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«A research undertaking by the Centre for Chinese Studies, prepared for the Extractive Industries Transparency Initiative (EITI) & Revenue Watch ...»

-- [ Page 1 ] --

The Extractive Industries Transparency Initiative

(EITI) and China’s Energy Policy Formulation Process

By: Christopher Burke, Johanna Jansson and Wenran Jiang

A research undertaking by the Centre for Chinese Studies, prepared for the Extractive Industries Transparency Initiative

(EITI) & Revenue Watch Institute (RWI)

Centre for Chinese Studies, University of Stellenbosch

August 2009

The findings, interpretations, and conclusions expressed therein are those of the authors and do not necessarily reflect the views of the Extractive Industries Transparency Initiative and the Revenue Watch Institute.

© 2009 Centre for Chinese Studies, University of Stellenbosch; All rights reserved

-iAcknowledgements

The research team would like to express gratitude towards:

The CCS team: Dr. Martyn Davies, Hannah Edinger, Hayley Herman, Jacobie Muller, Ashley McCants, Anneke Kamphuis, Matthew McDonald, Meryl Burgess, Bongisa Lekezwa and Cathy Bashala for research assistance and design;

Simin Yu of the China Institute, University of Alberta, Canada; Thomas Orr for advice; Dr. Liu Haifang, Dr. Liu Zhongwei and Chris Colley for content input; David Kelly for background information and contextualisation of the data.

All the government officials, academics, NGO community representatives as well as private sector representatives with whom the research team met in-country for generosity and frankness in sharing invaluable insights in the interviews;

The Extractive Industries Transparency Initiative and Revenue Watch Institute for kindly funding the research.

© 2009 Centre for Chinese Studies, University of Stellenbosch; All rights reserved Contents Page Acknowledgements

List of Figures

List of Acronyms

Executive Summary

1. Introduction

1.1 Aim

1.1.1 Structure of the report

1.1.2 Conceptual remark: Civil Society

1.1.3 Conceptual remark: Corporate Social Responsibility

1.2 Background

1.2.1 China's energy demand

1.2.2 General Chinese policy formulation

1.2.3 Chinese energy policy formulation

2. Relevant actors in Chinese energy policy formulation

2.1 Structures of government

2.1.1 Communist party of China (CPC)

2.1.2 The State Council

2.1.3 The National Development and Reform Commission (NDRC)

2.1.4 National Energy Administration (NEA)

2.1.5 National Energy Commission (NEC)

2.1.6 The State Owned Assets Supervision and Administration Commission (SASAC)..11 2.1.7 The Ministry of Finance

2.1.8 The Ministry of Commerce (MOFCOM)

2.1.9 The Ministry of Land and Resources (MLNR)

2.1.10 Ministry of Environmental Protection

2.1.11 Prospect for an Energy Ministry

2.2 Research Institutions

2.2.1 Development Research Centre of the State Council (DRC)

2.2.2 Energy Research Institute (ERI)

2.2.3 The Chinese Academy of Science (CAS)

2.2.4 The Chinese Academy of Social Sciences (CASS)

2.2.5 China's Petroleum Universities

2.3 Public and Private Corporations

© 2009 Centre for Chinese Studies, University of Stellenbosch; All rights reserved 2.3.1 China National Petroleum Corporation (CNPC)

2.3.2 Sinopec

2.3.3 China National Offshore Oil Corporation (CNOOC)

2.4 Financial Institutions

2.4.1 Chinese Financial Institutions and CSR

2.5 Civil society

3. EITI and CSR in China

3.1 EITI - A Non-Governmental Organisation

3.2 EITI and the principle of non-interference

3.3 Peaceful evolution

3.4 Chinese stakeholders perceive themselves as unfairly "singled out"

3.5 Effective arguments for the EITI in approaching Chinese companies and other stakeholders

3.6 Suggested startegy for engagement

3.6.1 Component One: Preliminary Seminar in Beijing, PRC

3.6.2 Component Two: Research Projection on transparency by Chinese academics.....24 3.6.3 Component Three: Launch of Chinese reserach report on transparency in Beijing,PRC

3.7 Concluding remarks

Endnotes

Profile of the Centre for Chinese Studies

Researcher Profiles

–  –  –

List of Acronyms BSR Business for Social Responsibility CADFund China-Africa Development Fund CAS Chinese Academy of Science CASS Chinese Academy of Social Sciences CDB China Development Bank CFELSG Central Finance and Economic Leading Study Group CNOOC China National Offshore Oil Corporation CNPC China National Petroleum Corporation COSL China Oilfield Services Ltd.

CPC Communist Party of China CSR Corporate Social Responsibility DRC Development Research Centre EIA Environmental Impact Assessment EITI Extractive Industries Transparency Initiative ERI Energy Research Institute EXIM China Export Import Bank FOCAC Forum on China-Africa Cooperation GDP Gross Domestic Products IFC International Finance Corporation IWAAS Institute for West Asian and African Studies LNG Liquefied Natural Gas MFA Ministry of Foreign Affairs MLNR Ministry of Land and Resources MOE Ministry of Energy MOFCOM Ministry of Commerce MOFTEC Ministry of Foreign Trade and Economic Cooperation NELG National Energy Leading Group NOC National Oil Corporation NDRC National Development and Reform Commission NEA National Energy Administration NEC National Energy Council NPC National People's Congress PBC People's Bank of China PRC People’s Republic of China SASAC State-owned Assets Supervision and Administration Commission SEPA State Environment Protection Administration SERC State Electricity Regulatory Commission

–  –  –





Executive Summary This report outlines the dynamics around China’s energy policy formulation process and discusses perceptions of the Extractive Industries Transparency Initiative (EITI) among relevant Chinese policy actors. The report draws on interviews carried out in Beijing through NovemberDecember 2008.

In terms of perceptions of EITI, two main themes emerge from the research. First, there is a lack of awareness of EITI in Beijing. Second, the initiative is perceived, by those aware of EITI, as a ‘Western NGO initiative’. It is acknowledged that the fragmented nature of China’s energy policy formulation process complicates engagement on the energy area. However, the main challenge for EITI in China is related to protocol. Given the role and status of civil society in China, the perception of EITI as an NGO hinders EITI from engaging directly with government departments.

It is however believed that there is room for constructive engagement given that there are a great deal of common interests between EITI’s interests and the Chinese government and Chinese Communist Party’s (CPC) current priority areas, notably regarding corruption, transparency in financial transactions and the need for international engagement on the development and implementation of energy policy as its energy industry grows and becomes increasingly globalized.

The report outlines a recommended strategy for such engagement in China, where it is suggested that that the best avenue for EITI to engage in Beijing is through Chinese academia and not directly through government departments or institutes. To establish and maintain dialogue with the latter, it would be greatly beneficial in terms of adding weight and formalising engagement if government officials from countries supporting EITI could participate in the engagement process.

Regarding China’s energy policy formulation, the report concludes that the process currently faces a range of challenges. A multitude of actors and institutions are involved in the process, resulting in major difficulties to coordinate policy making and implementation. This, however, applies to Chinese policy making generally and is not specific to the energy sector.

–  –  –

1. Introduction

1.1 Aim Policy making in China, as in many other countries, is diffuse and highly decentralized with a multitude of actors, including the giant Chinese energy State-Owned Enterprises (SOEs) and other government institutions, having often conflicting interests in the decision-making process1.

Energy policy is no exception and for observers, the Chinese energy policy making process may come across as complex and opaque. Multiple levels of governance are involved, the hierarchy between administrative units is often unclear and the relationships between administrative structures and state enterprises are loosely regulated. The fact that energy is related to the national security interests and concerns of the PRC Government further compounds the issue.

A myriad of actors exercise influence in the development and implementation of energy policy, and effecting the necessary changes has proved problematic due to the sheer scale of the industry and the sensitivities involved. In the absence of models to emulate or draw upon, the government is operating in unchartered waters and continues to experiment with different systems to streamline energy policy formulation while ensuring the consideration of all relevant actors.

These challenges result in price inefficiencies and energy shortages. The process of formulating energy policy is heavily centralized within the central leadership which is acutely aware of the need to improve coordination and accountability to address the issues associated with effective policy formulation.

The Extractive Industries Transparency Initiative (EITI), established in 2003, seeks to support improved governance in resource-rich countries by means of encouraging the verification and full publication of royalties and taxes on oil, gas and mineral extraction paid by companies to governments. Ultimately, the EITI seeks to contribute to a development where revenues generated from natural resource extraction are channelled into socioeconomic development and poverty reduction2.

Given the complexities of China’s energy policy making process and the challenge of navigating among the many actors involved, it is a demanding task to introduce initiatives such as EITI in China. This research undertaking had two main aims relating to this matter; first, to outline the dynamics around China’s energy policy formulation process; and second, to ascertain perceptions of Corporate Social Responsibility (CSR) in general and the EITI in particular among relevant Chinese policy actors. Field work for this research undertaking was conducted in Beijing through November-December 2008 and the research process was guided by the following

–  –  –

research questions:

- Which are the public and private actors involved in China’s energy sector?

- What are the dynamics between these actors in terms of decision making processes?

- Which are the major Chinese state-owned oil, gas and mining companies operating abroad (with particular reference to Africa) and in which countries they are active? Which government agencies regulate these companies in terms of their investments abroad?

- Which government agency developed the corporate social responsibility (CSR) directive issued by the Chinese Government to the state-owned and private Chinese companies?

- Which, if any, Chinese civil society organizations are engaged in the domestic energy sector?

- What are the perceptions of the identified Chinese stakeholders of Corporate Social Responsibility (CSR) in general and of the Extractive Industries Transparency Initiative (EITI) in particular?

During the field research, the research team discussed perceptions of CSR and EITI and possibilities for implementation of the latter in a Chinese context with a wide range of respondents from government departments, policy banks, think tanks, academia, media and the private sector as well as representatives from several State-Owned Enterprises (SOE) including oil companies and their subsidiaries. The research team comprised Christopher Burke from the Centre for Chinese Studies (CCS) at Stellenbosch University, South Africa; Professor Wenran Jiang from University of Alberta’s China Institute, Canada; and Johanna Jansson from the CCS.

1.1.1 Structure of the report

This research report seeks to identify workable arguments to explain the benefits of adhering to a transparency tool such as EITI in a Chinese context. It also seeks to identify key entry points and actors which can be leveraged to facilitate a better understanding of the EITI in Beijing.

An important part of this task is also to outline potential sources of resistance against EITI implementation in China and identify a strategy for engagement whereby such concerns can be addressed.

The report is divided into three main sections. First, an introductory section introduces the aim, methodology and background of the study. The second section provides an overview of Chinese energy policy formulation process while the third section outlines perceptions of CSR and EITI in China and gives recommendations for implementation of EITI in a Chinese context.

1.1.2 Conceptual remark: Civil society

The Extractive Industries Transparency Initiative is a non-governmental organisation (NGO). It is a conceptual challenge to discuss the role of NGOs and civil society in a Chinese context, since its function and status are vastly different there compared to in the West. Generally speaking, © 2009 Centre for Chinese Studies, University of Stellenbosch; All rights reserved

-3government departments and the Communist Party of China (CPC) are the hubs of Chinese policy making activity and there is little direct interaction between governmental- and nongovernmental bodies. CPC is an influential institution in China as a result of its high membership numbers. 80 million, or one out of every 15 adults in China, are members of CPC.



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