The privatization reform of the power grid does not work?

New Financial Watch: Understanding the Current Grid Monopoly Issue.

Wang Xiaoguang: Currently, only a few power grid companies, such as China Southern Power Grid and State Grid, are involved in inter-regional interests. The monopoly nature of the grid is very strong. If it were to be privatized, it would lead to various problems driven by profit motives, which ultimately reduces efficiency.

The core of power sector reform lies in opening up two key areas—power generation bidding and tiered electricity pricing—rather than privatizing the intermediate grid infrastructure. This approach is simply not feasible. Moreover, the challenges in electricity reform go beyond just the power system; there are other vested interests at play within the broader framework.

New Financial Watch: How do you evaluate the Linyi Electric Reform Model?

Wang Xiaoguang: In the past, power reforms have mainly focused on relaxing restrictions for private or foreign capital in power generation. However, the power grid, as a public service, should provide reliable services only if it maintains high social credibility. Whether private capital can own the grid remains debatable.

The mechanism and governance structure of the Linyi model are fundamentally flawed. The board of directors should decide on investments, operations, and management. The chairman should be appointed by the state or managed by a state-owned financial institution. In the current setup, state-owned power grid companies hold 70% of shares, while private capital owns 30%. But in reality, decision-making power still resides with the grid, leaving the private shareholders in a subordinate position.

However, in the Linyi model, the situation is completely reversed. The 30% private shareholders control the system, indicating a chaotic governance structure that is not real reform. This so-called experiment is a failure, and piloting it represents misguided reform.

Under the "Linyi Model," private capital invests in a monopolistic public grid. Their goal is profit, but they lack the ability to control electricity prices effectively. Any conflict with their interests could disrupt the market order, leading to power cuts and forced price hikes. Therefore, the grid is not suitable for privatization.

New Financial Watch: Which sectors are appropriate for private capital to enter?

Wang Xiaoguang: Allowing private capital to enter certain industries provides more development opportunities, which is a correct policy. However, it must be done with clear guidelines. Which industries are most suitable for private enterprises? Non-competitive, monopolistic, and natural monopoly sectors like public utilities are not ideal for private entry.

Industries such as automobiles, banking, coal, and oil and gas should encourage private investment. The power grid, however, has characteristics of a public good and is a natural monopoly. Its operators largely serve the public interest. While public goods can theoretically be operated privately or through third parties, this requires strict oversight and regulation.

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