|
Investment reforms deepen in power sector
2004-08-03
China Business Weekly
The market-oriented reforms in China's power industry are, at last, being expanded to include investment mechanisms, as the central government decided to further reform the country's investment system last week.
Experts are only cautiously optimistic about the move's impact, because they think the nation's top planners have retained much of their control over the sector.
According to the new investment rules released late last month by the State Council, China's cabinet, construction projects in which the capital is not provided by the State and which are not in restricted sectors no longer need to be ratified by the government. This move by the government will leave more decision-making authority and operating risks in the laps of the investors themselves.
The restricted sectors include energy and power, in which the government has adopted a check-and-approve system.
The previous ratification procedure had three processes and the government was responsible for judging whether a project would be profitable.
The new check-and-approve system is a one-step process and the government assesses only whether or not a project is in line with industrial policies and environmental protection requirements, and whether it consumes resources efficiently.
"Rolling out the new rules means progress in the reform of the power industry," said Wu Zhonghu, a researcher with the Energy and Power Research Institute of the National Development and Reform Commission (NDRC). NDRC is China's top planner.
China has carried out reforms in the electricity trading market but had left the power investment market untouched. Now that has changed, said Wu.
As part of the industry's reform, the prices of on-grid electricity, which power suppliers sell to power grids, are open to competition in China's two regional power markets, set up on a trial basis, covering Northeast China and East China respectively. And the suppliers offering electricity at the lowest prices will win the deal with the power grid companies.
More regional power markets are expected to be set up in the country during the coming few years.
But the sector's investment market continues to run under the planned economy system, following strict government approval procedures.
With bank loans promised by the government, investors were not so concerned about their investment returns, which were affected by the rise and fall of electricity prices. Thus the rigid investment mechanism has depressed the market-oriented trading, according to Wu.
With the implementation of the new investment system, it will be up to individual investors to evaluate the potential economic returns and risks, which will pave the way for competition in the construction of power plants, said Han Wenke, vice-director of NDRC's Energy and Power Research Institute.
More detailed rules concerning the industry's investment system reforms remain to be completed later, but public bidding for projects can be expected to become more popular, Han noted.
Moreover, reforms in the old investment mechanism, including the current move, are the fundamental solution to the country's chronic power shortage, said Yan Maosong, an economist with the State Electricity Regulatory Commission (SERC), the sector's watchdog.
The then-State Development Planning Commission, which is now called NDRC, failed to predict the huge power demand brought about by the nation's fast economic growth and thus approved the construction of only a few new generating plants between 1999 and 2002, said Yan.
In the new market-oriented economy, too many uncertainties have made it increasingly difficult for policy-makers to forecast precisely the market demand, he said.
And it is too late to adjust the policy orientation when the supply-demand gap has already emerged, as it takes three to four years to construct a generating plant.
Han said the much simplified procedures and shortened time under the new system is good news for private and foreign investors. The new system also enables acceleration of the construction of new power plants.
However, some experts said they are closely watching how the new rules will be implemented.
"The procedures are simplified, but the government may not really give the decision rights to the investors as expected," said Zhou Hanhua, an expert on the consulting team for the National Administrative Approval System Reforms.
In other words, under the check-and-approve system, the government could retain its previous control over investment, Zhou said.
Echoing Zhou's view, Wu said that despite the move's significance to the industry's system reforms, "the general situation has changed little," as the right to make the final decision is still in the hands of NDRC and its local agencies.
In Western countries where the power industry operates within a mature market economy, the sector's watchdog grants permission to enter the market, but China's SERC does not, said Zhou.
|
