By: Steve Dickinson
The PRC National Development and Reform Commission recently issued a detailed set of rules on the allocation of electricity supply in China. The Measures for the Orderly Use of Electricity (有序用电管理办法) became effective on May 1, 2011. Since these Measures will affect virtually all companies operating in China, it is important to understand their terms. The Chinese version of the Measures can be found here. I am not aware of anyone having translated them into English.
The background is as follows. At the end of last year and continuing into this year, various regional electricity providers have initiated electricity black outs and brown outs. These measures have been imposed without advance planning and they have caused severe disruptions to both local businesses and local basic service operations. Numerous complaints have been registered.
The goal of the Measures is two-fold. The first is to prevent social dislocation caused by the unplanned termination of electrical supplies. The second is to move Chinese industry towards a rational plan for conservation of energy supplies. The current system provides no real incentive for conservation. The Measures are one step towards providing such incentives.
The basic provisions of the measures are as follows:
- All regional governments and electricity suppliers are instructed to develop an electricity demand and allocation plan. The purpose is to achieve an orderly allocation of electricity supply in the case of shortages. It is assumed that the unplanned use of electricity will lead to shortages over the next five years.
- Brown outs and black outs are to be the allocation method of last resort. Planning and conservation is the preferred method.
- Where energy shortages occur, strict priority is to be given to the following:
- Organs of public safety such as police, transportation and communications media.
- Industrial operations where termination of electrical supply poses a public safety hazard, such as chemical plants and mining operations.
- Hospitals, schools and financial institutions.
- Basic facilities for the public supply of heat, electricity and energy.
- Agricultural uses, such as irrigation and provision of fertilizer.
- Government infrastructure and military.
- Last priority is to be given to industries on the restricted, to be eliminated and prohibited lists, together with nonessential lighting for commercial and retail.
- Energy usage plans are to be developed with all major users of electricity. Two levels of energy charges are authorized. A cheap rate for interruptible power and a higher rate for secure power supply. This is an entirely new concept. Users who perform well in conserving electricity will also be given access to the preferential rate.
Whether or not this impressive system will be imposed on a national scale remains to be seen. However, foreign investors need to take the matter seriously, for the following reasons:
- There is absolutely no doubt that shortages of electricity will occur over the next five years.
- When shortages occur, private and foreign owned businesses will almost certainly be the first to be cut off. However, businesses that have entered into an advance plan with the local energy supplier will fare much better than those that have ignored the issue.
- Foreign investors planning to invest in high energy usage industries such as chemical and metals processing or large scale date networks must make energy planning a primary focus of their investment plans.
- Industries on the restricted/to be eliminated list should anticipate that their access to electricity supplies will be gradually choked off. New projects in these areas are unlikely to be approved.
Are you ready?
