By Yu Huapeng
News, Special Report, Issue 567 to 571
Translated by Tang Xiangyang
Original articles: [Part i, Part ii, Part iii, Part iv]

The second step of the reforms - breaking up the monopoly - wasn't easy. At the end of 1998, the NETC selected six provinces to trial the separation of power generating companies from grid companies; so six regional grid companies were established accordingly.

However, many felt that the national monopoly was simply giving way to regional monopolies that were walled off from one another.

The huge losses run up by the Ertan Hydropower Station shortly after it was completed were evidence of these local monopolies. The station was built to provide electricity for Sichuan Province. However, Sichuan's largest city of Chongqing had been split off from the province in 1997 to become one of four municipalities directly under central government control. This move significantly reduced Sichuan's aggregate power demand and an enormous amount of electricity was wasted. This was a great embarrassment for the reform project.

After much wrangling, between various industry players, a compromise approach to breaking up the State Electric Power Corporation was reached.

The plan was announced in Feb 2002 as the State Council's "No. 5 Document."

As part of this compromise reform plan, the power generation capabilities of the former State Electric Power Corporation, along with 80 billion yuan worth of capital, was divided up between five newly-formed power generation groups.

A newly formed power grid company - State Grid Corporation of China (State Grid) - was set up to take a stake in five of the six regional grid companies that would continue to run independently of their parent.

The sixth regional grid was hived off to form a separate Southern Power Grid (中國南方電網(wǎng)). Both grid companies were prohibited from investing in or conducting any power generation.

Up until today, State Grid is still responsible for power distribution and transmission across most of the country while Southern Grid handles distribution and transmission in the southern provinces of Guangdong, Guangxi, Yunnan, Guizhou and Hainan.

Despite this consolidation, the grid companies were prevented from combining to form any kind of national grid and the regional grids were expected to continue to run independtly. As a result, over the coming years, despite power generators producing plenty of energy, the grids failed to channel it efficiently from resource-rich regions of the country to other energy-scarce areas.

In 2011 State Grid split its five subsidiary grid companies into 11, making itself even more powerful as the mother company. This move received little welcome from observers, who saw it as another step towards State Grid achieving a monopoly position.

Similarly, other commentators have criticised State Grid's moves into renewable energy, taking it as a sign that the state-owned corporation is angling to re-enter the lucrative power generation market. Over the past couple of years, State Grid has invested around 15 billion yuan in constructing model wind and solar power production bases in Hebei.