China's government is pursuing major changes in its energy sector as it presses officials with its sweeping anti-corruption campaign.
On June 25, state-owned China National Petroleum Corp. (CNPC) announced it would open its oil and gas pipeline network to suppliers other than its listed PetroChina subsidiary and existing customers.
The monopoly's decision on third-party access "will increase the efficiency of the industry, as specified under the central government's guidance on energy reform," the official English-language China Daily reported, citing a CNPC statement from a meeting called by company chairman Zhou Jiping.
The opening of CNPC's pipelines to outside access is a break for energy development that will allow more producers to reach Chinese markets, since CNPC controls 90 percent of the country's pipelines for crude oil and 70 percent for natural gas, the paper said.
CNPC's announcement comes four months after the National Energy Administration (NEA) issued a plan to partially de-monopolize China's pipeline system.
The agency "encourages pipeline operators to open their facilities to each other and to users, including fuel producers, refiners, sellers and other industrial users, when pipelines have extra capacity," the NEA said in a statement cited by the official Xinhua news agency on Feb. 24.
Pipeline operators were told to provide a range of services at prices agreed by the parties for both onshore and offshore pipelines under a process to be supervised by the NEA.
It is not clear how far the CNPC move goes toward satisfying the NEA mandate, which is part of a larger plan to open up China's petroleum sector to mixed ownership and investment, but the lag time may suggest reluctance to relinquish control.
Corruption probes
One implication of the China Daily account is that the energy sector is being pried open under pressure.
The report noted that at least seven high-ranking CNPC officials have been investigated for corruption since last September under President Xi Jinping's mounting anti-graft dive.
Three days after the article appeared, CNPC's former chairman Jiang Jiemin and Wang Yongchun, former vice general manager, were both expelled from the ruling Chinese Communist Party for "severe violation of disciplines and laws," according to Xinhua.
The probes of CNPC officials have raised expectations that the government may be preparing for a trial of its highest reported target so far—Zhou Yongkang, a former domestic security chief and Politburo Standing Committee member, who earlier served as general manager of CNPC.
At least four other officials with connections to Zhou were expelled from the party for alleged corruption on July 1-2, according to the South China Morning Post.
On Monday, the Supreme People's Procurate (SPP) said it had opened bribery cases against Jiang, who also served as former head of the State-owned Assets Supervision and Administration Commission (SASAC), Wang and Li Dongsheng, former vice minister of public security, Xinhua reported.
All three have been linked to Zhou Yongkang.
Zhou, who reportedly retains close ties to the oil monopoly, has been under virtual house arrest since late last year, Reuters reported.
China Daily quoted one analyst as saying the government is "trying to cut the energy giants 'down to size' by spinning off their assets in order to weaken the chain of corruption."
Another analyst said pressure on the oil monopoly could also "accelerate reforms in the power transmission sector," which is controlled by State Grid Corp.
Two agendas
The perceptions of linkage between energy reforms and the corruption crackdown raise a series of questions.
Is the government weakening the monopolies to stem corruption, or is it using corruption charges as a weapon to weaken monopolies and overcome resistance to energy reforms?
Alternately, the two agendas may simply be advancing on parallel tracks toward the government's goals of stamping out graft and opening the energy sector to market forces at the same time.
A Xinhua commentary on July 2 seemed to support the first two interpretations.
"China's huge state-owned enterprises (SOE) are seen by the public as both too corrupt to save and too powerful to fall," said Xinhua, adding that the crackdown "offers hope for change in SOEs."
Economist Hua Sheng was quoted as saying that SOEs had become "an unavoidable part of the anti-corruption drive," since they offer ample opportunities for power, money and collusion.
But there were also suggestions that the government has been using prosecutions to break down resistance in the state industrial sector.
"The latest crackdown on SOE corruption is viewed as the government's effort to clear obstacles in the push to reform wasteful and inefficient SOEs," said Xinhua.
Energy analysts reached by Radio Free Asia offered different readings.
"State enterprise reform is partly about cutting some of these entrenched fiefdoms down to size," said one analyst, who spoke on condition anonymity.
"This would seem to confirm that the anti-corruption campaign is about factional politics inside the party and to establish Xi's supremacy," the analyst said. "Some worry that this can get out of hand."
But Philip Andrews-Speed, a China energy expert at National University of Singapore, cited at least one clear utilitarian reason for pressuring CNPC to open its pipelines.
The government has strongly backed development of natural gas from unconventional sources, including shale gas production from rock formations and extraction from coal seams, known as coalbed methane (CBM).
Production from the unconventional sources is taking place in remote areas with little access to markets. Andrews-Speed sees a direct connection between the CNPC announcement and "the need to give access to the pipeline network to CBM and shale gas producers."
He also cited a direct link to the government's desire to "reduce the availability of monopoly rents," or excess revenues due to privileged status, enjoyed by the national oil companies.
Connections to the anti-corruption campaign are more tenuous, since the crackdown is "now very wide-ranging," Andrews-Speed argued.
"It would seem that the author of the China Daily piece has conflated rent-seeking and corruption," he said.
Incremental steps
Whatever the connections may be, state-owned oil companies have been scrambling to satisfy the government's demands for "opening up" in the energy sector, producing a series of incremental steps.
In February, second-ranked China Petrochemical Corp. (Sinopec) announced restructuring plans for its distribution business that would allow social and private capital to buy up to 30 percent of the shares in its chain of filling stations.
The modest move was seen as a nod to Premier Li Keqiang's plans for developing a "mixed-ownership economy" and allowing non-state capital to invest in SOEs, as outlined in his report to the National People's Congress in March.
In May, CNPC PetroChina announced plans to spin off sections of its vast West-East gas pipeline system into a new subsidiary to be sold by public tender.
Last year, PetroChina formed a 40-billion-yuan (U.S. $6.5-billion) joint venture to fund new pipelines with insurance and investment interests, represented by Taikang Asset Management Co. Ltd. and Beijing Guolian Energy Industry Investment Fund.
In June, state media reported another small de-monopolizing step as the State Council, or cabinet, cleared the way for non-state-owned Guanghui Energy Co. Ltd. of Xinjiang to import oil from Central Asia for refining.
Last month, a commentary for The Wall Street Journal's China Real Time blog took issue with analysts who see the government's anti-graft campaign as a purge to consolidate power.
The recent charges against energy sector officials "suggest the crackdown is motivated at least as much by a desire to remove people standing in the way of much-needed economic reforms," wrote Russell Leigh Moses, dean of academics at the Beijing Center for Chinese Studies, affiliated with Loyola University of Chicago.