GUANGZHOU - Many Chinese are living
through another hot summer of electricity
shortages in their homes, factories and offices.
The problem has become chronic in recent years in
many cities, including large ones such as
Guangzhou.
To avoid overloading the
network, suppliers are alternately suspending
power in different districts in Guangzhou, capital
of the booming southern province of Guangdong. To make users
even angrier, electricity prices rose recently.
And Guangzhou is by no means the only city
suffering from such problems.
The public
can't help but wonder what's wrong with the
country's power system, as not long ago senior
officials with the State
Development and Reform
Commission, China's top economic-planning body,
assured the country it would deal with the power
shortage this summer.
But there is a
glimmer of hope for the power-craving nation.
The State Council, China's cabinet, plans
to set up a new office, headed by a vice premier,
to tackle the problems. The Office for
Restructuring of the Electricity System will
oversee reforms in the industry.
Observers
say establishment of such a high-ranking office
shows that the government now realizes that
restructuring of the electric industry over the
past decade has failed.
An earlier reform
of China's electric-supply system was launched in
1997 in wake of the original state-owned monopoly
no longer being able to meet the demands of
growing economic development.
Until 1997,
the Electricity Ministry had monopolized the power
industry, from electric generation to transmission
and distribution. China then set out to break the
monopoly and distance government from the market,
implementing the so-called "separation of
administration from supervision". The ministry
shed its business operations to form the State
Power Corp. A year later, the ministry was
dismantled and the China Electricity Regulatory
Commission was set up as the top regulator.
In March 2002, the State Council approved
a further restructuring. To introduce competition,
the national grid was split into the national and
southern grids. Five major power-generation
companies were formed: China Guodian Corp, China
Huadian Corp, China Huaneng Group, China Datang
Corp and China Power Investment Corp. These became
the major market players, with the commission
supervising. In April 2005, the government
unveiled guidelines on controlling pricing of
electricity.
But the chronic power
shortage and continuous price hikes in recent
years have led people to question the
effectiveness of the reform. A recent internal
report by the commission acknowledged that China's
electric-power reforms over the past decade have
met with little success.
Why so?
From a policy point of view, it can be
seen that the new players that emerged after the
state monopoly was disbanded have used their vast
capital to devour smaller, local
electric-generation units via merger and
acquisition. As a result, the big players still
jointly monopolize the market by controlling power
supply and pricing.
Under the current
system, power-generation operators sell
electricity to the grids at competitive prices,
and the grids in turn sell it to users. But small
operators eventually lose their competitiveness,
and sometimes go out of business, because they
have higher operating costs and are technically
more backward. As a result, the big players are
able to control a large chunk of the market.
The consequence is instability of
electricity prices amid recurring shortages
coupled with unjustified wage increases for those
in the industry. The government is aware of the
situation and the public's unhappiness over it.
Recently, under the pressure from
government and public opinion, some electric
companies have begun to cut salaries by up to 23%.
However, there has been a heated debate whether
wages in the electric industry are high enough
compared with other trades to warrant a drastic
decrease.
Still, the crux of the problem
is not in the wage levels, but in the unchecked
price increases due to the new monopoly. The
problem remains unsuccessful reform in the
industry due to the monopoly, an irrational
investment system and the imperfection of the
pricing system.
It is well known that the
various electric enterprises born of the
disintegration of the original state monopoly are
so interlinked and interwoven, like "close
relatives", that it has been highly complicated to
allocate and distribute the 1.8 trillion yuan
(US$226 billion) in state assets among them
properly. Currently, this constitutes the biggest
problem in implementing reform in the industry.
Some analysts argue that the key to reform
in power pricing lies in setting up a rational
pricing mechanism rather than focusing on
government controlling the price level. What is
needed is a genuinely transparent pricing
mechanism that allows consumers to know if they
are getting good value for their money. They
should also be entitled to know about any
government subsidies to the electric companies.
For the new reform to be successful,
competition and transparency must be introduced
into the operation of the electric industry.
David Pan is a freelance writer
based in Guangzhou.
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Asia Times Online Ltd. All rights reserved. Please
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