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New plans for power sector

By Chen Yang (Global Times)

08:06, June 20, 2012

The State Electricity Regulatory Commission yesterday published details of its plan to encourage private investment to enter the power sector, an area mainly dominated by State-owned companies.

The move is intended to address the slowdown of investment in the country's thermal power plants, experts said.

Private investment will be given equal access to the power industry, such as electricity generation, design and construction businesses, the commission said in a statement on its website yesterday.

The commission will also ensure that private power plants can enjoy the same electricity pricing policy as State-owned ones, the statement said.

The statement came after the National Development and Reform Commission, China's top economic planner, warned last week that investment in thermal power plants, a major source for the country's electricity supply, fell by 29.3 percent year-on-year in the first four months of 2012.

"The move will encourage more private capital to enter the sector, and increasing competition is also beneficial for electricity pricing reform," Cai Wenbin, an industry analyst at Shanxi-based Datong Securities, told the Global Times yesterday.

Private investment was allowed to enter China's power generation industry as early as 1985, and many foreign power companies swarmed into the sector during the 1990s. However, foreign investment began to fade out of the sector around 2002 due to low returns on investment, Lin Boqiang, director of the China Center for Energy Economics Research at Xiamen University, told the Global Times yesterday.

Private capital will still be cautious in entering the power generation sector, mainly because returns on investment remain low, Lin said.

Seven power companies listed on the Shanghai and Shenzhen A-share markets have posted warnings of losses for the first half. Guodian Changyuan Electric Power Co, for example, forecast a loss up to 185 million yuan ($29.1 million) in the first half of 2012, mainly due to decreasing electricity demand.

Despite the opening up of the power generation sector, Cai said power grids are still monopolized by State-owned companies.

"Electricity distribution concerns national security, so the government is still cautious about opening up the sector," Li Ying, chief economist of the State Grid Energy Research Institute, told the Global Times yesterday.

"Only some parts of the electricity distribution sector can be opened up to private investment, such as engineering for power plant interconnections," he said.

Li noted that private investment can participate in the electricity distribution sector through other ways, such as buying shares in State-owned power grid companies when they go public, or buying corporate bonds issued by the State-owned companies.

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