KUSHIRO, Hokkaido -- Although the new year was just around the corner, there was little joy to be seen in the southeast end of this port city.

In December, Taiheiyo Coal Mine Co., the nation's last remaining coal mine, announced that it will close Jan. 30, resulting in the loss of 1,000 jobs.

About 500 other people employed at various subcontractors, including several Taiheiyo group companies, will also be out of work.

The news came just as the regional economy was diving deeper into recession, due in part to the November 1997 bankruptcy of Hokkaido Takushoku Bank, the prefecture's largest financial institution.

But the fate of the mine deep beneath the seabed off Kushiro was sealed long ago by the government, which will end its 40-year-old policy of protecting the industry at the end of March.

Taiheiyo's coal mine was merely next in line after the Ikeshima coal mine in Sotome, Nagasaki Prefecture, which closed Nov. 29.

In fiscal 2000, Taiheiyo's coal output was only 1.54 million tons, accounting for slightly more than 1 percent of Japan's total coal demand.

Despite the apparent insignificance of Taiheiyo's presence as a coal supplier, however, the impact of its closure on the local economy is expected to be enormous.

The mine has been a key industry here for eight decades.

"The situation is critical," said Sadahito Fukuoka, chief of the municipal government's commerce, industrial and labor division. "The mine's closure has come as the third and the biggest blow to the city."

Two other big job providers -- the local unit of the failed supermarket chain Nagasakiya Co. and a branch of Hokkaido University of Education -- are also slated to disappear, he explained.

"We must prevent further depletion of the city's population, or the local economy will be drained," Fukuoka said. The city's two other key industries -- paper and marine products -- started suffering long ago.

Come April, the government's protection policy will enter a new, five-year phase under which mining technology will be transferred to developing countries, including China and Indonesia.

The project, which includes training miners from those countries, is a bid to secure a steady supply of imported coal.

Taiheiyo initially intended to undertake that project while scaling down annual output to 700,000 tons from the 1.8 million estimated for fiscal 2001.

But a fire that broke out late last January halted mining operations for a month and resulted in a 30 percent plunge in annual output in fiscal 2000.

The fire proved fatal for Taiheiyo. With the closure of its sole coal mine, the company will liquidate itself and leave behind some 20 billion yen worth of liabilities.

In a desperate effort to keep the city's economy afloat, members of the local business community set up a new company last month called Kushiro Coal Mine Co. Initially capitalized at 50 million yen, the aim of Kushiro Coal is to lead the government's technology transfer project.

The move was initiated by Kushiro Gas President Yasuji Morozumi, who also chairs the Kushiro Chamber of Commerce and Industry, and five other representatives of the business community.

"Many people feel a strong attachment to the coal mine after living with it for so long, and they don't want to lose it," said Isao Kimura, KCCI executive director. "So we'd like to keep it active."

Coal is perceived to be Japan's most important source of energy next to nuclear power.

"Although the coal mine has completed its role as a (commercial) coal supplier, there are still things it can do to help develop overseas coal mines and secure Japan's coal imports in the future," Kimura said.

Coal generated 135.5 billion kwh, or 15 percent of the nation's total power resources, in fiscal 1998.

That share is expected to hit 20 percent in fiscal 2003.

The new company will produce 700,000 tons of coal, picking up where Taiheiyo left off, from fiscal 2002 onward.

By their nature, however, such coal mining operations are run to maintain current technology and to accept trainees from overseas, rather than to make money.

Also, Kushiro Coal will probably absorb only 500 of the 1,500 or so former employees from Taiheiyo and its subcontractors.

Based on this assumption, the local economy is expected to drop 25 billion yen, or 4 percent of its overall industrial output, according to the Bank of Japan's Kushiro branch.

The municipal government, which projects that the economic losses will exceed 21 billion yen, also predicts that some 1,500 people will lose their jobs and more than 3,700 will leave the city.

For Taiheiyo's workers, however, no numbers or statistics can convey the reality of the threat they face.

"The announcement of the closure was not a total surprise, since the prospect of coal mining was getting dimmer," said Yoichi Masuko, 35, who has worked for the company for 15 years and saw hiring come to a halt more than a decade ago. Since then, the workforce has declined by half while production per worker has nearly doubled. "Still, I'm worried about our life from now on, especially with these two little kids to bring up."

By August, his family will have to leave the company-owned housing complex near the mine. That period is too short to find a new job and a new home, he said.

Still, Masuko and many others living in similar facilities can consider themselves better off than those who bought homes and still make mortgage payments.

According to Toyoyuki Hashimoto, general secretary of Taiheiyo Coal Miners Union, more than 70 percent of the union's 1,000 or so members have bought housing, lured by discounts offered by the company's housing development affiliate.

The housing program was launched to help Taiheiyo retain skilled workers for long periods of time. But those who took advantage of it now feel betrayed, he said.

"To this day, we have cooperated with the company in streamlining the workforce and mining operations, and swallowed pay cuts and a freeze on various benefits," Hashimoto said. "But management is simply walking off without showing good faith. Its an act of betrayal."

Owners of more than 220 shops in the neighborhood who are also in trouble are betting their futures on Kushiro Coal.

"At least Taiheiyo will be granted subsidies (to take care of its workers) upon its closure, but we'll be left with nothing and have to carry on with our business," said Masaru Umeki, who heads an association of shop owners in the Sakuragaoka district.

Masanobu Nakao, who runs an electronics shop in the area, said local shop owners are waiting to see how many jobs the new company will provide.

"Sales were very bad throughout the year, but the situation conspicuously deteriorated after Dec. 7, when Taiheiyo officially announced the closure," Nakao said.

Bars and restaurants in the neighborhood have been hit particularly hard since coal miners began tightening their purse strings, said Mitsuru Ishikawa, who owns the restaurant Chojuan.

The Kushiro federation of local shop owner associations, including the one in Sakuragaoka, hopes Kushiro Coal will exceed expectations by generating more than 500 jobs.

Federation members are also crossing their fingers over the prospects of the new company diversifying into new fields of business.

Upon assuming the presidency of the newly created company late last month, Taro Nakajima said he intended to enter new business fields with an eye toward the company's prospects after the central government's five-year project ends.

To get working capital for these new areas, the company plans to tap a special 10 billion yen fund that has been set aside by the central and local governments to revive former coal-producing areas.

Environment-related businesses, including those for disposing and recycling household and industrial waste, have been mentioned as promising new business fields.

KCCI officials hope the new company's coal operations will pay off because it will be carried out only in shallow areas, but its success is up in the air.

Under the government's ongoing coal policy, which lasts through the end of March, the quasi-governmental Electric Power Development Co. and other utilities have been purchasing domestic coal at artificially high prices.

Although the system will be maintained for another five years under the next phase of the plan, the government has already made it clear that the fixed prices should be reduced to below 10,000 yen per ton in the latter half of the five-year period, compared with the fiscal 2001 prices of 10,463 yen per ton in Hokkaido and 15,808 yen in the Kanto region, where much of coal from Kushiro is consumed.

There is no guarantee the system will be exist after fiscal 2006.

Therefore, Kimura of KCCI said, the local community should take steps to help themselves.

"Now is a turning point for us Kushiro people," he said. "Since we cannot rely on the same old industry forever, we must try to cope flexibly with the rapidly changing socioeconomic environment and succeed in creating new businesses on our own initiative."