At present, China's power system reforms have reached a standstill. This has led to growing public doubt and confusion, while the state-owned power enterprises within the sector are also facing significant barriers to progress. The next challenge is not just how to push forward with the reform of these enterprises, but also how to break through external obstacles that hinder their development. These issues have become common concerns among power state-owned companies.
One of the main obstacles to reform lies in the structure of the industry itself. Reforming power state-owned enterprises is a complex task, not driven by simple measures alone. According to recent interviews with industry insiders, the first and most critical issue that cannot be ignored is the reform of electricity pricing.
The electricity price reform problem stems from the institutional conflict between market-driven coal prices and planned electricity prices. This is often referred to as the "coal and electricity" dilemma. While coal prices fluctuate based on market supply and demand, electricity prices remain regulated, creating an imbalance. In recent years, rising coal costs have placed a heavy burden on power companies, leading to widespread policy-related losses.
Currently, the debt ratio of the top five major power companies remains extremely high, hovering around 85%. In an interview with reporters from the China Economic Times, Chen Feihu, General Manager of Guodian Group, mentioned that his company’s debt ratio is around 75%, which he considers acceptable. However, the debt levels of central power enterprises are clearly too high.
According to Li Junsheng, Deputy Director of the State Power New Energy Research Institute, two key factors contribute to the excessively high debt ratios in central power enterprises: First, high coal prices combined with low electricity prices lead to losses, forcing companies to take on more debt. Second, many companies invest in numerous projects without achieving economies of scale, making it difficult to grow sustainably.
Another troubling phenomenon in state-owned power companies is that even if a company is heavily in debt—sometimes exceeding 100%—it still continues operations. For example, a thermal power plant owned by a central power enterprise has a debt ratio over 120%. Despite this, the company continues to operate, which can worsen its financial situation over time.
Li Junsheng believes that both internal and external forces are needed to drive reform in the power sector. Externally, deepening the electricity industry reform is essential, especially in terms of electricity price reform, which can inject new energy into state-owned enterprises. Internally, companies need to be motivated to develop their own capabilities. Only when both forces work together can meaningful reform be achieved.
Currently, the core of state-owned enterprise reform led by relevant departments is to establish a modern corporate governance structure, including setting up boards of directors, reforming personnel systems, and improving investment and financing management. However, according to Li Junsheng, these are not the most pressing issues for power state-owned enterprises at the moment. Instead, the main challenges are institutional barriers.
In addition, power state-owned enterprises face problems such as a lack of long-term and practical strategies. There is a tendency towards formalism and short-term gains, which gives the impression of ignorance. Company managers often focus more on economic indicators and image-building projects rather than strategic positioning and sustainable development. This mindset also creates problems for the companies, meaning that true reform requires a shift in thinking.
The question of how to further deepen the reform remains controversial. The previous round of power sector reform officially began 11 years ago. In March 2002, the State Council issued Document No. 5, aiming to break monopolies, introduce competition, increase efficiency, reduce costs, improve the electricity price mechanism, optimize resource allocation, promote power development, and establish a national grid. It also aimed to create a fair and competitive electricity market under government supervision.
By the end of 2002, the State Council approved the "Reorganization Plan for Generation Assets," resulting in the establishment of two grid companies, five power generation groups, and four auxiliary industry groups. Over the past 11 years, opinions on the effectiveness of these reforms have varied. Some believe the reforms have improved enthusiasm and competitiveness, while others argue that the industry has stagnated in recent years.
Despite some progress, such as the separation of main and auxiliary businesses and the retirement of SERC, grid companies continue to face questions about monopolistic practices. Critics argue that the real issue lies in the failure to separate transmission and distribution, allowing grid companies to exert control over users.
Liu Xin, head of the State Grid Power System, responded to these criticisms by stating that official documents have not removed or split the structure. He argued that doing so would be like removing nerves from the body, calling it unrealistic. He also noted that many discussions on reform today are informal, taking place in cafes or even kitchens, rather than in official settings. He emphasized that there is no consensus yet on how to proceed with future reforms.
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