China Shies from Energy Ministry in Energy Law Draft

BEIJING Dec 03, 2007 (Dow Jones Newswires)

China stopped short of calling for a separate energy ministry Monday, despite a long-awaited draft version of a national energy law acknowledging that policy was split between too many government agencies.

The draft energy law said Beijing must set up an energy department under the State Council - China's cabinet - to unify administration of all energy sectors and carry out key reforms.

The department would be tasked with handling strategic reserves of natural gas and uranium that China should set up in addition to its strategic reserves of oil and deciding on the timing of their release, the draft law said.

The law proposed holding some reserves of oil, gas, uranium and special kinds of coal underground for future development. However, it didn't disclose volumes or specific conditions when the reserves would be used.

On pricing, Beijing signaled that it wanted to retain a measure of control rather than throw open its energy sectors to market forces, despite the systematic failures seen in the widespread fuel shortages over the past few weeks.

By publicizing the draft, China is seeking feedback from key industry players and the public, meaning the final version of the law is likely to include several revisions before it is enshrined on the statute book.

China is the world's second-largest energy consumer and is on course to overtake the U.S. soon after 2010, according to the International Energy Agency.

Major energy policy changes in China need a consensus among government bodies, each looking out for its own interests, and can result in long delays of any results.

For example, the State Electricity Regulatory Commission is the designated watchdog for the power sector, but electricity pricing is the responsibility of the National Development and Reform Commission.

Major investments by foreign investors in China or China's investments offshore also require approval from several ministries and could delay deals.

To oversee all energy-related issues, China in 2005 set up a State Energy Leading Small Group, headed by Premier Wen Jiabao and including top leaders from major ministries.

It was the first time since 1993, when the Ministry of Energy was dissolved, that a central body was set up to deal with energy issues.

But the group isn't a permanent institution and isn't a policy making body. It functions more like a high-level advisory council.

The current system was criticized by some Chinese lawmakers at the National People's Congress, China's legislature, in February as being ineffective compared with the energy administration of the U.S., which has thousands of staff.

China's draft energy law said the government should set up a mainly market-oriented energy pricing mechanism to reflect the relations of demand and supply, the scarcity of resources and the cost of environmental damage.

But the government will have the right to adjust energy prices generally, and specifically regulate prices in its national distribution network, such as oil and gas pipelines and power grids, it said.

Energy-intensive industries and those that pollute the environment should also brace themselves for unfavorable pricing policies, the draft law stated.

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