China to Encourage Local Private Investment in Energy Projects

China pledged to increase participation by domestic non-state companies in its energy industry to accelerate oil exploration and electricity generation, which are dominated by state enterprises.

Private companies will be “encouraged” and “guided” to invest in oil and natural gas ventures in China, including unconventional resources such as shale gas and coal-bed methane, the Ministry of Land and Resources said in a statement on its website yesterday. Non-state entities will be allowed equal access to the power industry, the State Electricity Regulatory Commission said in a statement today.

The announcements are part of a drive by the government to foster competition in China’s energy industry and infrastructure industries. The National Development and Reform Commission, the country’s economic planning agency, said June 5 that a policy framework would be announced this month to grant investors wider access to traditionally state-controlled sectors such as oil, power generation and transportation.

“It’s a huge step forward and the government looks determined to break at least part of the state’s monopoly in natural resources,” said Lin Boqiang, director of the independent China Center for Energy Economics Research at Xiamen University in Fujian province. “Private investment will push state-owned companies to accelerate exploration, and may replace them if they don’t want to move fast enough.”

Shale Gas

China, holder of the world’s biggest reserves of gas trapped in shale rock, has yet to produce the fuel commercially as state energy companies lack drilling technologies and need to better understand the country’s geology. The land ministry said in May it would allow private Chinese companies to bid in the next auction of shale-gas exploration areas due this year.

“The government should quickly turn the talk into action, releasing detailed regulations that guarantee interests of private companies in such investment,” Lin said.

The State Electricity Regulatory Commission said today it will open the electricity sector wider to private investment and allow companies equal access to electricity generation, distribution, design and construction businesses. The government will ensure that private enterprises enjoy the same electricity pricing policy as state companies and industry regulation would become more transparent, it said.

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