A monopoly by any other nameĆ .is still a monopoly.

China''s State Power monopoly talks a good game, but behind the rhetoric it is doing a good job facing down deregulation pressure.

Pooh Bear loved honey, and so does the State Power Corporation, which owns all the China power transmission and distribution capacity and 60% of its generating capacity.

This means that the gencos (generating companies) of the SPC do not need to compete in supplying power to the grid (transmission and distribution) companies, and that independent producers - a number of which exist albeit under the control of provincial government - tend to be frozen out, even if they are better managed or cheaper than the SPC's chosen few.

Why is the SPC moving toward reform at all? Well, one good reason is that the SPC is virtually bankrupt, partly though the imposition of tariff caps and partly because of such projects as the Three Gorges dam, where corruption and waste has reached almost legendary proportions, fully in keeping with its scale. Therefore it has to sell off assets to raise cash.

Why are the reforms a joke? Because although it has been agreed in principle after months, if not years, of acrimonious debate that it is unwise for the SPC to control both generation and transmission, the resulting changes are purely cosmetic.

With a nod to increasing competitiveness, gencos will be reorganized on a national basis, as opposed to the 32 regional, monopolistic structures they operate in now. If the four to six national gencos operate in each other's backyard it should increase competition.

Sounds good? Yes, but the new national champions will continue to be owned 100% by the SPC.

That means the 'reforms' consist essentially of just changing the names of the companies and reshuffling the assets.

So much for the gencos. How about introducing reforms into the transmission and distribution sector?

The SPC skilfully exploited the paranoia of the Californian energy crisis last year to argue that a model where gencos compete aggressively on price through a bidding system is obviously wrong.

Instead, the SPC argues, it would be much better for the SPC to maintain a very large portion of the grid system to ensure security of supply.

But the failure in California was due to simple arithmetic: tariffs were capped, meaning that if the energy costs rose, they could not be passed onto the consumer, driving the gencos into bankruptcy. That is a specifically Californian legislative problem.

So like the giant spider Shelob in the Lord of the Rings, the SPC continues to sit on the bulk of China's power assets.

Of course, it is an open secret that the power sector is the fief of the Li Peng family. Peng is the President of the State Council, whose State Planning Development Commission, manned by some brave reformers, has been struggling with the SPC.

But Li Xiaopeng, Li Peng's son, is Number two at the SPC, and also chairman of the biggest genco, Huaneng Power, which is the only company to have national operations. Mrs Peng is also a shareholder in the holding company of Huaneng Power. It is very hard to distinguish whether the Peng clan is interested in genuine reform or whether it is trying to skew the process in favour of itself. But the tentacular spread of the family clearly implies several conflicts of interest.

Huaneng is certain to benefit from a sell off the SPC's generating assets, since it is listed, has a track record and can access capital.

Accessing capital 'getting one's paws into the honey jar' is obviously the key to the whole operation.

Since the deregulation issue cropped up, the share prices of the Hong Kong listed power companies have been shooting up.

Hong Kong investors are far too cynical too invest in companies which are entering into the choppy waters of more competition. The fact they are interested in the power companies is because they are sure the market will continue to stay stacked in favour of the ones already listed, the ones some people call national champions.

Huaneng Power has outperformed the nosediving Hang Seng Index by more than 50% since last April. Remember how China Telecom's share price soared after its listing on the assumption it would change from an unlisted state monopoly to a listed state monopoly? And oh, remember how the shares collapsed after the government swept aside the objections of the Ministry of Communications and did move seriously towards increasing competitiveness?

Greed meets deceit. Investors are quite happy to part with their cash to invest in protected companies just as regulators in China are quite happy to raise millions by injecting assets into listed companies with a free float of just 25%. In a brilliant move, by reshuffling its assets to itself, but allowing investors to access a small portion of the listed company's shares, it manages to raise money while giving very little in return. In fact, according to ING Barings, just 20% of the power generating assets will be sold to the listed companies, so the SPC will still be sitting on 80% of the generating assets, even after the reorganization of the regional gencos into national gencos.

As to whether or not a repetition of the more genuine deregulation of the telecom sector will occur, it remains to be seen. The Peng clan is more formidable than a ministry, although there could be a backlash at the coming 16th Party Congress, when the old guard, including Li Peng is due to step down.

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