Comment: Electricity agency lacks power
By Li Shi (China Daily)
Updated: 2005-03-06 01:48

The new electricity supervision regulation which came out late last month was expected to sweep away legal obstacles in the way of the State Electricity Regulatory Commission (SERC), watchdog of China's power sector.

Shao Binrong, deputy director of the SERC, speaks at a press in Beijing on Feb. 25, 2005. [newsphoto]

However, on its release on February 25, it fell way short of public expectations.

While legally equipping the SERC with the power to oversee the sector, the new regulation, which will take effect on May 1, fails to give the commission substantial power to nod approval to pricing and industrial investment, both being crucial powers for the commission to carry out independent regulation.

China's market-orientated reform of the once-monopolized bloc of power industry started in the 1980s. In 1995, the Electricity Law was promulgated, which marked China's shift from administrative control to a law-based procedure regarding the management of the power industry.

In 1997, the State furthered market reform of the sector, forming the State Power Corporation (SPC) and loosened the administrative reins on the industry.

The reform accelerated two years ago, when the State Council issued a systematic reshuffling plan to spearhead industrial reform. Under the plan, the State split the SPC into 11 separate companies, including two grid corporations, five power generating groups and five other companies conducting power-related auxiliary business.

Later in the same year, the SERC was established to unify the previously scattered supervisory power.

Reflecting on the historical tracks of reform, we can find China has moved towards a liberalized regulation mode, in which an independent regulatory body supervises the industrial development, while the market largely decides the supply and demand of electricity.

The liberalized regulation and independent supervision are a general practice in mature market economies.

It is the right direction for China's reform.

Analysts say the establishment of the SERC, the first independent regulator of China's network industries, marks a breakthrough in establishing a comprehensive power supervision framework in the country.

To make the systematic innovation a real breakthrough, the supervisory role of the SERC must be fully brought out.

So far, it has not.

Now that the watchdog has been in place for nearly two years, people have heard stronger voices from the National Development and Reform Commission (NDRC), a major policy-making body of the country, than the SERC in major power-related matters, such as dampening investment heat and co-ordinating the price brawls between coal and power companies.

The embarrassing role of the SERC stems from the 2002 reform plan, which stipulated that the SERC and NDRC share the power of pricing supervision.

Pricing regulation is the most effective way of imposing industrial supervision. The lack of independence in this respect will sour the SERC's authority in future industrial regulation.

According to the plan, the NDRC also has the exclusive power of making decisions on investment in the sector. SERC does not have a say in the process, further undermining its authority.

Without giving the SERC the full power of supervision, it would be hard to realize the blueprint hammered out by policy-makers and industrial experts to establish a unified supervision network.

People used to pin their hope on a law to render legal support for setting up such a framework.

They certainly do not count on the 1995 Electricity Law, which was drafted at a time when the idea of independent regulation had not arrived in China.

Back then, the administrative control remained the core part of the law. The sixth article of the law, for example, says the electricity management department under the State Council is responsible for the supervision and management of the nation's electricity affairs.

The power of the electricity management department was later transferred to multiple central departments.

Experts have long advocated the revision of the electricity law to solve the problem. Before it is revised, an interim regulation is most desired.

For the SERC, the promulgation of the new electricity supervision regulation is vital.

It needs a legal back-up for its role as an industrial supervisor. More importantly, since the Administrative Licensing Law took effect last July, which does not allow wilful licence issuance, the SERC urgently needs a law to legitimize its granting of electricity-related business licences.

Now the new regulation has satisfied the SERC's desire to get legal back-up for its licence issuance, but fails to give it independent power of pricing supervision, let alone that of investment approval.

It seems the new regulation is a result of compromise between the SERC and other government departments. Reports have it that in the draft of the regulation, it is stipulated the SERC shall play the role of pricing supervision in accordance with the regulation and relevant State Council policies. Since the NDRC reportedly insists that pricing concerns the overall operation of the national economy and should be put under its jurisdiction, the final version of the regulation parallels the NDRC with SERC to impose the power of electricity supervision.

Without independent power of pricing supervision, it is hard for the SERC to fare well.

This year, it is predicted that electricity consumption nationwide will increase by more than 10 per cent year-on-year. Competition is set to intensify. All this will pose a severe challenge for the SERC, which shoulders the responsibility of ensuring fair and orderly competition.

The watchdog would have to count on the revision of the electricity law, hoping it would be granted stronger supervisory power.

But will the new law, with an unknown birth date, make its hope a reality?

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