The Power Monopoly Breakup

November 1st 2002 (FriedlNet.com) - Fresh winds are blowing into China’s stale power sector, in an effort to boost competition and trim down on industry inefficiencies. China’s ministerial-level State Power Corp. , which generates 168 gigawatts - half of China’s power - and owns virtually all power grids, is planned to be broken up into five independent power-generating entities and 2 grid companies in the near future.

The 5 new companies are to include the Datang Group , Shandong International Power Group , and the Huaneng Group , the subsidiary of the latter, Huaneng Power International, headed by the son of parliamentary chief Li Peng. Two grid companies are planned, with State Power ceding grid assets in southwestern China to make room for a second electricity distribution company. A new ministry-level body is due to be established in the coming weeks to oversee the deregulation and future power industry struggles: the China Electricity Regulatory Commission (CERC). China’s premier Zhu Rongji and premier Li Peng recently agreed on appointing Chai Songyue, former governor of Zhejiang province, as head of the newly formed ministry. This decision came after former candidate, State Power head and former party chief of the northeastern Jilin province, Gao Yan, disappeared mysteriously, supposedly having fled the country amidst allegations of corruption. Public outrage at widespread fraud has lead China to intensify its cracking down on corruption in the past few years, this year already having sentenced China Everbright Group’s former chief Zhu Xiaohua to 15 years in jail for taking bribes.

The new power companies will operate nationwide and each hold stakes in individual power plants across the country, so as to avoid the emergence of regional monopolies due to geographical concentration, said Wang Jun, director of the Power Department of the State Development Planning Commission . The effort is aimed at keeping competition alive, spurring innovation. Preliminary reform efforts aimed at the power sector began in 1998, but were quickly weakened via new regulation as the government feared state assets would be sold off at bargain prices at the local level or to foreigners. The current wave of reform and monopoly-breakdown may likely also keep foreigners off Chinese turf until internal restructuring is complete.

The power industry is a stronghold of the powerful Li Peng family entourage and an important backbone of China’s industry, holding total assets of an estimated 800 billion yuan --- one sixth of all state-owned assets. Deep deregulation of this sector is bound to take time as the decentralizing the decision-making process on investments made will likely induce many an interpersonal power-struggle, with officials and influential tycoons in various regions vying to secure power projects for their own regions.

For a deeper analysis of the power industry, be sure to check out the CIEC Outlook on China’s Electricity Industry sector report available on this site.

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