The State Electricity Regulatory Commission, the industry watchdog, yesterday said it plans to set up six competitive regional power markets across the nation in three years, aiming to force generators to slash costs and improve their efficiency.

In regional power markets, power companies are expected to be stripped of the current guaranteed profit returns, and have to compete to sell part of their electricity through a "power pooling system," or bidding system.

The commission hopes the move will intensify market competition. But analysts doubt whether competition will actually materialize, as the current power shortage is expected to continue in many places in the next two to three years.

The commission said yesterday it has hammered out rules on building such markets, regulating how to implement the bidding system, and how to stake out the competition.

The commission said it plans to build six integrated regional markets in East China, North China, Northeast China, Central China, Northwest China and South China in three years. Most of the generating companies are required to bid for part of the power sales within the region. The rest of the electricity will be sold through long-term contracts.

But the commission said they will also put limits to cap the highest and lowest prices in the bidding, preventing the prices running away.

It also plans to break down the barrier that impedes power exchange between different provinces in the same region.

Some qualified large electricity users are also allowed to buy electricity directly from generating firms, according to the blueprint of the commission.

Earlier in June, the commission announced that it plans to launch pilot regional markets in Northeast China, and East China next year.

Some analysts said the establishment of regional power markets is welcome news for generating companies, given that half of the nation's territory are experiencing tightened power supply. Shanghai, for instance, has to cut off power frequently these days because the grid could not meet the surging electricity consumption when more air conditioners are used in the sweltering summer.

"With the supply falls short, the bidding allows power companies sell the electricity at a premium," said an analyst with a Hong Kong-based investment bank.

But others questioned when the competitive markets could be set up, as the power shortage is not expected to be fundamentally alleviated until 2006 or 2007.

"I think it will take a longer time to set up a mature regional market which requires a much higher power reserve margin," said Joseph Jacobelli, an analyst with Merrill Lynch.

And the opaque operations of the grid companies may also hinder the establishment of competitive regional markets.

(China Daily August 1, 2003)