management of mining rights should be performed at a high administrative level. China can
use the lessons learned from the trial implementation of the competitive transfer model for
shale gas and coalbed methane (CBM) exploration blocks in provinces like Guizhou and
Shanxi. These were jointly sponsored by the
provincial government concerned and the relevant ministry. Provinces should be selected to
delegate shale gas and CBM mining rights to
local government, thus motivating local government to drive the exploration and development of
shale gas and CBM resources throughout the
country. To eliminate the uneven distribution of
tax revenues between central and local government, the mechanism by which oil and gas
benefits are shared by government needs to be
improved to ensure that resource development
benefits local people.
The Mining Rights Transfer System Reform
Plan issued by the State Council in 2017 clearly
states that China’s mining rights (including oil
and gas exploration and exploitation) will shift
from agreements to public auction. The plan
requires that all mining rights transfers are made
through listing and that agreement-based transfers will be restricted. The price of mining rights
transfers will be determined by the market. This
competitive transfer approach will be fully
implemented in China’s oil and gas exploration
blocks. It is suggested that the relevant authorities develop support policies for the national
mineral resources royalty system as soon as
possible, and that differentiated benchmarks be
set for onshore and offshore oil and gas exploration blocks and unconventional oil and gas
resources.
The experience gleaned from the pilot auction
of exploration rights for the first and second
batches of conventional oil and gas blocks in
Xinjiang should be extended to other provinces.
Companies registered in the People’s Republic of
China that have a Chinese entity as their controlling shareholder, have sufficient financial
resources and a sound financial and accounting
system, and can independently bear legal liabilities, are allowed to hold oil and gas mining
rights, thus breaking the upstream monopoly.
However, bid winners should be selected on their
financial and technical strength, rather than on
the level of investment committed, to ensure that
blocks are transferred to companies that are truly
interested in oil and gas and to avoid the need for
passive supervision later. The lessons learned
from the auction of shale gas and oil and gas
exploration rights in Xinjiang, as well as the pilot
reform of CBM mining rights in Shanxi, should
be studied. Small and medium-sized enterprises
with different ownership systems should be
allowed to exploit the abundant oil and gas
reserves owned by CNPC, Sinopec and CNOOC
that have not been used and for which there is no
development plan in the short term. Non-public
enterprises and capital, as well as companies with
superior technical strength, are encouraged to
form joint ventures and bid for oil and gas
mining rights. Finally, an exploration and
exploitation system involving diverse participants should be created through mining rights
reform, enabling the market to determine
resource allocation.
The lowest limit of investment for oil and gas
exploration blocks should be set at different
levels in different regions for different mineral
varieties and for different phases of exploration.
Given the low cost of ownership of exploration
rights, and to encourage more companies to exit
from idle blocks and attract other investors into
exploration, the upper limit of exploration
investment should be raised for the first and
second years and lifted completely for the third
year. However, the upper limit of exploration
investment and exploration royalties for difficult
and high-risk blocks could be reduced. For
example, exploration and exploitation of unconventional oil and gas resources are far more
difficult than for conventional resources. A lower
exploration investment threshold and exploration
royalty should be applied to unconventional oil
and gas blocks based on geological conditions
and/or difficulty and the time required for
exploration. The cost of owning oil and gas block
mining rights and the amount to be paid to central government in the form of royalties should
be set at a suitable level. Mining rights should be
rationalised and the tax and fee system reformed.
Special Report 4: China’s Energy System Revolution
465
use the lessons learned from the trial implementation of the competitive transfer model for
shale gas and coalbed methane (CBM) exploration blocks in provinces like Guizhou and
Shanxi. These were jointly sponsored by the
provincial government concerned and the relevant ministry. Provinces should be selected to
delegate shale gas and CBM mining rights to
local government, thus motivating local government to drive the exploration and development of
shale gas and CBM resources throughout the
country. To eliminate the uneven distribution of
tax revenues between central and local government, the mechanism by which oil and gas
benefits are shared by government needs to be
improved to ensure that resource development
benefits local people.
The Mining Rights Transfer System Reform
Plan issued by the State Council in 2017 clearly
states that China’s mining rights (including oil
and gas exploration and exploitation) will shift
from agreements to public auction. The plan
requires that all mining rights transfers are made
through listing and that agreement-based transfers will be restricted. The price of mining rights
transfers will be determined by the market. This
competitive transfer approach will be fully
implemented in China’s oil and gas exploration
blocks. It is suggested that the relevant authorities develop support policies for the national
mineral resources royalty system as soon as
possible, and that differentiated benchmarks be
set for onshore and offshore oil and gas exploration blocks and unconventional oil and gas
resources.
The experience gleaned from the pilot auction
of exploration rights for the first and second
batches of conventional oil and gas blocks in
Xinjiang should be extended to other provinces.
Companies registered in the People’s Republic of
China that have a Chinese entity as their controlling shareholder, have sufficient financial
resources and a sound financial and accounting
system, and can independently bear legal liabilities, are allowed to hold oil and gas mining
rights, thus breaking the upstream monopoly.
However, bid winners should be selected on their
financial and technical strength, rather than on
the level of investment committed, to ensure that
blocks are transferred to companies that are truly
interested in oil and gas and to avoid the need for
passive supervision later. The lessons learned
from the auction of shale gas and oil and gas
exploration rights in Xinjiang, as well as the pilot
reform of CBM mining rights in Shanxi, should
be studied. Small and medium-sized enterprises
with different ownership systems should be
allowed to exploit the abundant oil and gas
reserves owned by CNPC, Sinopec and CNOOC
that have not been used and for which there is no
development plan in the short term. Non-public
enterprises and capital, as well as companies with
superior technical strength, are encouraged to
form joint ventures and bid for oil and gas
mining rights. Finally, an exploration and
exploitation system involving diverse participants should be created through mining rights
reform, enabling the market to determine
resource allocation.
The lowest limit of investment for oil and gas
exploration blocks should be set at different
levels in different regions for different mineral
varieties and for different phases of exploration.
Given the low cost of ownership of exploration
rights, and to encourage more companies to exit
from idle blocks and attract other investors into
exploration, the upper limit of exploration
investment should be raised for the first and
second years and lifted completely for the third
year. However, the upper limit of exploration
investment and exploration royalties for difficult
and high-risk blocks could be reduced. For
example, exploration and exploitation of unconventional oil and gas resources are far more
difficult than for conventional resources. A lower
exploration investment threshold and exploration
royalty should be applied to unconventional oil
and gas blocks based on geological conditions
and/or difficulty and the time required for
exploration. The cost of owning oil and gas block
mining rights and the amount to be paid to central government in the form of royalties should
be set at a suitable level. Mining rights should be
rationalised and the tax and fee system reformed.
Special Report 4: China’s Energy System Revolution
465