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China overhauls energy
bureaucracy
By Qiu Xin
HONG KONG - The chronic power shortages in many
regions of China beginning in 2002 have made it
crystal clear that one of the biggest obstacles
hindering China's "peaceful emergence" blueprint
is energy. The issue is not only economically
vital, but has diplomatic and military
implications. But the cause of the shortages was
not, as one might think, high fuel prices alone.
China's dysfunctional energy bureaucracy has been
a major contributor to the problem. Realizing
this, Beijing recently enacted a major reshuffle
of its energy-related agencies in a bid to resolve
the issue and allow better management of future
crises.
According to the Jing Bao
("First") daily newspaper, the State Council,
China's cabinet, has appointed an energy
coordination task force under the leadership of
Premier Wen Jiabao, Vice Premier Huang Ju and Zeng
Peiyan. The ministerial-level State Energy Office
(SEO), founded two weeks ago, will report directly
to the task force. It is hoped that the high-level
support given to the SEO by Premier Wen's direct
oversight will give it the bureaucratic heft to
succeed where its predecessor, the Energy Bureau
(EB), largely failed.
There is a general
perception in China that the EB, which served
under the State Development and Reform Commission
(SDRC), China's supreme economic planning body,
was never given the staff and powers needed to
fulfill its intended purpose. According to Philip
Andrews-Speed, China energy expert at the
University of Dundee, EB lacked the time, manpower
(it had only 20 workers) and seniority to
successfully address the very complex problems
faced by the sector. "The EB could not order any
of these state companies or ministries [involved
with energy supply] to do anything."
It
had been expected that, to avoid duplication, the
new SEO would be merged with, or replace, the EB.
Instead, the two will remain separate and be given
different assignments: the SEO will focus on broad
decisionmaking, while the EB will ensure that the
decisions are put into effect. According to the
influential Caijing Magazine, this specialization
was an effort to contain the power of energy
officials. Given that almost a third of total
state assets, valued at a staggering 11 trillion
yuan (US$1.33 trillion), are related to the energy
sector, the birth of a single government agency
with complete power over energy would have created
a massive potential for official corruption and
malfeasance. Fear of such a development was a
major reason why the government did not create a
unified energy ministry despite the fact that the
EB's insufficient influence contributed to the
national energy mess.
The energy task
force's decisionmaking arm, the SEO, will be
headed by Ma Kai, who is also a minister of the
SDRC. Deputies at the office will include the EB's
Vice Director Xu Dingming and the former general
manager of China's giant state oil company, the
China National Petroleum Corp (CNPC), Ma Fucai. Ma
Fucai's appointment has raised eyebrows in
Beijing: although he was widely regarded as a good
manager, having turned once-lumbering CNPC into
China's most profitable state-owned company, he
also resigned from the company under a cloud after
a gas well explosion in Chongqing in December 2003
killed 243 workers. Ma's management skills
apparently trumped the blood on his hands: Caijing
cited a veteran resources investor as commenting,
"Ma Fucai is not only rich in managerial
expertise, but also well versed in the capital
market and China's oil and energy sectors. He is
an ideal candidate for the position."
The
major function of the new SEO will be to
coordinate and supervise existing resources
authorities, to provide a master plan for the
development of national energy resources, and to
finalize and enforce energy industry policies.
Structurally, the office will be composed of three
panels whose routine duties are to track the
energy security conditions; forecast macro
conditions and impeding crises; advise the energy
coordination task force; organize academic studies
related to energy resources strategy; and draft
policies on resource exploitation and
conservation, energy security issues and
contingencies, as well as cross-border
cooperation, according to the Hong Kong Economic
Journal.
The current reshuffle was not the
first. China actually set up a Ministry of Energy
in 1988, but it was dismissed five years later
because its administrative functions overlapped
with other departments, such as the then-State
Development Planning Commission (SDPC), a body
which evolved into the current SDRC. Since the
dissolution of the Energy Ministry in 1993, which
was part of a general streamlining of cumbersome
government structures undertaken that year, energy
administration has been decentralized among
multiple departments. To name but a few, the SDRC
is responsible for general policymaking; the
Ministry of Commerce is in charge of coal,
electricity and petroleum management; the Ministry
of Science & Technology oversees energy
technology; the Ministry of Water Resources
supervises hydroelectric power plants; and the
Ministry of Agriculture manages rural and
reproducible resources. In addition, state-owned
energy enterprises like CNPC and China
Petrochemical Corp (Sinopec) have a major effect
on the direction of the energy industry. Yet, no
authoritative coordinating body has existed; nor -
tellingly - have any officials tasked with
environmental protection had a seat inside the
energy administration.
Boosted by soaring
economic growth, China's gross energy consumption
has been growing ever since 1980 at an annualized
rate of 5%, three times the world's average growth
rate. Oil imports exceeded exports for the first
time in 1993, and China's reliance on oil imports
has only increased since then. As of 2000, proven
exploitable oil reserves per capita in China stood
at a mere 2.6 tons, while natural gas stood at
1,074 cubic meters and coal 90 tons. These figures
represented 11.1%, 4.3% and 55.4% of the world
averages, respectively. Worse yet, pundits predict
that the gaping resources shortfall will reach the
energy equivalent of 250 million tons of coal by
2030 (since its predominant energy resource is
coal, China routinely calculates other energy
sources in "tons of coal equivalent") and 460
million tons by 2050.
Such long-term
supply concerns, on top of the recent shortages,
are a major reason why Beijing has been keeping an
increasingly tight rein on energy projects and
issues. Observers believe that the setup of the
SEO is only the beginning of an energy
administration reshuffle, and further adjustments
will follow, since energy is now considered a core
national interest.
To say that the new SEO
faces major challenges would be an understatement.
First of all, there is a huge problem of energy
being used inefficiently or wasted outright.
Statistics show that the energy consumption per
unit of output in China is about 40% higher than
that in the average developed country. For
instance, a coal-fired power plant in China has to
burn 404 grams of coal, or the equivalent, to
generate one kilowatt-hour of electricity, far
greater than the international standard of only
317 grams per kilowatt-hour. Also, every kilogram
equivalent of coal only produces a gross domestic
product of $0.36 in China, vastly lower than
Japan's $5.58 and the world average of $1.86.
One major reason for such figures is that
officials are pressured to produce ever-greater
economic output while at the same time, power
prices are held artificially low - a situation
which virtually guarantees overuse of energy
resources and chronic shortages. An obvious
solution is to free energy prices, which would
simultaneously encourage efficiency and provide
energy producers the resources they need to meet
demand. But there is virtually no prospect of such
a step being taken, at least in the short term,
because the assumption of low energy prices is so
deeply ingrained in China's entire economic
structure. Public education as to the value of
energy conservation, and improving the technology
of older, fuel-wasting power plants, must also be
part of any solution. But accomplishing these
goals in the short term appears to be a Herculean
task.
Second, the regionally unbalanced
power generation infrastructure is inherently
prone to triggering power supply crises. In China,
around 70% of electricity is generated by
coal-fired generators in the northern half of the
country, while hydroelectric power plays a pivotal
role in the south, according to Professor Zeng
Ming of North China Electric Power University. Due
to inevitable seasonal fluctuations in hydropower,
however, the southern areas have an increased
demand for coal-fired power in drought periods,
which typically precipitates a nationwide "power
famine" or "coal rush". If the existing power
generation structure is to be rebalanced, the
influential interest groups cashing in on the
power industry (such as colliers) will be the
biggest impediment to restructuring.
In a
bid to reduce dependence on highly polluting coal,
China has placed tremendous efforts on harnessing
nuclear energy. Today, nuclear power stations
produce a mere 1.8% of China's electricity, but
there is a huge growth potential for nuclear
power. The government is now planning to build 27
mega-kilowatt reactors, with a total installed
capacity of 3.6 million kilowatts, by 2020. Yet,
the handling of nuclear waste remains a sensitive
environmental and even political issue. China's
oilnews.com revealed that Xie Zhenhua, the head of
the State Environmental Protection Administration,
is also a member of the cabinet's energy
coordination task force.
Third, the energy
dilemma has a diplomatic aspect. Last December,
the Singapore branch of the China Aviation Oil
Company (CAOC) unexpectedly disclosed a deficit of
$550 million. Some analysts speculated that the
CAOC might have been defrauded by several foreign
entities, and pointed out that the incident was
but one example of management failures at overseas
branches of Chinese multinationals, which have
demonstrated the need for greater government
oversight of such branches. They also observed
that the country presently lacks organized
commodity exchanges for the purchase of staple
goods overseas. Experts have recommended that the
SEO work jointly with the diplomatic service and
existing energy authorities to find a way out of
the resources bottleneck. Some have even advised
that Foreign Minister Li Zhaoxing and Commerce
Minister Bo Xilai should be recruited into the
energy task force as well.
The People's
Liberation Army's vice chief of staff, Ge
Zhenfeng, is also expected to be a member of the
task force. Historical episodes like Hitler's 1942
attack on Stalingrad intended to secure Nazi
possession of the Caucasus oil fields, or Saddam
Hussein's 1991 invasion of Kuwait in order to
confiscate Kuwaiti oil supplies, remind us that
energy is a major security concern. In Asia,
security in the piracy-prone Malacca Straits is a
major concern for countries like Japan and China,
due to the passage of Middle East oil through the
vital shipping channel. How Beijing's reshuffled
energy administration will deal with such energy
security issues remains to be seen.
(Copyright 2005 Asia Times Online Ltd. All
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on sales, syndication and republishing.) |
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