For Fear of Economic Slowdown,Western Regions Try to Rescue High Energy-consuming Industries like Metals with Preferential Electricity Prices

Shaanxi, Ningxia and some other provinces in the west have adopted preferential electricity price policy for high energy-consuming enterprises or industries, while Gansu and Qinghai are discussing whether to loosen the policy.

In June this year, Shaanxi Provincial Price Control Administration released the Implementation Opinions on Utilizing Price Policy to Promote Steady Fast Economic Growth. It is pointed out that as the downward pressure on economy grows and power supply is in surplus,it is necessary to adjust the policy of restricting production with differential power prices during peak hours, and adopt supportive electricity price policy in marketable energy-consuming industries.

Moreover, in July this year, in the Analysis of Ningxia’s Current Industrial and Economic Operation and Situation of the Second Half Year, Ningxia Commission of Economy and Informatization pointed out that preferential electricity price policy should be adopted to prompt enterprises to step up production. That includes interim regulation over electricity prices for high energy-consuming enterprises.From July 1 on, a subsidy ranging from 0.005 yuan/kWh to 0.025 yuan/kWh has been granted to enterprises producing electrolytic aluminum,calcium carbide, ferroalloy, silicon carbide,monocrystalline, polysilicon, manganese metal and steel.

The file shows that insufficient demand and slowing growth in the downstream industry have significant impact on the region’s industry, which is dominated by raw material-based industries. That is the root cause for the slowdown of industry in Ningxia. According to a source with Ningxia Commission of Economy and Informatization, the so-called ”raw material-based industries” are ”high energyconsuming (upstream) source products”.

The above source familiar with Gansu explained: ”High energy-consuming industries take up about 60% in Gansu’s economy. This year, there has been a hefty drop in the growth rate of industry, with growing downward pressure on economy, and neighboring provinces have introduced such policy of preferential electricity prices. Driven by competition, the government had to take some interim measures to attract enterprises to set up plants.”

With regard to the policy of preferential electricity prices taken by the western regions in high energy-consuming industries, a source with the Department of Energy Conservation and Resources Utilization of the Ministry of Industry and Information Technology (MIIT)told a reporter with the Economic Information Daily that the Notice on Cleaning up Preferential Electricity Prices for High Energyconsuming Enterprises issued by the National Development and Reform Commission(NDRC), State Electricity Regulatory Commission (SERC), and the National Energy Administration more than one year ago remains in force. Under the new situation, some local governments have introduced preferential policy in high energy-consuming industries. ”In the event of any discrepancy between the two, the Notice shall prevail.”

On the same day, Li Chuangjun, head of the News Office of the SERC, also told the reporter that the electricity pricing right rested with the NDRC, and local governments were not allowed to introduce such policy without prior authorization. When there is great downward pressure on economy, it is necessary to guard against the rebound of high energyconsuming industries. ”To spur economic growth, some local governments have the impetus to offer preferential prices for high energy-consuming industries. And to stimulate demand for power, some power enterprises also do so.”

In Li’s view, electricity regulatory authorities should perform the duty of electricity price regulation. On the one hand, as downward pressure on economy increases at present, it is necessary to ensure the goal of stabilizing growth is fulfilled; on the other hand, it is imperative to ensure the policy of energy conservation and emission reduction is strictly carried out. ”If any complaint or tip-off in this regard arises, the SERC will carry out exhaustive investigation. If it is true, the power enterprise will be penalized against relevant laws and regulations.”

According to the above source with the MIIT,the MIIT is not entirely against the transfer of high energy-consuming industries to the central and western regions, but it stresses that a project to be transferred must meet the advanced level of energy consumption of unit product at home, and must be aligned with energy conservation and emission reduction targets in the destination area. Last Thursday, the MIIT released the Opinions on Further Stepping up Energy Conservation in Industry. It is pointed out that in industry transfer and undertaking process, transferring outdated production capacity below the industry average energy efficiency (as specified in the National Guide of Industry Energy Efficiency) to the central and western regions is strictly prohibited.

“In some western provinces, industrial structure is dominated by high energy-consuming industries. Currently, as economic growth slows down, some western provinces are to initiate the policy of preferential electricity price,” a source with the Bureau of Price Supervision and Anti-Monopoly of the NDRC told the reporter. In the general inspection of electricity price for energy conservation and emission reduction conducted the year before last, urged by six ministries and commissions including the NDRC, preferential electricity prices for high energy-consuming enterprises in 22 provinces, autonomous regions and municipalities were all corrected.

Yet as for whether the current policy of preferential electricity price is to be corrected, the source noted that it would depend on whether the Notice on Cleaning up Preferential Electricity Prices for High Energy-consuming Enterprises was to be finely adjusted temporarily for“stabilizing growth.” ”It is a catch-22 situation for economic growth and restructuring.”

The pressure on restructuring, especially energy conservation in industry, is not light. According to data released by the Department of Planning of the MIIT early this month, from January to May, growth of investment in high energy-consuming industries was on the fast side. 1.5 trillion yuan was invested in the six high energy-consuming industries, up 23.7%year on year; the growth rate was 8.2 percentage points from the same period last year. According to the above source with the MIIT, in the first half of this year as economic growth slows, the situation of energy conservation in industry has mitigated. However, to prevent local governments from lowering the threshold of energy conservation in industry for the purpose of ”stabilizing investment” in the second half of 2012, the MIIT still faces huge pressure of rebound in energy consumption.

At the 2012 National Summer Peak Press Conference held last month, Lu Junling, associate counsel with the Bureau of Economic Operations Adjustment of the NDRC, stressed that currently it was necessary to pay particular attention to and guard against: high energyconsuming industries tend to expand at an expedited pace when power supply is not tight,and the transition from relative ease to acrossthe-board stringency is fast. “We had lessons before. In 2009, for instance, power consumption was in negative growth for the first 7 months, but before the end of the year, supply of coal, electricity, oil, natural gas and transportation was tight,” said Lu.