China sets up energy agency headed by Premier

BEIJING, CHINA - China has set up a government agency headed by Premier Wen Jiabao to better coordinate energy policy, as world's second-largest power consumer faces growing domestic demand and struggles with shortages.

The establishment of the National Energy Commission reflects Chinese leaders' concern over growing reliance on imported energy as a potential strategic weakness. They are also trying to curb environmental damage from the country's heavy use of fossil fuels.

The high-level commission will draft energy development strategy, review energy security and coordinate international cooperation, according to a notice by the general office of the State Council, China's Cabinet.

State media cited experts as saying that policymakers have faced difficulty in getting intra-agency cooperation on various initiatives, including reduction of carbon emissions and raising energy efficiency to help combat global warming.

Vice Premier Li Keqiang will be the commission's deputy head. Its 21 other members include the head of the National Development and Reform Commission, China's main planning agency, and the ministers of finance, environmental protection, land and resources, and foreign affairs.

"Many of the problems with energy now are beyond the ability of one department to solve and requires coordination from all departments," said Lin Boqiang, director of the China Center for Energy Economics Research at Xiamen University.

"Today you can't talk about energy without mentioning food, environment, energy-saving and other issues. It's vital to set up an agency above all these departments in order to coordinate and make final decisions," Lin said.

China is the world's second-largest energy consumer after the United States. It faces widespread difficulties in ensuring smooth supplies of fuel, coal and natural gas, partly due to conflicts over pricing policies that have caused widespread losses for refiners and utility companies.

Earlier this month, authorities ordered rotating shutdowns of hundreds of factories in central China to ensure sufficient power to heat homes amid bitter winter cold. Power demands spiked after temperatures plunged and weekend storms dumped snow on northern China. Many homes, especially in the south, lack central heating and residents rely on electric space heaters.

The surge in energy consumption due to the cold snap is typical of the challenges the country is facing as it struggles to meet demand from consumers whose growing earning power enables them to adopt more modern lifestyles.

The potential weaknesses of China's energy planning were also highlighted in October 2007 when diesel supplies ran low, causing lines at filling stations and disrupting trucking services. Shortages cropped up after oil companies, barred by government controls from passing on record-high crude costs to consumers, responded by failing to expand refining to meet growing demand.

China supplied its own energy needs for decades from domestic oil fields. But it became a net importer in the 1990s as its economy boomed and imports now supply nearly half of demand.