China s NEA Gains New Regulatory Powers

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1 Kreab Gavin Anderson is a leading communications consultancy with a global reach. We help our clients solve complicated and demanding communications issues that can have an impact on their futures. With operations in 25 countries and over 400 experienced consultants, we provide independent and strategic advice on high-stakes financial, corporate and public affairs communications. We base our advice on a solid history of serving both private and public clients in financial and professional services, energy, mining, manufacturing, healthcare, technology and many other industries. Please contact us for more information on how we can help you meet your communication challenges. China s NEA Gains New Regulatory Powers China has streamlined its energy regulators based on a State Council plan, approved by the National People s Congress in March. The plan calls for the key power regulator, the State Electricity Regulatory Commission (SERC), to be merged into the National Energy Administration (NEA), reducing overlapping duties in energy reform, investment and project approval. Overview of the NEA On 18 June, the State Council released details of the new NEA s duties, structure, and personnel. The agency s mandate covers research, planning, regulation and supervision for primary and secondary energy forms. However, the NEA is not a ministry-level body. This means it must inform the State Council of energy pricing suggestions, strategic plans, policies and major project approval requests through its parent agency, the National Development and Reform Commission (NDRC), China s main development planning body. Some of the new NEA s major duties include: Drafting and implementing plans and policies for energy development, production, distribution and reforms; Developing production standards for primary energy, electricity and refined energy products; Organizing R&D for equipment and related technologies and guiding technical progress; Guiding energy industry conservation and resource use, and researching consumption targets; Issuing energy forecasts, alerts and statistics; Regulating the power market, standardizing operation and organizing enforcement and investigations; Regulating power safety and reliability; and Undertaking the work of the National Energy Commission, an interagency energy development strategy body. Contacts: Robyn Joseph Partner, Hong Kong rjoseph@kreabgavinanderson.com Thomas Patterson Executive Associate, Hong Kong tpatterson@kreabgavinanderson.com

2 Changing Responsibilities Apart from the inclusion of electricity regulation under the NEA s umbrella, some other notable changes to the new agency s responsibilities have occurred. They reflect the Chinese leadership s desire to increase regulatory efficiency by reducing excessive red tape and to make government more attentive to the needs of businesses and consumers. Reduction in administrative approval requirements Nine administrative approval processes and acceptance checks have been cancelled, including processes for: Electricity, coal, oil and gas enterprise development and construction plans and special project development plans; Approving electric power market allocation; A pilot program for power users who buy power from producers directly; Informatization of hydropower dam operating safety; and Information security and web security plans. Delegation of approval processes for power suppliers The NDRC-led approval and issuance processes for setting-up and altering franchised electricity service areas and for approving and issuing business permits for power suppliers, will be combined with the NEA s electricity business license approval and issuance process and delegated to local energy regulatory offices. A service-oriented role A 9 May NEA circular outlines the creation of a system of seven committees chaired by major NEA departments to lead discussion among, share information with, and gather opinions from energy enterprises. This change is designed to make the NEA more accessible to enterprises, facilitating coordinated development. The committees cover coal, electric power, oil and gas, nuclear power, new and renewable energy, energy conservation, technology and equipment, and international cooperation. 2

3 Organizational Structure In terms of organizational structure, the merger of the SERC and the NEA was fairly straightforward. Administrative departments common to both regulators were merged, and most of the original departments of the NEA were retained. Two departments were created to absorb the bulk of the SERC s former responsibilities, and a third department was founded to spearhead systemic reforms. In total, the new NEA features 12 departments, not including the Party Committee. A department that combines systemic reform responsibilities with the compliance function that is common to Chinese agencies, signifying a strengthened NEA responsibility for energy reforms A developmental planning and market supervision department for the power market, covering market regulation; regulation of distribution, supply and anti-competitive practices; the resolution of market disputes; and the making of price recommendations A supervisory and regulatory department that is responsible for the safety of non-nuclear power plant operation, construction and production; output reliability; and dam safety Other Additions: Six regional regulatory bureaus and 12 province-level offices, formerly under the SERC. Personnel In its national office, the NEA will have a 240-member staff, including 42 department heads. With the regional and provincial offices that the reorganized agency has inherited from the SERC, the total administrative headcount will be 740. This headcount is a significant increase from the 112-person staff allocation that the State Council granted the NEA upon its foundation in However, compared to the combined size of the two former agencies, it represents a modest streamlining. 3

4 Goals of the New NEA Separately from the plan released on 18 June, the NEA has announced a set of ten goals and a set of research issues, all of which are indicators of future directions in Chinese energy policymaking. Much of the content supports the attainment of goals included in the 12 th Five Year Plan for Energy Development, announced in January The ten goals include: The NEA will push to further lower energy intensity. Data source: US EIA; 2015 value projected based on China s 12 th Five-Year Plan for Energy Development Research into diversifying China s energy mix will be conducted as China seeks to reduce its reliance on coal. Data source: NBS 1. Research and develop a work plan for prevention of air pollution in the energy industry; 2. Develop a plan to resolve the problems of substandard waste water, emitted air and emitted light; 3. Research the development of wind and photovoltaic power generation; 4. Create a work plan for international energy cooperation; 5. Develop an electricity network development plan; 6. Push forward development of major energy projects and technologies; 7. Promote energy base and corridor development; 8. Strengthen energy management, promote energy structure improvement, and raise energy efficiency; 9. Deepen energy reforms; and 10. Coordinate long-term energy development, scientific development and safety. As for the strategic issues, the NEA has classified them into four categories: Domestic energy development strategy - Supply-demand analysis, research on energy bases and corridors, and development plans for various energy types International energy cooperation - Joint development of foreign oil, gas and coal resources Energy sciences and technologies - Research into innovation for each energy form Energy market reforms and supervision - Research designed to improve laws and regulations 4

5 Implications The merger of the SERC and the NEA has both positive and negative implications. Positive By combining two energy regulators into one, the Chinese authorities may have reduced opportunities for state-owned enterprises and other vested interests within the energy industry to take advantage of the overlapping jurisdictions of regulators to resist reforms. For example, it will be easier for the NEA to spearhead reforms to China s power market and advocate the development of renewable energy in power generation without having to compete with the SERC in these fields. Negative Since the new NEA remains a component of the NDRC, it will continue to have a somewhat weakened mandate. Energy pricing power, which the NDRC retains, is arguably the most important source of leverage over vested interests in the industry because it affects the ability of enterprises to maintain profitability a key factor in the performance evaluations of managers of state-owned firms. Consequently, industry players might continue to view the NDRC as the lead agency in energy regulation rather than its daughter agency. Finally, there is a risk that NEA development strategies will continue to take a back seat to other development priorities of the NDRC a general state-planning agency with economy-wide development planning responsibilities. Unless the NEA gains independence from its parent at a later date, efficient energy infrastructure and market development may be impeded. 5