Gridlocked

In an issue of the New Yorker magazine last month Iraq’s former vice president made a startling claim. As part of a lengthy article about the condition of the country, Adil Abd al-Mahdi said that almost $220 billion had been allocated to 6,000 projects for which little or no work had ever been done. He added, about $70 billion had been handed out in government loans that had not been repaid. A former high-ranking CIA official put it more succinctly: “The corruption is Olympian.”

(The Iraqi government denied the claims, telling the New Yorker that these were “statements refuted by reality”.)

Over in China discussions about corruption are a daily occurence, while WiC reports on new cases of graft on almost a weekly basis. In one of the recent episodes senior executives at the Three Gorges Dam were detained (see WiC232), reinforcing fears that massive infrastructure projects are particularly prone to illicit activity. It is partly for similar reasons that concerns are being expressed about another infrastructure project which requires massive funding: the State Grid’s grand scheme to criss-cross the country with ultra-high voltage lines (UHV). Yet as Xinhua reported late last month, the government has given the go-ahead for the ambitious energy network to be built.

State Grid has disclosed it has won approval for 10 UHV lines at a cost of Rmb381.5 billion ($60.95 billion). Construction will start this year. National Business Daily adds that State Grid executives think an additional 17 lines will be built before 2020. Some analysts calculate the entire grid will require a $250 billion spend.

In WiC174 we detailed some of the concerns about the project. One is that the technology has never been applied on such a massive scale, raising the risk of blackouts. It will also make State Grid even more dominant, potentially blocking attempts to introduce more competition into the electricity sector.

But an April meeting of the National Energy Administration indicated that opponents of the plan had lost out. The top government body said work could start on a UHV line between Huainan in Anhui province, Nanjing in Jiangsu and Shanghai. Then work will begin on a line beginning in Ya’an in Sichuan that connects to the central city of Wuhan (a distance of about 1,300km).

State Grid seems to have made its case mostly on the potential environmental benefits. Much of China’s cleaner power generation is inland, but the greatest demand for electricity is in the coastal cities. The promise of UHV is that power will be transported more efficiently to where it is needed, reducing some of the need to burn coal in big cities. Briefings from the State Grid Energy Research Institute have focused on the haze and air pollution that are blighting urban China and presented UHV as the most viable near-term solution. As National Business Daily comments: “Since the start of 2014, because of environmental and other pressures, the state’s top leadership has changed its passive state regarding State Grid Corporation’s application for UHV approval, to recognise the benefits of cross-regional power transmission.”

(Another potential consideration: the new grid will require colossal amounts of steel. Longtime readers of WiC will be well aware that the steel sector faces overcapacity and is in need of stimulus, particularly if its weaker elements are to avoid defaulting on their bank loans.)

The announcement also adds fuel to the debate about whether the central government is committed to reining in state capitalism. In recent issues we have reported on signs that Beijing wants to promote the growth of the private sector at the expense of some of its state-owned firms. But in this case, State Grid’s powerful lobbying effort looks to have bucked the trend.

Then again, this assessment might be tempered by a report late this week that the National Audit Office has sent hundreds of investigators into State Grid’s offices. If the Century Weekly report is correct and the audit is targeting “key officials”, then a turbulent period may be ahead that centres on anti-graft investigations.

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