energy industry means that the operational efficiency of state-owned energy enterprises must be
improved.
Therefore, the key to this round of reform of
state-owned energy enterprises is to optimise
their internal structure in business, staffing, assets
and capital, and strengthen their capabilities in
management, operation and investment to help
them become bigger. Through optimisation and
strengthening, state-owned energy enterprises
can use their scale and industry advantages to
develop gradually into internationally competitive energy enterprises.
9.4.3 Many Difficulties Remain
in the Reform
of State-Owned Energy
Enterprises
This round of reform of state-owned enterprises,
which focuses on improving the state-owned
capital management system, is steadily making
progress. Despite some achievements, considerable difficulties remain.
First, there are institutional barriers to withdrawing state-owned capital from inefficient
energy assets. Characterised by their large size
and diversified operations, state-owned energy
enterprises have varying degrees of inefficient
assets. The losses made by state-owned energy
enterprises in these inefficient assets can be
stopped by the state withdrawing its capital.
Relevant support policies for system reform (by
means of capital management) and supply-side
structural reform (through capacity cutting) are in
place. However, withdrawing state-owned capital
from inefficient state-owned energy assets is
difficult. The difficulties include resettling
employees, repaying debt and preserving assets.
Once inefficient assets are removed, the repositioning and resettlement of employees and debt
repayment should be handled in a timely manner.
Thanks to the central government, local government and state-owned enterprises, the repositioning and resettlement of employees is being
addressed through various channels. However,
the problem of debt repayment remains a difficulty. A debt may be shelved or borne by the
parent company. But this also involves the
debt-owning banks, which makes institutional
progress difficult. Besides, a market-based valuation of assets is hard to make. The value of
inefficient assets is low and they often create
huge losses for state-owned energy enterprises.
However, the government requirement to preserve and appreciate the value of state-owned
assets means that their estimated value rarely
equals their market value, and their estimated
value is unacceptable to private capital.
Second, electricity system reform and oil and
natural gas system reform are slow-paced.
Although both are industrial management system
reforms, they are closely related to the reform of
state-owned enterprises because both industries
are dominated by state-owned capital. Both
involve the liberalisation of some business areas.
The mixed ownership reform pilot involves
central government-administered state-owned
enterprises in these two industries. The slow
pace of the two industry reforms is driven primarily by three factors: (i) market liberalisation
has an impact on energy security; (ii) the influence of the existing benefits structure on traditional enterprises has been broken; and (iii) the
Chinese market system still requires continuous
improvement. These three factors are difficult to
change quickly and the implementation of the
reforms will take time and government
determination.
Third, state-owned energy enterprises lack the
ability to manage investment. State-owned
energy enterprises were historically industrial
groups focused on production. Under the new
state-owned capital management system, they are
required to maximise the investment function of
state-owned capital. However, they lack not only
human resources for and experience in capital
investment, but also the requisite internal management system. An organisational structure can
be gradually established and optimised, but
reforming investment mechanisms is difficult.
Releasing the dynamism of state-owned
energy enterprises is an important means to
improve operational efficiency. Internal mechanism reform and large system reform complement each other. Since the reform of the
state-owned capital management system has yet
Special Report 4: China’s Energy System Revolution
589
improved.
Therefore, the key to this round of reform of
state-owned energy enterprises is to optimise
their internal structure in business, staffing, assets
and capital, and strengthen their capabilities in
management, operation and investment to help
them become bigger. Through optimisation and
strengthening, state-owned energy enterprises
can use their scale and industry advantages to
develop gradually into internationally competitive energy enterprises.
9.4.3 Many Difficulties Remain
in the Reform
of State-Owned Energy
Enterprises
This round of reform of state-owned enterprises,
which focuses on improving the state-owned
capital management system, is steadily making
progress. Despite some achievements, considerable difficulties remain.
First, there are institutional barriers to withdrawing state-owned capital from inefficient
energy assets. Characterised by their large size
and diversified operations, state-owned energy
enterprises have varying degrees of inefficient
assets. The losses made by state-owned energy
enterprises in these inefficient assets can be
stopped by the state withdrawing its capital.
Relevant support policies for system reform (by
means of capital management) and supply-side
structural reform (through capacity cutting) are in
place. However, withdrawing state-owned capital
from inefficient state-owned energy assets is
difficult. The difficulties include resettling
employees, repaying debt and preserving assets.
Once inefficient assets are removed, the repositioning and resettlement of employees and debt
repayment should be handled in a timely manner.
Thanks to the central government, local government and state-owned enterprises, the repositioning and resettlement of employees is being
addressed through various channels. However,
the problem of debt repayment remains a difficulty. A debt may be shelved or borne by the
parent company. But this also involves the
debt-owning banks, which makes institutional
progress difficult. Besides, a market-based valuation of assets is hard to make. The value of
inefficient assets is low and they often create
huge losses for state-owned energy enterprises.
However, the government requirement to preserve and appreciate the value of state-owned
assets means that their estimated value rarely
equals their market value, and their estimated
value is unacceptable to private capital.
Second, electricity system reform and oil and
natural gas system reform are slow-paced.
Although both are industrial management system
reforms, they are closely related to the reform of
state-owned enterprises because both industries
are dominated by state-owned capital. Both
involve the liberalisation of some business areas.
The mixed ownership reform pilot involves
central government-administered state-owned
enterprises in these two industries. The slow
pace of the two industry reforms is driven primarily by three factors: (i) market liberalisation
has an impact on energy security; (ii) the influence of the existing benefits structure on traditional enterprises has been broken; and (iii) the
Chinese market system still requires continuous
improvement. These three factors are difficult to
change quickly and the implementation of the
reforms will take time and government
determination.
Third, state-owned energy enterprises lack the
ability to manage investment. State-owned
energy enterprises were historically industrial
groups focused on production. Under the new
state-owned capital management system, they are
required to maximise the investment function of
state-owned capital. However, they lack not only
human resources for and experience in capital
investment, but also the requisite internal management system. An organisational structure can
be gradually established and optimised, but
reforming investment mechanisms is difficult.
Releasing the dynamism of state-owned
energy enterprises is an important means to
improve operational efficiency. Internal mechanism reform and large system reform complement each other. Since the reform of the
state-owned capital management system has yet
Special Report 4: China’s Energy System Revolution
589