2016. A pilot reform of the city-gate price was
also carried out in Fujian province.
After several years of reform, the marketisation of the residential gas price had clearly
improved. Before the reform, the residential gas
price was managed by the government. After the
reform, the price of non-residential gas (which
accounts for more than 80% of China’s total gas
consumption) was determined by the market, of
which 50% was completely determined by the
market. For the remaining 30%, a flexible
mechanism, whereby the price may be 20%
higher than the maximum gate station price, was
applied.
A price regulation system covering all nodes
in the gas transmission and distribution networks
was created by reforming the pipeline transmission pricing mechanism. To resolve the
long-term absence in China of clear and sophisticated gas pipeline transmission pricing and
supervisory and review mechanisms, the NDRC
issued the Measures for the Administration of
Natural Gas Pipeline Transport Prices (tentative)
and the Measures for the Supervision and
Review of Natural Gas Pipeline Transport Pricing Costs (tentative) in October 2016. These
measures specify the scope and objectives of
price regulation, the methods and procedures of
price management, as well as some key indicators based on the principle of “allowable cost +
reasonable profit”. As a result, a new gas pipeline
transmission pricing method has been established. The price no longer differs from one
pipeline to another. Rather, it is assessed and
then fixed, based on the cost of transmission
(made public by the government) and the pricing
formula. Pipeline transmission costs that are not
part of the tariff are clear to all parties. This
standardises pricing and provides clear and verifiable charging criteria for third parties wanting
access to the transmission network.
Because the price regulation rules for gas
distribution are not yet complete, the gas distribution price varies between regions, with some
regions charging a higher price than others.
The NDRC issued the Guiding Opinions on
Strengthening Regulation of Gas Distribution in
June 2017, which defines the methods for setting
the gas distribution price. It also defines the key
indicators and parameters and the requirements
needed to improve regulation, build cost constraints and create motivation mechanisms, as
well as requiring disclosure of business information. The Guiding Opinions established the
price regulation framework for downstream
urban gas distribution, thereby building a complete price regulation system covering all parts of
the gas system, from transmission to distribution.
In addition to alleviating the cost burden on users
by lowering the high distribution price in some
regions, the Guiding Opinions lays a solid
foundation for the future separation of distribution and sales and the opening of the gas distribution network to third parties.
In the first half of 2017, the NDRC reviewed
the pricing of 13 trans-provincial gas pipeline
transmission companies. The pipeline transmission price had decreased by around 15% on
average, saving businesses using downstream gas
about RMB 10 billion. Shaanxi, Jiangsu, Zhejiang, Hebei, Yunnan and Jiangxi developed their
own transmission and distribution price regulations, as required by central government, and
reduced their pipeline transmission and gas distribution prices, cutting the cost for businesses by
more than RMB 4 billion. Supervision and
review of transmission and distribution prices
enabled pipeline transmission companies to
reduce costs and increase efficiency, benefitting
gas users. Most importantly, the process opened
the pipeline network and marketised gas trading.
After the long-distance pipeline transmission
price had been reviewed and fixed, two pipeline
transmission companies immediately opened
their pipelines to third parties.
5.1.3 Access to Infrastructure Was
Further Deregulated
Systemic shortcomings severely impede the
efficient use of infrastructure and fair competition
among market participants. To resolve these
problems, the NDRC and the NEA issued the
Measures for the Administration of Natural Gas
Infrastructure Construction and Operation and
the Measures for the Supervision and Administration of the Fair Opening of Oil and Gas
Special Report 4: China’s Energy System Revolution
457
also carried out in Fujian province.
After several years of reform, the marketisation of the residential gas price had clearly
improved. Before the reform, the residential gas
price was managed by the government. After the
reform, the price of non-residential gas (which
accounts for more than 80% of China’s total gas
consumption) was determined by the market, of
which 50% was completely determined by the
market. For the remaining 30%, a flexible
mechanism, whereby the price may be 20%
higher than the maximum gate station price, was
applied.
A price regulation system covering all nodes
in the gas transmission and distribution networks
was created by reforming the pipeline transmission pricing mechanism. To resolve the
long-term absence in China of clear and sophisticated gas pipeline transmission pricing and
supervisory and review mechanisms, the NDRC
issued the Measures for the Administration of
Natural Gas Pipeline Transport Prices (tentative)
and the Measures for the Supervision and
Review of Natural Gas Pipeline Transport Pricing Costs (tentative) in October 2016. These
measures specify the scope and objectives of
price regulation, the methods and procedures of
price management, as well as some key indicators based on the principle of “allowable cost +
reasonable profit”. As a result, a new gas pipeline
transmission pricing method has been established. The price no longer differs from one
pipeline to another. Rather, it is assessed and
then fixed, based on the cost of transmission
(made public by the government) and the pricing
formula. Pipeline transmission costs that are not
part of the tariff are clear to all parties. This
standardises pricing and provides clear and verifiable charging criteria for third parties wanting
access to the transmission network.
Because the price regulation rules for gas
distribution are not yet complete, the gas distribution price varies between regions, with some
regions charging a higher price than others.
The NDRC issued the Guiding Opinions on
Strengthening Regulation of Gas Distribution in
June 2017, which defines the methods for setting
the gas distribution price. It also defines the key
indicators and parameters and the requirements
needed to improve regulation, build cost constraints and create motivation mechanisms, as
well as requiring disclosure of business information. The Guiding Opinions established the
price regulation framework for downstream
urban gas distribution, thereby building a complete price regulation system covering all parts of
the gas system, from transmission to distribution.
In addition to alleviating the cost burden on users
by lowering the high distribution price in some
regions, the Guiding Opinions lays a solid
foundation for the future separation of distribution and sales and the opening of the gas distribution network to third parties.
In the first half of 2017, the NDRC reviewed
the pricing of 13 trans-provincial gas pipeline
transmission companies. The pipeline transmission price had decreased by around 15% on
average, saving businesses using downstream gas
about RMB 10 billion. Shaanxi, Jiangsu, Zhejiang, Hebei, Yunnan and Jiangxi developed their
own transmission and distribution price regulations, as required by central government, and
reduced their pipeline transmission and gas distribution prices, cutting the cost for businesses by
more than RMB 4 billion. Supervision and
review of transmission and distribution prices
enabled pipeline transmission companies to
reduce costs and increase efficiency, benefitting
gas users. Most importantly, the process opened
the pipeline network and marketised gas trading.
After the long-distance pipeline transmission
price had been reviewed and fixed, two pipeline
transmission companies immediately opened
their pipelines to third parties.
5.1.3 Access to Infrastructure Was
Further Deregulated
Systemic shortcomings severely impede the
efficient use of infrastructure and fair competition
among market participants. To resolve these
problems, the NDRC and the NEA issued the
Measures for the Administration of Natural Gas
Infrastructure Construction and Operation and
the Measures for the Supervision and Administration of the Fair Opening of Oil and Gas
Special Report 4: China’s Energy System Revolution
457