EXCLUSIVE - China mulls new energy "super-ministry" - sources

BEIJING Fri Jan 6, 2012 4:46pm IST

A paramilitary policeman prevents a visitor entering the blocked area around national flag pole at Tiananmen Square, in Beijing, October 14, 2011. REUTERS/Jason Lee/Files

A paramilitary policeman prevents a visitor entering the blocked area around national flag pole at Tiananmen Square, in Beijing, October 14, 2011.

Credit: Reuters/Jason Lee/Files

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BEIJING (Reuters) - China is considering a proposal to create an energy "super-ministry" as part of a sweeping cabinet reshuffle in 2013, two independent sources said, a step that would help Beijing impose its will on an industry beset by bureaucratic infighting.

The new ministry would replace the National Energy Administration, China's main energy regulator, and take on the energy-related duties now scattered across other government bodies, said the sources, who requested anonymity due to political sensitivities.

"Various interest groups are now wrestling (over the plan), but there is a need for an energy super-ministry," a source with ties to China's top leadership told Reuters.

China, the world's biggest energy consumer, has been trying to draw up a long-term strategy on the security of overseas oil-and-gas supplies, rationalise pricing and taxation policies, boost nuclear and renewables and cut greenhouse gas emissions.

Without a unified energy regulator, Beijing has struggled to achieve many of its priorities, including establishing a strategic petroleum reserve and reining in its chaotic coal industry.

Among other changes, the proposal -- being considered by the State Council, China's cabinet -- calls for giving the new ministry the power to set oil, gas, coal and electricity prices, work now handled by the powerful National Development and Reform Commission NDRC.L, China's state planner.

A government official directly involved in Chinese energy policy said the sprawling NDRC is likely to be the biggest stumbling block in the restructuring plan.

"The NDRC should be dismantled and its authorities dispersed to different government ministries," the official said.

It is not clear if the reshuffle would abolish the National Energy Commission, a supervising body set up shortly after the NEA and chaired by Premier Wen Jiabao.

The NDRC and the NEA declined immediate comment when reached by telephone.

POLICY FOCUS

A veteran official with the state-owned China National Petroleum Corp CNPC.L said the creation of an energy super-ministry was on the cards and would focus on policy rather than detailed regulation.

"It will not be a specialised ministry like the (now-defunct) Ministry of Coal Industry that micromanaged specific sectors," the official said, asking not to be identified.

"It will be a policy setter and provider of services."

Analysts said an integrated ministry would help remove jurisdictional problems.

"For coal, this new ministry can come in and make hard decisions on energy and resource conservation, like production caps and encouraging imports," said Ma Chunsheng, analyst at the China Coal Transport and Distribution Association, adding that such duties are currently being performed by the NDRC.

REDUCING OVERLAPS

Experts cautioned that creating the new ministry would mean overcoming many of the obstacles that have long stood in the way of better regulation.

"They have been talking about it for years but this isn't something that can happen very quickly," said Lin Boqiang, a member of the consulting committee of the NEA and director of the China Centre for Energy Economics at Xiamen University in southeast China.

The challenge will not merely be the NDRC, already a huge ministry with considerable powers over the energy sector, but also others with a say in policy, like the water resources, transportation or agriculture ministries, Lin added.

"The problem is still how to transfer some of the most important roles in the sector now held by others," he said.

China formed its first energy ministry in 1988 from the remnants of the old electricity, coal and oil bureaus, but dissolved it in 1993 after the regulator failed to control the powerful state-owned enterprises that dominate the sector.

Policy overlaps and conflicts of interest are common.

For example, in the face of a stand-off over prices between the power and coal sectors, Beijing found itself powerless to prevent the blackout that struck south China in early 2008, triggered by freezing blizzards.

The absence of a single voice for the energy sector has also stymied China's efforts to improve energy security.

"Take overseas mergers and acquisitions, for example -- the NDRC, the National Energy Administration, the Ministry of Commerce, SASAC and the Foreign Exchange Administration are all involved, making the M&A process very slow," said Wang Aochao, head of research at UOB Kay Hian in Shanghai.

There is also confusion about the status of powerful state-owned firms like CNPC and the State Grid Corp, which participate in the policymaking process.

The State Electricity Regulatory Commission, China's power watchdog, is regarded as subservient to the State Grid, a state-owned enterprise that the commission is supposed to oversee. The watchdog's offices are even located in the grid firm's main compound.

"China's state energy firms, CNPC in particular, still believe they are like an oil ministry, as they have the most expertise and thus authority," said a government official speaking on condition of anonymity.

China set up the NEA in 2008 as a stop-gap measure to improve coordination and conduct sector planning, but it has no policymaking powers of its own and its decisions remain subject to the NDRC's approval.

(Additional reporting by Chen Aizhu, Jim Bai and Judy Hua in BEIJING, Fayen Wong in SHANGHAI; Editing by Don Durfee, Ed Lane and Neil Fullick)

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