Home > News > China’s SOE and gas price reforms pick up pace

China’s SOE and gas price reforms pick up pace

DATE:2014-03-07 | comments: | posted by:liuailin

CNPC’s headquarters in Beijing. The company is to open up to private investment. (CNPC)

China’s efforts to overhaul its bloated state-owned energy giants as part of sweeping economic reforms began to take shape at an annual parliament meeting this week, with the country’s largest oil and gas producer stating on Wednesday that it will tap outside investors for capital.

In doing so, China National Petroleum Corp. (CNPC) is following in the footsteps of its smaller rival Sinopec, which announced last month that it would sell up to 30% ofits oil retail business to private investors.

CNPC – China’s largest state-owned enterprise (SOE) and the parent company of PetroChina – will open up six business segments to private money and social capital (the latter referring to state-controlled pension funds) said CNPC Chairman Zhou Jiping on the sidelines of the National People’s Congress (NPC) in Beijing on Wednesday.

The six areas targeted for mixed ownership comprise oil and gas reserves, unconventional oil and gas exploration, pipelines, refining, overseas businesses and financial units.

Investment in unconventional resources could cover shale gas, CBM and tight gas, while investment could flow into pipeline projects either under construction or planned, said Zhou, who added CNPC is seeking outside investment for the fourth West-East Pipeline.


Mixed ownership

CNPC is pushing the move as mixed ownership is an important part of SOE reform, said Zhou.

He declined to disclose the size of the stakes private companies will be permitted to own in each business, stating the decision will be left up to the company’s board of directors.

“Every segment of these businesses is different. Such a plan will be executed category by category,” Zhou told reporters. The general principle, he noted, would be to break monopolies, introduce competition and strengthen regulation.

“The size of private interest in SOEs will have a large impact on whether the government is able to realise its ultimate ambition of letting the market play a decisive role and creating an equal and competitive playing field for all market participants,” IHS analyst Olivia Boyd wrote in a note on Wednesday.

In what would be another landmark, Zhou also said CNPC will explore upstream cooperation with domestic rivals Sinopec and China National Offshore Oil Corp. through ventures such as production sharing contracts. CNPC will hold at least 51% of any tie-up, Zhou added.

China’s new leaders have been signalling they are serious about putting the world’s second-largest economy on a more sustainable and market-oriented footing since they took office.

Reform of SOEs such as CNPC has been on the agenda since President Xi Jinping and other leaders promised last November to force SOEs to compete and diversify their shareholding structure as part of plans to encourage a mixed ownership economy.

“Introducing private capital to SOEs could not only help lower their debt ratios but also increase their competitiveness,” Huang Shuhe, deputy director of the State-owned Assets Supervision and Administration Commission told state media on Tuesday.

Huang previously said at a news briefing in December that China has made some progress in boosting the level of private investment in SOEs.

Central government-owned SOEs have 378 listed subsidiaries trading on global stock markets, with 53% of stakes in the hands of private investors, according to Huang.


Higher prices on the horizon

Separately, the country’s top economic planning body also said it would raise gas prices this year after an earlier round of increases in 2013.

“We will make timely adjustments to city gate prices for non-household natural gas equivalent to the amount used in 2012,” said the National Development and Reform Commission (NDRC) in its annual work report released on Wednesday.

The move follows nationwide price hikes in July 2013, when the NDRC raised city-gate prices for non-residential consumers to an average of RMB 1.95 ($0.32) per cubic metre across the country. Chinese households have so far been spared from higher gas prices, but the NDRC’s report suggests that may not be the case for much longer.

“We will establish a sound system of tiered pricing for household consumption of water and natural gas,” said the report. This was repeated by NDRC Director Xu Shaoshi at a news briefing on Wednesday.

A number of large Chinese cities have already taken the lead in adopting tiered residential gas pricing, implementing different prices depending on the type of user and volume of usage.

Cities in Jiangsu, Yunnan, Guangdong, Guangxi, Henan, Heilongjiang and Liaoning already have such a system in place, and others are looking to adopt it.


State of the Republic

In his first government work report since taking office a year ago, Chinese Premier Li Keqiang repeated pledges from November to let the market play a decisive role in resource allocation, reduce government interference in the economy, and optimise SOEs.

“We will improve the distribution and structure of the state-owned sector of the economy and accelerate the development of mixed-ownership economic entities,” Li said in his report to China’s top legislature.

“We will establish a sound modern corporate structure and corporate governance. We will improve the system for managing state-owned assets, clearly define the functions of different SOEs, and carry out trials of investing state capital in corporate operations.”

Cutting red tape and streamlining government structure has been a policy priority for the new leadership and that trend continued at the NPC, with Li stating that 200 items presently require State Council review and approval will either be scrapped or delegated to lower-level governments.


More private capital

Li also repeated promises to allow private capital to flow into more state projects, including those in energy.

“We will formulate measures for non-state capital to participate in investment projects of central government enterprises, and… in a number of projects in areas such as banking, oil, electricity, railways, telecommunications, resources development and public utilities,” he said.

That move is in line with China’s ongoing efforts to open up parts of the oil and gas sector to private companies and investment.

Last week, the National Energy Administration (NEA) issued regulations to facilitate the fair and open development of oil and gas pipeline infrastructure, secure the stable supply of oil and gas, and increase the operational efficiency of such pipelines.

On Tuesday, the NEA issued a standard version of a gas sales and purchase contract, to improve monitoring of gas use and regulation of the gas market. 

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