unable to pay the mining labor fees. “Instead, they paid a management fee of 7 yuan per ton to Jiangfeng Company, and Huahui Company was responsible for selling the mined sand and gravel themselves.”

By June 30, 2015, Huahui Company had mined 5.3 million tons of sand and gravel. After the Yangtze River was fully prohibited from mining on July 1, 2015, with the consent of Jiangfeng Company, Huahui Company sold 550,000 tons of sand and gravel to cover management fees, resource fees, and compensation for villagers. Han Bo said that the third-party partner, Mr. He, found it unprofitable and chose to withdraw midway.

On September 13, 2018, the Nanxi District Water Conservancy Bureau verified that Xingnan Company and Jiangfeng Company had illegally over-mined beyond the scope stipulated in the sand mining license and imposed penalties.

The “Administrative Punishment Decision” issued by the bureau stated that during the approved mining period from November 2014 to May 31, 2015, the approved mining volume for the 5 mining areas and 9 mining points was 842,000 tons, but the existing over-mined inventory was 4.823 million tons, resulting in severe over-mining. The bureau imposed administrative penalties, confiscating the over-mined inventory of 3.981 million tons and fining 50,000 yuan.

Han Bo said that although the administrative punishment acknowledged the illegality of Xingnan Company and Jiangfeng Company, the confiscated and fined sand and gravel were those mined by them for which Xingnan and Jiangfeng had not yet paid the relevant fees, causing them significant losses. In response, Huahui Company filed an administrative reconsideration, which was not accepted due to “not being eligible as an applicant for administrative reconsideration”.

Over-mining of sand and gravel leads to corporate executives being prosecuted.

The upstream companies