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China electricity reform will reassure foreign investors

11 Mar 2002 – The structural reform of China’s national electricity industry, which will shortly be implemented, will introduce competition and also alleviate the fears of foreign investors said one of the country’s top economic officials.

State Development Planning Minister Zeng Peiyan said that the monopoly State Power Corporation would be divided into smaller companies expanding competitive power pricing across the entire nation. A new industry regulator would be established and together these reforms would be welcomed by foreign investors.

No timetable for implementation has yet been announced but the minister told reporters, “The preliminary plan has already been drafted and it will be implemented very soon.”

The plan is to separate the transmission business from generation business and create two grid companies by splitting the assets of the State Power Corporation. One grid company will be responsible for the grids of Guangdong, Yunnan, Guizhou, Hainan and Guangxi regions in Southern China. The State Power Grid would be responsible for the other areas of China.

It is the intention to establish four generation companies although it is possible they will all remain affiliates of the State Power Corporation thereby limiting the extent of true competition.

The break-up of State Power will seen as a positive step by international investors but concerns will remain that the introduction of competitive pricing may result in long-term power arrangements not being honoured.

China’s record in this area is not good – The Fujian provincial government last year went back on a 20-year power purchase agreement with the Meizhou Wan power plant. The $700m facility was the first wholly foreign-owned power plant in China and its investors include Asian Development bank and Intergen, a joint venture of Bectel Group and Royal Dutch Shell.

Zeng Peiyan sought to reassure potential investors, “Foreign investors might be concerned about the tariff of electricity and how many hours each plant can generate electricity,” he said. “There are actually measures that will ensure the consistency and continuity of the arrangements.”

Mr. Zeng didn’t offer details on how the government will reconcile its plan for competitive power pricing with those agreements, which typically call for sales at a fixed price over a long period.

“In the future, all power plants will have to compete in order to sell their electricity on the power grid,” he said. “We will have to look at the quality of the power generated, and the way they generate their power — whether it’s done in an environmentally friendly way — and we will also consider the price.”