Energy & Resources

Switching tactics

State Grid makes reform-friendly noises

A worker repairs an utility pole on the outskirts of Yingtan, Jiangxi province

But you can’t have these...

Last week State Grid used an event in Shanghai to tout its commitment to electric cars. As part of a new partnership it will build public charging sites at the site of the former World Expo park and at 46 other prime locations in the city. Setting itself an aggressive timetable for implementation, it promised car owners would be able to recharge their vehicles at these newly built locations by the end of the year.

State Grid added that the stations will be compatible with electric models made by BYD and SAIC, as well as foreign brands like BMW (however, they won’t be able to recharge Elon Musk’s Tesla cars, as these require a different ‘supercharger’ network which the entrepreneur is looking to build himself).

The new targets come as the government tries to encourage new energy vehicles as a means to combat air pollution. It is also belated recognition that State Grid’s unenthusiastic efforts at building a charging network have held back consumer demand for green cars. There are fewer than 70,000 such vehicles on China’s roads, embarrassingly shy of the official target that 500,000 new energy vehicles will join the Chinese automobile fleet by next year.

The fact that State Grid brought in private sector carmakers like BYD and BMW for the Shanghai ceremony is also telling. It aligns with another policy imperative: the shift in direction towards the ‘mixed ownership’ concept that government has now put at the core of its new economic reform agenda.

This envisages a dilution of some of the power and influence of the country’s largest state-owned enterprises by compelling them to partner with more entrepreneurial and efficient firms from the private sector.

State Grid is now singing lustily from the policy hymn sheet. The first focus for public-private partnership is the electric vehicle charging stations. The second is grid distribution facilities for new sources of clean energy (a business line would include approaching those with solar panels on their rooftops and connecting them to the grid to sell their excess power).

CBN says the Shanghai announcement is the first time that State Grid has welcomed private capital, calling it an “ice-breaker” moment. It would also be an ideological volte face for the power giant, which WiC has mentioned frequently as one of the most impregnable bastions of state-led capitalism. State Grid has a near monopoly of China’s energy distribution system, controlling 88% of transmission lines, with business interests in 26 provinces. Whenever electricity reformers have tried to break its monopoly, it has resolutely defended its turf.

So what’s changed? Well, for a start any sense of complacency at the firm may have been shaken by the anti-corruption purge pulsing through the electricity industry (see WiC232). Likewise, even some of its siblings at other big state firms seem frustrated, calling for an end to its monopoly (such as the boss of Chinalco, see WiC229).

State Grid now says that the two business areas that it is opening up to external capital will grow their revenues at an average pace of Rmb13 billion ($2.07 billion) annually and that they will be worth at least Rmb100 billion each by 2020.

Despite the large numbers, some commentators are underwhelmed, viewing the move as more of a diversionary tactic to protect State Grid’s core business and its cherished investment in its new ultra-high-voltage power grid. In comparison to this gargantuan project, the business lines conceded are immaterial to its bottom line. That makes them the perfect token gesture, say the company’s critics. State Grid is showing support for ‘mixed ownership’, but without giving too much away.

Hence Xinhua has reported that the Shanghai announcement has “disappointed the market” in comparison to news from the oil majors CNPC and Sinopec that they will spin off their pipelines and gas stations to private investors.

Compounding the sedate response from onlookers: details of how State Grid will choose its private partners are vague too.

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