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

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In March 2008, further efforts were made to focus the NDRC on macro-economic matters exclusively and move away from the micro-managing and detailed project approvals, such as drafting national economic programs, establishing industrial and investment policies, spearheading reforms, control price levels, and participating in fiscal and monetary policy.35 Erica Downs suggests the NDRC has been at the forefront of opposition to the creation of a Ministry of Energy (MOE) which would deprive the NDRC of a substantial portion of its portfolio, important tools of macroeconomic control along with the state-owned energy companies. This would disrupt the status quo and limit the NDRC’s direct access to China’s leadership.36 The NDRC has an important stake in the development of energy policy which it now shares with the recently established National Energy Administration (NEA, outlined below) which will manage coal, oil, electricity and gas. However, key areas such as price setting remain the responsibility of the NDRC’s pricing department.37 The major responsibility for energy conservation has been taken by the NDRC's department of resource utilization and conservation.38

2.1.4 National Energy Administration (NEA)

The establishment of the National Energy Administration (NEA) and the National Energy Council (NEC, outlined below) was announced during the March 2008 National People’s Congress.

The NEA evolved from the Energy Bureau in the NDRC. It is intended to take the lead in the governance of energy policy and is perceived by many to be a compromise between those who wanted a full scale Ministry of Energy, as outlined in the Draft Energy Law of 2007, and those who wanted to maintain the status quo of diffused energy authority.

The NEA’s head Zhang Guobao, who holds a ministerial position, is a very prominent government official and a well recognized energy expert. He is still the vice-minister of the NDRC and was previously responsible for the Commission’s Energy Department.39 However, the NEA itself has the status of a vice ministry, and the appointment of an official of ministerial ranking to head a unit of vice ministry ranking is unique in Chinese bureaucratic structures. By means of this appointment, the Chinese leadership has chosen to allocate more weight to the NEA than to a regular vice ministry and the fact that such an arrangement has never been seen before indicates the extent to which the restructuring of the Chinese energy bureaucracy is a complex

–  –  –

phenomenon.

The former director of the NDRC Energy Research Institute, Zhou Dadi, has described the establishment of the National Energy Administration under the supervision of the NDRC as a step towards setting up an independent energy ministry under the State Council that would eventually have equivalent authority to the NDRC,40 an argument which is supported by the symbolically significant appointment of Zhang Guobao. Several informed energy industry observers have suggested that the government does, by means of the establishment of the NEA, in fact appear to be attempting to establish a fully fledged energy ministry.41 The NEA was initially under the jurisdiction of the NDRC as it commenced operation on the 30th July 2008. The NEA subsequently moved out of the NDRC and established its own office. Since January 2009 it has been independent of the NDRC and has established its own Foreign Affairs department to manage its external relations. However, although the two organisations are in the process of institutional separation, high levels of interaction exist between them since they share leadership and personnel to a great extent.

The other two deputy directors of the NEA are Zhao Xiaoping and Sun Qin, whose positions are at vice-minister level. The mandate of the NEA is to formulate energy development strategies, draft energy regulations and policies. Furthermore, the Bureau manages the oil, gas, coal and power (including nuclear) sectors. Interestingly, the structure of the NEA was not announced until four months after it was created.42 It currently comprises nine departments focused on the following areas; power/electricity, oil and gas, coal, renewable and new energy, energy saving, science and technological equipment, industry strategy development, policy and regulation and international cooperation.43 One informed industry observer suggested that the department for international cooperation is different from other ministries and bureaus in that it has two key divisions: one to deal with routine foreign affairs including international conferences and visits while the other is focused on international policy.44 The respondent also suggested that the NEA appears to be more ‘service minded’ than other energy related government institutions, citing an example of where the NEA called a group of companies and NGOs to announce and explain the functions of the institution.45 The NEA was originally to be staffed by 250 employees.46 However, it currently comprises of only 112 personnel.47 Chinese media reports have already speculated that the institution may face the problem of “too many generals and not enough soldiers” as half of the positions are for deputy department head level and above.48 The NEA is clearly stronger than its predecessor, but not yet strong enough to mitigate the bureaucratic infighting that undermines energy decision-making. Furthermore, it lacks the necessary authority to coordinate the interests of ministries, commissions and state-owned energy companies.49 Downs notes that previously, the primary frustration of Energy Bureau officials was that the energy companies regularly circumvent the authority of the bureaucratic institutions and meet directly with China’s senior leadership.50 The NEA’s independence is limited by the fact that the key tools it needs to effectively manage the energy sector remain in the hands of the NDRC.51 As mentioned, the NEA does not possess

–  –  –





the authority to set energy prices. Zhang Guobao has described the issue of who would end up with the power to determine energy prices as a subject of “constant dispute” during the bureaucratic reorganization.52 Downs further notes that the “NEA can make suggestions about energy price adjustments and should be consulted by the NDRC on any proposed changes, the shots are still being called by the NDRC (and ultimately the State Council, whose approval is needed for any major energy price changes). […] The power to set prices is one of the NDRC’s main instruments of macroeconomic control.”53 Downs further notes that with no pricing power, the NEA has little choice but to resort to administrative measures to achieve an objective that would be more effectively realized by raising and ultimately liberalizing electricity prices.54

2.1.5 National Energy Commission (NEC)

The National Energy Commission (NEC) has recently been established. It was transformed from the National Energy Leading Group (NELG) that was established to improve policy formulation and coordination and was headed by Premier Wen Jiabao.55 The structures of the new National Energy Commission are now in place and personnel are being recruited. When the establishment of the NEC was announced in March 2008 together with the NEA, there was speculation that the NEC would be an extremely high level government institution almost on par with the NDRC. It is now a senior strategic body focusing on the formulation of national energy strategy and the deliberation of key issues in energy security and energy development, and is not involved in day-to-day activities. Instead, the NEA carries out the day-to-day policy implementation functions of the NEC, and the two institutions thus have an interactive relationship.

2.1.6 The State-owned Assets Supervision and Administration Commission (SASAC)

The State-owned Assets Supervision and Administration Commission (SASAC) was established in June 2003 and is the technical owner of all China’s State Owned Enterprises (SOEs).56 On behalf of the central government, SASAC has investor responsibility for state-owned assets. It was established to speed up the restructuring of these and to push forward reform of SOEs.57 SASAC is charged with managing the assets of the SOEs, improving corporate governance, participating and guiding the direct financing of enterprises, and promoting the strategic adjustment of the state-owned economic structure and layout. As the majority shareholder, the institution currently oversees more than 150 SOEs including CNPC, Sinopec and CNOOC.

Despite SASAC’s importance as the owner of all SOEs, the institution’s power is extremely limited. SASAC does not for example have representatives on the ground in the offshore operations of the SOEs,58 it does not have control over budgets and it does not have the authority to collect earnings from the SOEs. This is instead the responsibility of the Ministry of Finance.59 In January 2008, SASAC announced the release of CSR (Corporate Social Responsibility) guidelines that encourage SOEs to take responsibility for stakeholders and the environment in addition to making a profit.60 This is the first initiative of this nature to be introduced by a ministerial agency in China.61 By means of the Guidelines, SOEs are required to report their © 2009 Centre for Chinese Studies, University of Stellenbosch; All rights reserved

- 12 activities and provide regular updates and information on their CSR programs and must also publicize and report their activities to stakeholders and society in general.62 Global Reporting Initiative notes that eleven centrally-administered SOEs already release sustainability reports and three SOEs produce reports using the Guidelines.63

2.1.7 The Ministry of Finance

In addition to the NDRC and the NEA, there is a wide range of government institutions concerned with the formulation of China’s energy policy. The Ministry of Finance administers macroeconomic policies and the national annual budget. It also handles fiscal policy, economic regulations and government expenditure for the state and records and publishes macroeconomic data on China's economy. The Ministry of Finance regulates China’s ‘Three Giants’, the oil

companies CNPC, Sinopec and CNOOC (outlined further in section 2.3), in the following areas:

- Set the rate for windfall tax

- Has the power to grant value-added tax rebate on crude oil and fuel imports as a way to subsidize their domestic refinery losses

- Set the rate for corporate income tax

- Set the rate for resources taxes on oil and gas

- Has the power to grant tax amnesty on equity shares sale (e.g.: when CNPC intends to sell part of its shares to its subsidiary PetroChina)

- Administer a social-security fund to which the ‘Three Giants’ listed subsidiaries, in the event of issuing new shares in the stock market, must contribute certain percentage of their listing proceeds

- Grant funding support for technical innovation to Chinese corporations together with the Ministry of Science and Technology. In 2003, 30 (out of a total number of 208) funded projects were from the petroleum and chemical sectors.

The Ministry of Finance does not handle regulation of the money markets or interest rates.

These areas are instead governed by the People's Bank of China (PBC). Moreover, a tax on fuel consumption approved by the NPC in 1999, which came into force on the 1st January 2009, is to be administered by the Ministry of Finance64.

2.1.8 The Ministry of Commerce (MOFCOM)

The Ministry of Commerce (MOFCOM), formerly known as the Ministry of Foreign Trade and Economic Cooperation (MOFTEC), is guided by the State Council and is among the more prominent Chinese ministries. MOFCOM is responsible for both domestic and foreign activities including the formulation of policies on trade, export and import regulations, planning, foreign direct investment valued at over US$ 30 million, consumer protection, market competition, the provision of incentives for qualified domestic corporations to invest abroad as well as negotiation of bilateral and multilateral trade agreements.

MOFCOM is also responsible for the management of Chinese contract workers going abroad, both employees of SOEs and of private Chinese companies, thus including the vast majority of Chinese workers contracted to work for Chinese energy companies in Africa or elsewhere.

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

- 13 As decisions regarding China’s foreign trade and economic relations with foreign countries are often considered politically less sensitive, MOFCOM is often perceived to have a higher degree of control over these decisions, which often have a strong domestic linkage. Most of the policymaking decisions are handled by the powerful Central Finance and Economic Leading Study Group (CFELSG).65

2.1.9 The Ministry of Land and Resources (MLNR)

The Ministry of Land and Resources (MLNR) is responsible for the planning, administration, management, preservation and exploitation of natural resources, including land, mineral and marine resources. It is a key ministry regulating the operations of companies within China.

However, its regulatory power through statutory interpretation of PRC’s relevant statutes and regulations is restricted to domestic activities. The MLNR is responsible for issuing permits for upstream oil and gas activities and its Strategic Research Centre of Oil and Gas Resources maintains 50 researchers.66

2.1.10 Ministry of Environmental Protection

The transformation of the State Environment Protection Administration (SEPA) to Ministry of Environmental Protection was announced in March 2008. While the Ministry has not yet been given direct control of local environmental officials, it is expected to become increasingly important as environmental issues gain prominence.67 The energy sector has a considerable impact on the environment as it continues to use a high proportion of coal. This, combined with the relative backwardness of energy production, conversion and energy using technology as well as the rapid growth of road transport, makes China’s energy sector an environmental challenge.66

2.1.11 Prospects for an Energy Ministry



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