A long-awaited power reform package has recently been submitted to the State Council for approval but questions still linger over what kind of role State Power should play in the sector.

According to sources, under the present reform plan, State Power, which currently controls half of the nation's power plants and all of its power grids, would establish six subsidiaries to operate the power grids in different regions across the country; and those six subsidiaries would be directly under the control of the State Development Planning Commission rather than State Power.

Liu Jipeng, general manager of the Standard Consultant Company and a senior power expert, warned that the bill would greatly impede long-term development of the industry and undermine the stability of electricity supply.

"If the motion is passed in this way, State Power's grip on power grids would loosen, and monopolies would inevitably arise in each of the six regions.

"If State Power cannot control the subsidiaries, it will be impossible for the power conglomerate to pool enough money to form a nationwide power grid," said Liu.

Liu said a power crisis in California in the United States that has resulted in widespread blackouts since late last year was proof that a national grid network is needed to ensure fair and even power distribution among different regions.

He added that a national grid would also pave the way for "cheaper and cleaner" energy, like hydropower in western areas, which could be transmitted to the east to stir up competition.

Experts fear a division of power grids under the subsidiary plan will prevent formation of such a grid because the subsidiaries would be less likely to work together.

"Only State Power can come up with the huge investment necessary to connect power grids in different regions," Liu said.

He said to break up the grids looks exciting but the shake-up would not promote the competition in the sector. On the contrary, he argued, it would ruin the scheduled bidding system.

In the reform plan, the State hopes power plants will bid through a computer system to transmit their electricity through the power grids, to create a competitive power generation market.

A reliable source said only 20 per cent of electricity would initially be supplied through the bidding system, and according to Liu, it could take as many as five years to see the bid system handle a majority of electricity supply.

Liu said the first step, which enjoys consensus support, is to divest State Power of most of its power plants and use those plants to form several independent power companies. The idea is to create a fair power production market.

The second phase of reform will set up several non-State utility companies that would compete for electricity sales, "but that will also take a long time," Liu said.

At present, nearly all of China's urban electricity supply comes from State Power.

An official from State Power said that it is still not clear whether top policy-makers would agree on the current reform draft or when the reform package would be released.