Administration setup

The National Energy Administration was established in July to take charge of the energy sectors including oil, gas, coal, power and renewable energy. It is responsible for drafting energy development strategies, proposing reform advice, state reserve management and international cooperation, among others.

Opinion: The setup of the energy administration came amid a reshuffle of various ministries under the State Council, aimed at strengthening the centralized management and improving the administrative efficiency of the energy sector, which in the past was regulated by several government agencies.

Reform plan

China unveiled its long-awaiting fuel pricing and tax reform plan in December, taking advantage of the collapse in international crude oil prices which had tumbled over 70 percent by year-end from July's record high. The new pricing mechanism and tax regime, effective this year, better aligns domestic fuel prices to costs and is conducive to energy conservation.

Opinion: The new pricing formula loosens state price controls and ensures a reasonable profit margin for refiners so it could help contribute to a stable market supply in a long run. Chinese refiners have long been losing money under high crude and capped fuel prices, and they have cut back production to reduce losses which led to a supply shortfall.

Sinopec move

Sinopec Group won Chinese government approval in December to buy Canada's Tanganyika Oil Co, which operates in Syria, for around US$1.8 billion.

Opinion: The purchase represents a typical example where a Chinese energy company takes advantage of lower commodity prices to buy an overseas rival amid a financial crisis. While in the long term this will help safeguard China's energy security, domestic companies should prepare more carefully and step up risk controls before launching overseas bids given the volatile market conditions.

(Shanghai Daily January 8, 2009)