On the 3rd December 2007 China’s government issued a draft of the proposed Energy Law. There have been several drafts of the Law since the middle of 2006 when work formally started on drafting the Law. This draft is for public comment and comments are to be received by the end of January 2008. It will then go back to the State Council for further amendments. Once the State Council approves it, the draft Law will go to the National People’s Congress where it will have a minimum of two readings. The earliest possible year for approval will be 2009.
To a foreigner, especially one from a Common Law country such as myself, the amount of political, administrative and technical effort being exerted to produce this law is incomprehensible at first sight. From the start, the aim has been to produce a law which covers all, or almost all aspects of the energy sector. And I ask myself “who needs such a law?”. Though many countries have laws which are called “Energy Laws”, most of them fall into one of three types: they address very specific aspects of the energy sector, belying their name “Energy Law”; or they address a wide range of issues relating to electricity, gas and heat, though omit many other aspects of energy; or they are what might rudely be called “rubbish bin” laws which comprise a miscellaneous range of provisions reached through political bargaining.
China’s draft Energy Law does not fit into any of these categories for it does indeed try to be comprehensive. As the first two Articles say:
“Article 1: Purpose. The purpose of this law is to standardize energy development, utilization and management; construct a stable, economic, clean, and sustainable energy supply and service system; enhance energy efficiency; ensure energy safety; accelerate the development of a resource-conserving and eco-friendly society; and promote coordination between energy, the economy, and society.
Article 2: Scope of Application.
This law applies to energy-related activities, including development, utilization, and administration, within the People’s Republic of China and its territorial waters.
“Energy” herein refers to various resources from which people directly or indirectly obtain energy, including primary energy, such as coal, oil, natural gas, coal-bed methane, hydro, nuclear, wind, solar, biomass, and geothermal energies, etc; secondary energy, such as power, heat and refined products, etc; and other new energies and renewables.”
The third article states that resource conservation, energy conservation and energy efficiency should lie at the heart of policy and be practised by the whole of society. There then follows a total of 137 more articles, in fifteen chapters, covering everything from energy planning to nuclear waste, and from renewable energy to emergency response. But the entire text comprises just 19,000 Chinese characters, or an average of 135 characters per article, which leaves little scope for detail.
At first sight the draft Law resembles most other Chinese Laws relating to energy and natural resources which I have seen. It is exhortatory in tone, full of aspirational rhetoric. A cynic might say that it is a list of very general statements of intent, with no prioritisation, no indication of how conflicting priorities will be managed, and no guidance as to what trade-offs should be made.
But the draft Law sets out a large number of objectives and tasks, and it places a clear obligation on government to address the wide range of energy challenges facing the country. The Law gives advanced warning of the broad nature of new measures to be taken, but leaves the detail unspecified. It provides for innovation, particularly with respect to markets and the private sector, but does not specify how. It lays down clear procedures for developing energy strategies and plans.
For those enterprises and individuals looking for clarity on key issues, this Law will be frustrating. Articles 30 and 45 state that all kinds of enterprise are encouraged to take part in the production and supply of energy, and yet Article 16 re-iterates the long-held position that state capital shall play a leading role. The importance of markets is emphasised in many places and yet Article 87 reminds us of the key role for government in the setting of energy prices.
Those looking for a clue as to the future structures of government and the possible re-establishment of a Ministry of Energy will be disappointed. This draft Law leaves this issue to the politicians and uses the well-worn phrase “the relevant departments in charge of energy issues”. Likewise environmentalists will be looking for explicit links to global, regional and local environmental concerns. But these are absent; or rather they underlie much of the text on energy efficiency and renewable and clean energy.
Hidden within the relatively bland and ambiguous text are a few hints of interesting developments. Article 48 appears to hold out hope for “third party access” to energy transmission grids. This would require the owners and operators of electricity grids and of oil and gas pipelines to provide access to these networks for other producers and suppliers of energy on a non-discriminatory basis. Such a measure would be vital for breaking the market power of the major state energy enterprises.
Article 50 explains that companies which supply gas, heat and electricity shall have the obligation to provide these services at a “reasonable price” and that they will be compensated for financial losses incurred in fulfilling this obligation. It will be very interesting to see the exact nature of the measures drawn up by the government to implement this policy. To date the most obvious example has been the recent annual compensation paid to Sinopec for financial losses related to their refining operations – a process which seems to have been neither transparent nor predictable.
Chapter 14 comprises fifteen articles concerning legal liability for government officials, government departments, energy enterprises and energy users. In addition to reminding the various parties of the liability to prosecution under existing administrative and criminal law, it provides for large penalties for energy enterprises who fail in specific obligations, in proportion to the scale of their illicit gains. But of greatest interest is Article 124 which provides for sanctions to be taken on government departments which fail to formulate, evaluate or implement energy strategies and plans. Such sanctions will be determined by the “higher administrative department”. This raises the question of who sanctions the State Council if they fail to implement this Energy Law. The answer lies in Article 116: The National People’s Congress.
So, what is this new Energy Law? It is not a policy document, except in a very general sense. It is only a framework law, for it provides few specific rights and obligations. It lacks a timetable. Given the length of the “list of things to do” and the vagueness of the statements, it gives the government the right to do almost anything at any time.
On a more positive note, the draft Law is a political signal that government is serious about doing something about energy. The Law places an obligation on future governments to act on the nation’s energy problems. As a “Basic Law”, it provides a framework for this action and for subordinate laws. It provides specific direction for new or revised subordinate laws, for example with respect to the role of the private sector, competition and market pricing, and it may help to resolve conflicts between different departments of government.
As a “Basic Law” it is more a “Law for government and law makers” than a “Law for investors”. It tells the government and government agencies at different levels what to do, but it does not attempt to provide an unambiguous framework for investors.