China is dropping its ban on foreign ownership of energy assets

Jul 13, 2000 02:00 AM

In a dramatic opening of its energy industry, China offered to let foreign investors own a majority share in a multibillion dollar gas pipeline to fuel its booming, energy-hungry eastern cities.
China is dropping its ban on foreign ownership of energy assets because it lacks the skills to build the project on its own, said Zhang Guobao, chairman of the West-East Gas Pipeline Project.
The announcement was the biggest concession offered yet in China's attempt to attract investment to energy industries that are struggling to modernise.
The 40 bn yuan ($ 5 bn), 2,600-mile-long (4,200 km-long) pipeline is to carry gas to Shanghai, China's commercial capital, from Xinjiang on the border with Central Asia. It is to open in 2003. "China lags behind in the technology to build and operate gas pipelines," Zhang said. "We believe there is a need for us to learn from the technology and experience of foreign countries." Foreign investors would be allowed into all phases of the project, from drilling for gas through transporting and distributing it, Zhang said. He said China would consider proposals to become joint venture partners or shareholders, with no limit on foreign ownership.
"If both sides are willing, the foreign partner could have the dominant position in this project," he said. "This is a major breakthrough in foreign investment." Zhang said. China National Petroleum Corp., or CNPC, the pipeline's state-owned developer, already had been contacted by major international oil and gas companies and investment houses interested in the project.

The new policy is a turnabout for China, which until the mid-1990s met its energy needs from domestic oil and coal fields. The communist government regarded ownership of the energy industry as a matter of national security.
But booming economic growth has outstripped declining oil production, and heavy use of coal has made China's major cities some of the world's dirtiest. China is promoting cleaner natural gas, which it has in abundance in Xinjiang, both for environmental reasons and to reduce dependence on imported oil. "At present, the energy mix in China is not ideal. Coal accounts for up to 70 % of energy production," Zhang said.
CNPC has experience tapping foreign capital markets for funds. Its PetroChina unit raised $ 2.9 bn in April by selling shares on the New York Stock Exchange.
The pipeline from Xinjiang to Shanghai will carry 12 bn cm (424 bn cf) of gas annually in its first years, according to CNPC. Xinjiang has some 494 bn cm (17.4 tcf) of proven gas reserves, the company says. But it isn't clear how much can be tapped, because of the extreme depth and difficult geology of many deposits.

The pipeline is part of government efforts to develop China's impoverished west. Chinese leaders are afraid that the growing gulf between it and the booming east could lead to explosive social tensions, especially in minority regions such as Muslim Xinjiang. Building the pipeline also will pose formidable engineering challenges. The route announced by CNPC will cross the Gobi Desert and densely populated sections of central China.
The pipeline is part of a 120 bn yuan ($ 15 bn) series of gas projects that includes networks to distribute gas once it is piped to cities. China's slow pace in building such networks has hobbled its gas development, Zhang said. He blamed lack of technology and experience.
A handful of ventures have been allowed in exploring or drilling for oil and gas, but Zhang said this would be the first time foreigners could invest in distribution networks.

Source: AP via Newspage
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