Industry Reforms and the Relationship with the Government

The electric power industry has undergone significant restructure over the past 20 years in China, and has since become an enormous contributor to the massive increase in hydropower development within China. In order to best understand where the industry lies in terms of hydropower development on the Upper Mekong, this section will outline those restructurings and their relationship with the Upper Mekong (Lancang) cascade.

The shift in state electricity apparatus arose in the mid-1990s with the beginning of the corporatizing of the electric power industry in China.

First-wave of reforms: 1996-1998

In December 1996, the State Council authorized the reorganization of the Ministry of Electricity into the state-owned State Power Corporation of China (Xu 2002). All

investment came from the State Council, and the Ministry of Electric Power disbanded in March 1998 (Magee 2005). This was a major government reform, as electricity

generation and distribution separated into an industry fitting modern international corporate standards, and thus aligning “company priorities in terms of profit and market rather than politics” (Magee 2005). It also expanded the extent of actor’s participation in decision-making with small openings created for national governments, development banks, international investors, and NGOs (Chen 2002).

  97   Second-wave of reforms: late-2002

In late-2002, the State Power Corporation of China was broken up into five power generation corporations, each a publicly traded state-owned enterprise (SOE): China Guodian Corporation, China Huadian Corporation, China Huaneng Group, China Power Investment Corporation, and China Datang Corporation, with a sixth and separate company, the Three Gorges Corporation, existing both parallel to these companies and directly under the purview of the State Council (Magee 2005, 2006a). Each of these corporations were given development rights on watersheds throughout China through a process described by critics as “riding a hose to encircle the waters” (跑馬圈水). The term describes a Qing Dynasty practice of local rulers gaining control over portions of land by encircling as much ground as they could in a day. Critics use this description to argue that the corporations access “encourages hastily planned development schemes whose main objectives are to ‘stake claims’ in a speculative fashion, rather than seek truly sustainable energy development alternatives that meet socioeconomic objectives while minimizing negative social and ecological impacts” (Magee 2005, 184). The China Huaneng Group holds exclusive development rights of the Upper Mekong (Lancang) through its subsidiary company, the Yunnan Huaneng Lancang River Hydropower Company, or “Hydrolancang” (華能瀾滄).

Figure 7: Electric power restructuring (1998-2002) (Source: Magee 2005, 185)

THE SCIENCE OF CHINA’S HYDROPOWER: Magee, D.

under the State Council. In Yunnan, the Three Gorges Corporation holds development rights on the upper Yangtze (Jinsha), while China Huaneng holds development rights on the Lancang through its subsidiary, Yunnan Huaneng Lancang River Hydropower Company (also known as Hydrolancang). China Huadian holds rights on the Nu River (upper Salween) through Yunnan Huadian Nujiang Hydropower Development Company, a subsidiary established in November 2004 through joint investment by Huadian, Yunnan Development Investment Company, Yunnan Electric Power Group Hydropower Construction Company, and Yunnan Nujiang Electric Power Group (Hegong: Huadian Nujiang, 2004).

Power industry reforms manifested themselves on the Lancang first through the reorganization of the Manwan dam’s Ministry-Province partnership into a stock company, the Yunnan Manwan Electric Power Generation Company, in February 1998. Yunnan Electric Power Group Company held 56% of the stock and Yunnan Province Development Investment Company held the remaining 44%. The reorganization involved a transfer of the provincial government’s shares to the company. Following the second wave of reorganization, and in keeping with the basin-wide monopoly granted Huaneng by the State Council, the Yunnan Manwan Electric Power Generation Company became part of Huaneng’s subsidiary, Yunnan Huaneng Lancang River Hydropower Company. Dachaoshan involved a similarly novel arrangement. The developer, the (State-Invested) Yunnan Dachaoshan Hydropower Company, was established as a stock company in November 1994, the result of a four-way inter-industry partnership involving the State Development Investment Corporation, Yunnan Hongta Investment Company, Yunnan Province Development Investment Company, and the Yunnan Electric Power Company, with shares in the ratio of 5:3:1:1.

Xiaowan was the first project undertaken by the Yunnan Huaneng Lancang River Hydropower Company (Hydrolancang), the “final” version of the company holding development rights on the Lancang.

Hydrolancang results from a merger and reorganization of the former Yunnan Lancang River Hydropower Development Company, established in 2002, and Yunnan Manwan Power Generation Company. The former was established in February 2002 through investments from State Power Corporation (27%), Yunnan Electric Power Group Company (29%, now Yunnan Electric Power Grid Company), Yunnan Province Development Investment Company (24%) and Yunnan Hongta Group (20%). The newly reorganized company is jointly invested by its parent, the Huaneng Group (56%), along with the Yunnan Province Development Investment Company (31.4%) and Yunnan Hongta Investment Company (12.6%).

Hydrolancang’s corporate structure and financing model is touted by the company and government officials as a sign of China’s continued commitment to modern enterprise structure and governance.

Alongside the recent and ongoing reforms in the electric power industry are the legal and institutional changes that govern how decisions are made about large-scale hydropower development. With the revision of China’s National Water Law in 2002 and establishment of its Environmental Impact Assessment Law in 2004, the legal and policy framework of water resources projects, particularly large-scale ones, has changed. These changes have clarified certain areas of institutional jurisdiction while complicating others, and officials in various government offices related to water resources sometimes admit uncertainty about their own unit’s responsibilities and limitations. Much more research needs to be conducted in order to disentangle the institutional fabric, especially where overlaps in authority are concerned.

The point of this section is to emphasize the complex and dynamic political economic context of Lancang hydropower development, and the need to look past a monolithic “China” when seeking to understand, critique, influence, or build cooperation on Lancang-Mekong development. Even though the Chinese central government continues to hold controlling shares in the Huaneng Group (Hydrolancang’s

MEP

Fig. 1: Partial schematic of electric power industry restructuring (1998-2002)

  98   Provincial energy reforms:

Local industry reforms in Yunnan also began in 1998, through the reorganization of the Manwan dam’s Ministry-Province partnership into the stock company the Yunnan Manwan Electric Power Generation Company, with the Yunnan Electric Power Group Company holding 56% and the Yunnan Province Development Investment Company holding 44% of stock (Magee 2005). Following the division of the SPCC, and subsequent creation of the China Huaneng Group, the Yunnan Manwan Electric Power Generation Company became Yunnan Huaneng Lancang River Hydropower Company’s subsidiary (Magee 2005). The Yunnan Dachaoshan Hydropower Company, a stock company since November 1994, also came under control of the province-wide monopoly in a similar way (Magee 2005).

The Xiaowan dam is the first project created by the finalized company version of Hydrolancang. The final version came about through a merger and reorganization of the Yunnan Lancang River Hydropower Development Company (est. 2002) and the Yunnan Manwan Power Generation Company, a joint investment by its parent company the Huaneng Group (56%) (the majority its shares held by the central government), the Yunnan Province Development Investment Company (31.4%) and the Yunnan Hongta Investment Company (12.6%) (Magee 2005).

The Yunnan provincial government has a 30 percent stock ownership in the Yunnan Huaneng company, with the national level Huaneng holding the other 70 percent (Mertha 2008). Administratively this translates to the provincial government having a limited amount of control over development projects. According to Mertha (2008), the Huaneng Group has centralized leadership relations with the provincial government in Yunnan.

The hydropower projects also represents a significant tax-source for the provincial Yunnan government, as the tobacco taxes formerly collected for province coffers

changed to a national level tax in the 1990s led to a scramble for new sources of income.

Tax-collection is a powerful motive for development within Yunnan. Indeed, this is an especially salient argument for the promotion of hydropower in Yunnan, as Xiaowan

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became the first hydropower station to pay taxes to the state in 2010 (Beijixing Dianli Wang 2013).

As suggested by Magee (2005, 2006a), while the central government maintains the controlling shares of the primary development companies involved on the Lancang, these reforms represent a potential opening up among the relationships between the central government, provincial and sub-provincial governments, hydropower companies, regulatory agencies, and non-governmental actors. The reform of the power companies into semi-private entities allowed for civil society to more openly criticize the

hydropower development process, as the companies no longer technically represented the government or its policy choices. This, along with the Water Law and the Environmental Impact Assessment Law, among others, put civil society organizations and ECs in a position to more openly criticize development with less of a threat of repercussions.

In addition, the companies themselves, while ranked on the national level as vice-ministries, the individuals in charge of the corporations typically hold a ministerial rank.

In the case of Huaneng, the director is Li Xiaopeng, son of Li Peng, the former premier and chairman of the Standing Committee of the National People’s Congress (Mertha 2008). Most leaders of these corporations have similar rankings and so differ from other companies as they more power than theoretically possessed through sheer administrative position.

Approval and funding for large hydropower projects technically require the Huaneng Group to first secure approval from the Changjiang (Yangtze) Water Resource Commission (CWRC). While technically in charge of water administration, law

enforcement, and basin-wide development planning (further cemented with the Water Law of 2002), the CWRC in practice is removed from the approval process. Due to the massive wealth and historically heavy connections with the National Reform and Development Commission (NDRC), the Huaneng Group and other hydropower companies not only often do not obtain approval from the CWRC, but also begin

hydropower projects without NDRC approval, much to the chagrin of the MEP (because of its desire for EIAs) and interested parties (NGOs, academics, and impacted

populations) (Magee 2005, 2006a, 2006b; Mertha 2008). NDRC approval is typically not first sought because of an assumption of future approval of a given project. This gives the

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Huaneng Group a rather large say in the development of the Upper Mekong (Lancang) River basin, as the development of the river then does not fall to the basin development plan of the CWRC that presumably factors in the other motivating factors, but rather the development plan of Hydrolancang with a decidedly profit motivated agenda. As stated earlier, due to the Upper Mekong’s status as a transnational river and the size of the dams in the cascade, approval for these projects must come from the central government.

Insofar as the Huaneng Group historically has proceeded effectively without the initial approval of the government, the Huaneng Group and Hydrolancang’s understanding of downstream impacts becomes an essential factor in determining the role of science in the decision-making process. The NDRC-CWRC relationship will be examined further in the next section.