(April 24, 2002) The director of the statistics department of the China Electricity Regulatory Commission recently submitted a report to the State Council saying that China’s attempt to reform the power industry has basically failed.

Shanghai: Yang Mingzhou, the director of the statistics department of the China Electricity Regulatory Commission (CERC), recently submitted a report to the State Council saying that China’s attempt to reform the power industry has basically failed.

The report, which has been passed to officials at the National Development and Reform Commission (NDRC) and the CERC, said that the unsuccessful reforms in the power industry were holding back China’s rapidly-growing economy, and had strayed far away from the original plan to make the industry more market-oriented.

China’s power industry reforms started on December 29, 2002 when the original State Power Company was broken up into two power grid companies – the State Power Grid Corporation and the Southern Power Grid Corporation – and five power generation groups – Huaneng, Datang, Huadian, China Power Investment, and Guodian. The short-term target for the reform was the separation of power generating and power transmission companies and the setting-up of regional power markets.  However, Yang believes that reform has stagnated.

Yu Hui, a researcher who participated in the establishment of the CERC, told Interfax that power generation companies have not actually been separated from the power grid companies yet. According to Yang, the majority of central government-controlled power grid assets and over 36 mln kW of power generation capacity are owned by one giant company, the State Power Grid Corporation. In addition, the whole power industry controls around RMB 2 trillion (USD 246.91 bln) in assets, accounting for a quarter of the total state-owned assets in China, but only generate profits of RMB 20 bln (USD 2.45 bln) with a return on assets standing at merely 1%.

“Efficiency is terribly low,” Yang said. Yu Hui said that the low efficiency was caused by the failure to separate electricity transmission and distribution, both of which were still controlled by the monopoly power grid companies.

Yang Mingzhou noted in his report that some government sectors are deliberately blocking power market reform to maintain the central government-controlled pattern. He also noted that the 1,000-kV AC power grids now being constructed are aimed at forming a nationwide power grid and strengthening the monopoly position of the two state power grid companies.

Yu Hui told Interfax that the CERC does not have the authority to serve as the industry’s watchdog, which may be the most important reason why reform has failed. Yang also noted that the relationship between the NDRC and the CERC and their duties in the reform of the power industry should be made clearer.

Interfax, April 24, 2002