Govt to back private investment in energy sector

Two employees from PetroChina work on a natural gas pipeline. [Wang Fei / Xinhua]

China is making efforts to let private investors enter the energy sector, including allowing private companies to engage in oil and gas exploration activities, the National Energy Administration said on Tuesday.

The NEA has set a timetable to support private investors in key areas of the energy sector such as building small hydropower plants, simplifying the authorization process for coal power plants, and clarifying the requirements for crude oil imports.

The move comes after the Third Plenary Session of the 18th Central Committee of the Communist Party of China mapped out a plan to deepen market-oriented reforms in areas including the energy sector, in a bid to create a more competitive environment.

Analysts said the measures will likely improve the country's energy efficiency, but breaking the monopoly of the giant State-owned enterprises, especially in the oil sector, will take long and strenuous efforts from authorities.

"This could be read as a small step in the central government's energy price reform blueprint, but it has not yet touched the core of the issue, which requires a substantial monopoly breakup. And the threshold for private companies is still very high," said Ren Haoning, an energy analyst at China Investment Consulting.

Although details of the timetable are not yet available, the NEA said in its statement on Tuesday that it would "race against time" to introduce "a series of pilot projects" to support private investors in coal processing, new energy and liquefied biofuel projects.

It will also unveil measures to manage the entry of private investors for projects to build and operate natural gas infrastructure.

Ren said that shale gas exploration projects will "very likely" be chosen as one of the pilot programs, as SOEs have achieved limited progress in this sector, while private companies are very interested in it.

The China Securities Journal reported that a policy will be released as soon as the end of the year to loosen controls on imports of crude oil and oil products.

The Chinese newspaper quoted Zhang Yue, chairman of the Petroleum Commerce Chamber of the All-China Federation of Industry and Commerce, as saying that authorities had held several workshops to collect opinions about a draft regulation.

The draft regulation will grant crude oil importing rights to major oil-refining complexes with certain processing capacities. According to the draft regulation, a major oil refining complex with a total annual primary processing capacity of more than 5 million metric tons and over 3 million tons for a single unit in the complex, and also meeting requirements of no less than 3 million tons for its secondary refining capacity and 4 million tons for its tertiary refining capacity, could be eligible to obtain rights to import crude oil.

Dongming Petrochemical Group, an oil refining company in Shandong province, was awarded a 10 million ton quota for crude oil imports from the Ministry of Commerce, while Sinochem Hongrun Petrochemical, a subsidiary of Sinochem Group in Shandong, got a 5 million ton quota for 2014.

"As you can see, regionally headquartered SOEs will benefit from the new regulation. But the requirements are still too high for private companies. In my opinion, authorities should further lower the criteria for oil import rights," said Ren.