Struggle for Power for industries in China's Northwest

Jan 30, 1997 01:00 AM

China's remote border province of Gansu used to be one of the north-west provinces able to ''export'' electricity to the power-hungry economically advanced areas in the east. Now, it faces a dire shortage that seems to be getting worse all the time, restricting the province's economic development areas at a time when the central government in Beijing is anxious to shift the whole emphasis of investment, both domestic and foreign, toward the strategic underdeveloped areas of the far west. The electricity shortage has been steadily worsening since 1993. In 1995, the daily shortfall was 4.78 mm kW. In 1996, the figure reached 15 mm kW a day.
A similar situation exists in neighbouring Qinghai Province, a resource-rich but cash-poor area, where, due to growing consumption, power output fell behind demand for the first time in 1995, with the situation worsening in 1996 -- a 3% shortfall in the former year and 10% in the latter. Because of the need to ration power, the Gansu provincial economic andtrade department says it has been forced to restrict big users on which the area's economic well-being is heavily dependent. Several big aluminium plants have borne the brunt of the cutbacks. In the latter half of last year, three big aluminium plants belonging to China Colored Metal Corp. in the Lanzhou area had to be restricted on a large scale. As a result, none of them were able to meet their production targets despite the fact that the price for aluminium products was the best ever. Huanghe Aluminium Co.'s Lian Cheng aluminium plant, for example, estimates it has lost 988 million yuan ($ 119 mm) because of the reduction. Anticipating a huge growth in demand, this company invested heavily in building another factory, the Baochuan Aluminium plant with an annual capacity of 33,000 tons. But because of the power shortage it cannot go into production. The turnaround is severe. For many years the annual growth of the metal industry of Gansu Province was 10%. Other sectors of the metal industry have also started to lose money. The previously profitable Lanzhou Steel Plant lost 22.91 million yuan ($ 2.75 mm) in the first four months of last year, for example. Because of the chronic power shortages, Gansu has not been able to launch any big industrial construction projects for more than two years. And because of the restrictions, many of the state-run medium and large enterprises that were profitable before are less so now and those which were not doing so well are getting worse. This is a bitter blow to Gansu, for many years one of China's most impoverished areas where a heavy reliance on the state for employment has left many companies saddled with high debt levels due to a heavy social welfare burden. In 1995, the Gansu provincial government lost tax revenue of 300 million yuan -- 5% of the expected total -- because of the reduced industrial production directly caused by the power shortage. Provincial officials expected the figure to grow by at least 20% last year. The province is trying to seek a way out. For a start, there is general agreement that the state has to invest in building more power plants. Gansu Province must also place power plant construction before anything else. But this is where the lack of industrial output, and thus lower tax revenues, begins to create an vicious cycle. Within the ninth five-year plan (1996-2000), Gansu had a target of increasing its power generation capacity by 2.5 million kW. This would require 23 billion yuan ($ 2.77 bn) in new investment, of which half would have to be provided by the province. However, last year, the financial revenue of the province was only 6.8 billion yuan ($ 819 mm). The provincial electricity department within one year can only collect 400 million yuan ($ 48.2 mm) through a construction fund levy from its users. So if they want to rely on themselves to build the electricity network, the five-year plan is full of empty words. One official said, ''The central government should support us by building more power stations to make its westward economicinclination a real word." But the Beijing government faces a clamour from every province in the country for more power plants to keep up with the insatiable growth of demand created by China's rapid industrial development. Foreign investment would help, but so far the limited amount of foreign funding in the power sector has been focused in the eastern coastal areas which are considered far less risky than the ''Wild West.'' In Gansu, meanwhile, the enterprises themselves are being urged to make the best use of the limited amount of electricity. ''Factories facing a shortage situation should organise well and plan their power usage well so as to avoid sudden power breaks,'' said the official already quoted. But in the long term, the provincial government admits that it also needs to try to produce products which are less power consuming and have higher added value -- in other words, a major industrial restructuring. "We should drop items which are a serious waste of resources,'' the official said. ''For example, in Gansu there are more than 100 small metal refinery plants. For every 1 ton of product they turn out, these small plants consume thousands of watts of electricity more than that of the state-run organisations. So, they should be closed." But such companies cannot be closed unless new businesses can be generated to take up the employment slack, because the central government is very wary of high unemployment in sensitive border areas which might lead to unrest and outbreaks of violence such as have been witnessed in the nearby Xinjiang Uygur Autonomous Region.

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