China - Socialist economic development (Vol. 6 of 9) : Annex E: The energy sector

Report No. 3391 CHA "LU CO? China: Socialist Economic Development (In Nine Volumes) 3391 Annex E: The Energy Sector Vol. 6 June 1, 1981 (reprinted March 10, 1982) East Asia and Pacific Regional Office FOR OFFICIAL USE ONLY Document of the WorId Bank This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disdosed without World Bank authorization.  CURRENCY EQUIVALENTS The Chinese currency is called Renminbi (RMB). It is denominated in yuan (Y). Each yuan is subdivided: 1 yuan = 10 jiao = 100 fen Exchange rates used in this report are as follows: 1977 $1.00 = Y 1.828 1978 $1.00 = Y 1.661 1979 $1.00 = Y 1.541 WEIGHTS AND MEASURES Chinese statistics are usually in metric units; in addition, mu and jin are often used: 1 mu = 0.1647 acres = 0.0667 hectares (ha) 1 jin = 0.5 kg FISCAL YEAR January 1 - December 31 TRANSLITERATION The Pinyin system is used in this report.  FOR OFFICIAL USE ONLY CHINA: SOCIALIST ECONOMIC DEVELOPMENT ANNEX E THE ENERGY SECTOR Table of Contents Page No. 1. OVERVIEW . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 Energy Production and Consumption . . . . . . . . . . . . . . 1 Importance in the Economy .1.. . . . . . . . . . . . . . . . I Historic Growth Rates ... . . . . . . . . . . . . . . . . . 3 Reserves .... . . . . . . . . . . . . . . . . . . . . . . 5 Technology .... . . . . . . . . . . . . . . . . . . . . . 6 Institutions .... . . . . . . . . . . . . . . . . . . . . 6 Investment Planning ... . . . . . . . . . . . . . . . . . . 7 Pricing .... . . . . . . . . . . . . . . . . . . . . . . . 9 Energy Consumption in Relation to GNP . . . . . . . . . . . . 12 Prospects .14 2. COAL ............................ . 25 Introduction.. . .. . .25 Organization . ... .25 Employment Conditions . . . . . . . . . . . . . . . . . . . . 25 Production .... . . . . . . . . . . . . . ...... . . 25 Coal Quality .... . . . . . . . . . . . ....... . . 29 Transportation .... . . . . . . . . . . ... ..... . 30 Consumption . . . . . . . . . . . . . . . . . . . . . . . . . 31 Export Prospects . . . . . . . . . . . . . . . . . . . . . . 31 Productivity .... . . . . . . . . . . . . ...... . . 31 Prospects and Recommendations ... . . . . . . . ..... . 32 Capital Requirements . . . . . . . . . . . . . . . 33 3. PETROLEUM . . . . . . . . . . . . . . . . 35 Sector Development .... . . . . . . . .......... 35 Organization . .......... ... ........ . .35 Exploration .... . . . . . . . . . . . .......... 36 Production .... . . . . . . . . . . . . . . . ....... . . 37 Quality of Crude Oil . .. . . . . . . . . . . . . ...... 40 Equipment and Methods ... . . . . . . . . . . ........ . 40 Consumption . . . . . . . . . . . . . . . . . . . . . . . . . 41 Natural Gas .... . . . . . . . . . . . . . . . ....... . . 42 Oil and Gas Reserves . ..... . ....... . 43 Pipelines and Refineries ... . . . . . . . . ........ . 44 Oil Shale .... . . . . . . . . . . . . .......... 46 Recommendations .... . . . . . . . . . . . . . ......... 47 Investment Requirements ... . . . . . . . . . ........ . 48 | This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.  Page No. 4. ELECTRICITY . . . . . . . . . . . . . . . . . . . . . . . . . . 48 Sector Development . . . . . . . . . . . . . . . . . . . . . 48 Organization . . . . . . . . . . . . . . . . . . . . . . . . 49 Consumption Pattern . . . . . . . . . . . . . . . . . . . . . 49 System Description . . . . . . . . . . . . . . . . . . . . . 50 Fuel Consumption . . . . . . . . . . . . . . . . . . . . . . 51 Capacity Utilization . . . . . . . . . . . . . . . . . . . . 52 Demand Management . . . . . . . . . . . . . . . . . . . . . . 52 Prospects and Recommendations . . . . . . . . . . . . . . . . 52 5. OTHER SOURCES OF ENERGY .55 Geothermal . . . . . . . . . . . . . . . . . . . . . . . . . 55 Noncommercial Energy .55 APPENDIX . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57 Tables A.1 - A.25 .57 Ministry of Electric Power: Organization Chart . . . . . . . . . 84 MAPS IBRD 15524R: China - Power Grids and Major Power Stations, 1979 IBRD 15627R: China - Coal and Lignite Production by Province, 1979 IBRD 15628R: China - Major Oil Field and Oil production by Region, 1979 LIST OF TABLES IN THE TEXT 1.1 Energy Balances, 1979 ... . . . . . . . . . . . . . . .. 2 1.2 Energy Production Growth Rates, 1952-80 . . . . . . . . . . . 4 1.3 Composition of Primary Energy Production, 1952-80 . . . . . . 4 1.4 Regional Distribution of Reserves . . . . . . . . . . . . . . 5 1.5 Price Comparisons . . . . . . . . . . . . . . . . . . . . . . 10 1.6 Energy Intensity of Major Developing Country Economies, 1978 12 1.7 Alternative Estimates of 1985 and 1990 Oil and Coal Balances 15 1.8 Construction of 1985 and 1990 Oil and Coal Balance Estimates 16 1.9 Summary Table of Energy Saving and Switching Assumptions for Oil and Coal in the Moderate and High Energy Savings Scenarios. . . . . . . . . . . . . . . . . . . . . . . . . . 22 1.10 Levels of Conservation Implied in Demand Projections . . . . . 24  Page No. 2.1 Recoverable Reserves of Coal ... . . . . . . . . . . . . . . 25 2.2 Coal Production, 1955-80 ... . . . . . . . . . . . . . . . . 27 2.3 Underground Coal Mines in Operation . . . . . . . . . . . . . 28 2.4 Raw Coal Analyses ... . . . . . . . . . . . . . . . . . . . 29 2.5 Coal Consumption by Sector, 1976-78. . . . . . . . . . . . . . 30 2.6 Coal Industry Employment, 1975-79. . . . . . . . . . . . . . . 32 2.7 Major Coal Mine Projects . . . . . . . . . . . . . . . . . . . 34 2.8 Investment in the Coal Industry, 1976-80 . . . . . . . . . . . 35 3.1 Crude Oil Production by Region and Major Fields, 1977-80 . . . 38 3.2 Oil Balances, 1979 . . . . . . . . . . . . . . . . . . . . . . 42 3.3 Natural Gas Production ... . . . . . . . . . . . . . . . . . 43 3.4 Tentative Estimates of Oil and Natural Gas Reserves. . . . . . 44 3.5 Output of Principal Refined Petroleum Products . . . . . . . . 45 3.6 Shale Oil Production ... . . . . . . . . . . . . . . . . . . 47 3.7 Investment for Exploration, Development and Refineries . . . . 48 4.1 Major Electrical Grids, 1979 . . . . . . . . . . . . . ... . . 50 TABLES IN THE APPENDIX A.1 Growth of Energy Production, 1952-80 . . . . . . . . . . . . 57 A.2 Energy Sector Investments, 1977-79 . . . . . . . . . . . . . 58 A.3 Oil Exports, 1975-80 ...59 A.4 Number of Underground Coal Mines in Operation, 1975-79. . . . 60 A.5 Coal Production by Type and Size of Mine, 1970-80 . . . . . . 61 A.6 Lignite Production by Province, 1955-79 . . . . . . . . . . . 62 A.7 Anthracite Coal Production by Province, 1955-79 . . . . . . . 63 A.8 Bituminous Steam Coal Production by Province, 1952-79 . . . . 64 A.9 Coking Coal Production by Province, 1955-79 . . . . . . . . . 65 A.10 Employment in Coal Mining, 1970-79. . . . . . . . . . . . . . 66 A.11 Coal Exploration Effort, 1970-79 . . . . . . . . . . . . . . 67 A.12 Coal Investment by Region, 1970-80e . . . . . . . . . . . . . 68 A.13 Major Power Stations in China, 1979 . . . . . . . . . . . . . 69 A.14 Electricity Generation and Installed Generating Capacity, 1949-79 . . . . . . 72 A.15 Hydro and Thermal Electricity Generation by Region, 1970-79 73 A.16 Hydro and Thermal Installed Capacity by Region, 1970-79 . . . 74 A.17 Generating Capacity by Size of Unit, 1979 . . . . . . . . . . 75 A.18 Power Station Fuel Consumption and Efficiency, 1979 . . . . . 76  - iv - Page No. A.19 Electricity Sales by Consumer Category, 1949-79 . . . . . . . 77 A.20 Electrification of Communes and Brigades by Region, 1979. . . 78 A.21 Electricity Tariffs, 1980 .79 A.22 Electricity Investment, 1975-79 . . . . . . . . . . . . . . . 80 A.23 Electricity Industry Staff, 1979 . . . . . . . . . . . . . . 81 A.24 Theoretical, Exploitable, and Investigated Hydro Potential by Region .82 A.25 Additions to Generating Capacity Anticipated Before 1985, by Region .83 CHART Ministry of Electric Power Organization Chart  1. OVERVIEW Energy Production and Consumption 1.01 China is the world's third largest consumer of commercial energy, following the USA and the USSR, and, at least at present, it produces more than it consumes. Production and consumption in 1979 are estimated at 649 million tons of coal equivalent (Mtce) and 621 Mtce, respectively. Consump- tion per capita, at about 644 kgce, was close to the average for developing countries in 1979 but it is high per dollar of estimated GNP (about 2.5 kgce); the corresponding averages for developing countries as defined in the World Bank's World Development Report, 1980 (WDR, 1980) are about 620 kgce/capita and 0.9 kgcel$. Industry /1 is the dominant energy consumer, accounting for 72% of the "commercial" total. Household and commercial uses consume about 14%, followed by agriculture /2 (6%) and transportation (5%). 1.02 Table 1.1 shows estimated commercial energy balances. Coal is the main source of energy: production in 1979 was about 635 million tons or 454 Mtce./3 Production of oil, the second largest source, was about 106 million tons or 155 Mtce. Natural gas production amounted to about 14.5 billion m3 or 19 Mtce and hydroelectricity to 50 TWh (50 billion kWh) or 21 Mtce. 1.03 "Noncommercial" energy sources comprise mainly rice straw and other crop residues, firewood and animal wastes. Together they supplied 250 Mtce of energy (unofficial estimate), which is comparable on a per capita basis with estimates for other low-income, densely populated developing countries. Importance in the Economy 1.04 The energy sector in China is important not only as a producer of essential products but also as a direct contributor to GNP, as a foreign exchange earner, and as a consumer of investment funds. The sector accounted for about 12% of the 1979 gross value of industrial output in /1 Including here mining, but excluding electricity generation, which is generally counted as part of industry in Chinese statistics. /2 The data for agriculture include rural consumption of electricity in brigade industries, other sideline activities, and household and commercial uses; in oil, where agriculture is computed as a residual, they probably also include oil used in construction. /3 Assuming, in the absence of an official estimate, that Chinese coal averages 5 million kcal per ton, compared with 7 million kcal per ton of "standard" coal or "coal equivalent."  - 2 - Table 1.1: ENERGY BALANCES, 1979 Total Noncom- Natural Electricity commercial mercial Coal Oil gas Hydro Total energy energy Total (mn tons) (bn m3) -- (TWh) -- Primary Production 635 106 15 50 n.a. Net consumption 630 89 15 n.a. 282 Power system 111 17 2 n.a. 43 Industry 385 43 13 n.a. 184 Transport 25 14 n.a. 1 Agriculture and other .. 14 n.a. 38 Domestic and commercial 109 1 n.a. 15 Exports 5 17 n.a. -------------------------- (Mtce) -------------------------- Primary production 454 155 19 21 n.a. 649 250 899 Net consumption 451 130 19 n.a. 119 621 250 871 Power system 71 25 2 n.a. 18 18 0 18 Industry 289 62 17 n.a. 78 446 n.a. 446 Transport 12 21 .. n.a. 1 34 n.a. 34 Agriculture and other .. 20 .. n.a. 16 36 n.a. 36 Domestic and commercial 79 2 .. n.a. 6 87 250 337 Exports 3 25 .. n.a. .. 28 - 28 Notes: Mtce defined as 7 million kcal. Calorific values assumed as follows: Coal (overall) 5,000 kcal/kg Coal (used in power plants) 4,476 kcal/kg Coal (used in industry) 5,250 kcal/kg Coal (used in railways) 3,370 kcal/kg Coal (remaining) 5,090 kcal/kg Crude oil and oil used in power plants and industry 10,200 kcal/kg Oil used in other sectors & refined product exports 11,400 kcal/kg Natural gas 9,310 kcal/m3 Hydro and electricity 2,954 kcal/kWh Double-counting of electricity and the primary energy forms from which it is produced has been avoided in arriving at totals. The power system's electricity consumption is composed of transmission losses (11 Mtce) and generating plant uses (7 Mtce). The contribution of thermal power plants with a capacity of under 6 MW (4.1 Mtce or 3.4% of total electric output) is assumed to be produced at the same heat rate as production from larger plants, using the same propor- tions of coal, oil, and natural gas. Sources: Ministries of Coal Industry, Electric Power, Petroleum Industry, and Railways, and mission estimates.  - 3 - 1970 prices and invested an average of about $7-8 billion per year /1 in 1978/79, or nearly 3% of GNP. In other developing countries, investment in the energy sector is estimated to have averaged about 1.7% of GNP in 1980./2 The distribution of energy investments appears to differ from that of other developing countries, although the data may reflect differences in accounting practices as well as in substance. Electric power, for instance, absorbs only about 40-45% of sectoral investment,/3 in contrast with 75-80% in many other developing countries. Energy exports (virtually all oil exports) in 1980 appear to have been worth $4-5 billion (about 25% of total merchandise exports). Employment in the sector totals about 6 million workers, over 4 million of whom work in the coal industry. Historic Growth Rates 1.05 From 1952 to 1975 energy production grew at about 10.5 % p.a., but in the last five years the growth rate has been only 5.6%. Total production actually declined by 1.3% in 1980 from the 1979 level (from about 649 to 641 Mtce). Output fell by 2.4% in coal, 0.2% in crude oil, and 1.7% in natural gas, while electricity output rose by 6.6%, with the help of a 16.1% increase in hydroelectric output./4 Table 1.2 shows key energy production growth rates for 1952-80. /1 These numbers include petroleum refining. The investment figures are as reported by the ministries concerned and converted at Y 1.5 = $1.0. They may include more housing, social services and machine-supplying industrial investments, but less transportation infrastructure expenditure, than would be included in Western practice. Also, Chinese prices seem to exaggerate the value of industrial goods relative to GNP; but this might not be true on average in this case. /2 Derived from World Bank, Energy in the Developing Countries, August 1980 estimate of investment and WDR, 1980 GNP estimates. The projections in these reports imply that energy investment in other developing countries will, however, need to be raised to 2.5%-3.0% of GNP by the late 1980s. /3 Based on the total for electric power; petroleum exploration, development and refineries; and coal. /4 See Annex D, "Challenges and Achievements in Industry," Table 1.2, and (for hydroelectric growth) this Annex, Tables A.1 and A.19.  -4- Table 1.2 ENERGY PRODUCTION GROWTH RATES, 1952-80 (% p.a.) Natural Total Period Electricity /a Hydro Coal Oil /b gas primary /c 1952-65 18.7 17.6 10.1 28.5 46.2 10.9 1965-70 11.4 14.5 8.8 22.1 20.9 10.6 1970-75 11.1 18.4 6.4 20.2 25.3 9.5 1975-80 8.9 4.1 5.2 6.6 10.0 5.6 1952-80 14.2 14.7 8.3 21.7 30.7 9.6 /a Hydro and thermal. /b Includes shale oil. Th Includes hydro but not thermal electricity. Source: Table A.1 1.06 Coal production grew at an average annual rate of over 8% p.a. over the period, and yet fell in relative terms from over 97% of primary energy production in 1952 to 69% in 1980. Over the same period, oil production grew at an average rate of nearly 22% p.a. and moved from 1.3% to 24% of total primary production. Hydro and natural gas production also grew rapidly, but in 1980 these sources still contributed only 3.8% and 3%, respectively. Table 1.3 shows how the relative shares of the various sources of primary energy have evolved since 1952. Table 1.3: COMPOSITION OF PRIMARY ENERGY PRODUCTION, 1952-80 (%) Coal Oil Natural gas Hydro 1952 97.6 1.3 .. 1.1 1957 95.7 2.2 0.1 2.0 1965 88.1 8.8 0.8 2.3 1970 81.6 14.4 1.2 2.8 1975 70.5 23.0 2.4 4.1 1980 69.1 24.1 3.0 3.8 Source: Table A.1.  -5- Reserves 1.07 The known reserves of coal and hydroelectric potential are very large and should allow considerable expansion of production, while those for oil and gas development are quite limited in relation to current production rates. Coal and lignite reserves are estimated at about 600 bil- lion tons (416,000 Mtce), while exploitable hydro potential is estimated at 1.9 trillion kWh/yr (81,000 Mtce). Our best but very uncertain estimates of known oil and gas reserves, based on the limite d information available, are 1.8 billion tons (2,720 Mtce) and 130 billion m (175 Mtce), respectively. Information on nuclear fuel reserves is not available. Table 1.4 shows the estimated distribution of coal, oil, gas and hydroelectric resources. Table 1.4: REGIONAL DISTRIBUTION OF RESERVES (Mtce) Recoverable Exploitable coal and hydro- Recoverable Recoverable Region lignite electric oil gas Total Northeast 13,500 1,600 1,095 33 16,200 North 273,900 1,000 570 7 275,500 Subtotal 287,400 2,600 1,665 40 291,700 East 29,100 2,900 375 18 32,400 Central-South 15,600 12,600 120 3 28,300 Subtotal 44,700 15,500 495 21 60,700 Northwest 39,000 8,000 540 20 47,600 Southwest 45,000 55,100 20 94 100,200 Subtotal 84,000 63,100 560 114 147,800 Total 416,100 81,200 2,720 175 500,200 Notes: Coal is assumed to average 5 million kcal/ton and lignite 3.33 million kcal/ton. Hydro reservoir life is assumed as 100 years. Shale is not included. Soutces: Tables 2.1, 3.4 and A.24. 1.08 Geographical considerations inhibit the development of many of these resources. While coal resources are widespread, the largest and richest deposits are concentrated in the north. This results in a need to  - 6 - balance the higher cost of mining the lower grade coal generally found in the south against the transportation costs involved in supplying southern markets from northern mines. Some 70% of the hydroelectric potential is in the south- west region, principally Xizang (Tibet), 2,000 km from the major Chinese markets. In the petroleum subsector, about 75% of the proven reserves are in fields in the northeast or within about 200 km of the Bo Hai; these fields are linked to markets as far south as Nanjing by pipeline. Exploration for and development of reserves in the northwest has been much less thorough due to transportation and logistical problems. The current geographic distribution of coal and oil production is illustrated in the maps at the end of this Annex: IBRD 15627R and 15628R. Technology 1.09 Oil production has decelerated in recent years, in part because of the out-of-date technology used and the modest rate of discovery. Use of equipment and techniques considered out of date in many other countries is also apparent in the coal and electricity subsectors; while this may increase costs, it does not appear to hold back production as much as in the oil industry. 1.10 In some areas, however, China has developed a technological lead. One is the extraction of oil from shale, for which a simple and effective technique is in use on a significant scale. Another is biogas, which has been developed on a scale unparalleled elsewhere - some 7 million digestors, each capable of meeting the cooking and lighting needs of a household of 5 people, were reported to have been built by 1979. Yet another may be small-scale hydroelectric power plants, which in rural areas have the advantages of faster construction, low demands on trained manpower, and modest transmission costs; some 90,000 (with an average capacity of about 80 kW) are estimated to be in operation, and the numbers and capacity are being rapidly expanded. Institutions 1.11 Fragmentation of responsibilities may impede the development and implementation of coherent policies in the sector. The institutions primarily concerned with commercial energy are the Ministries of Coal Industry, Petroleum Industry and Electric Power, and the Energy Commission recently created to coordinate their activities./l Except for this new commission, /1 Energy ministries have been alternately consolidated and fragmented throughout the last 30 years. Coal and petroleum were under the same ministry as recently as 1975. The most recent changes have been the separation of the Ministry of Chemical Industry from that of Petroleum Industry (1978), and of Water Conservancy from that of Electric Power (1979), and the creation of the Energy Commission (1980).  - 7 - their activities are generally confined to energy supply. Allocation and pricing of energy are the responsibilities of state and lower level economic commissions, materials distribution bureaus, and pricing bureaus. 1.12 The respective roles of the central ministries vis-a-vis provincial and local authorities vary among the three principal subsectors. Petroleum is the most centralized, with all onshore oil and gas fields controlled from Beijing by the Ministry of Petroleum Industry. By contrast, roughly 40% of coal is produced by small mines controlled at or below the provincial level, and even large mines report both to the Ministry of Coal Industry and the provincial government. For electric power, five regional grids come under the direct supervision of the Ministry of Electric Power, while other systems are under the dual control of the provincial government and the Ministry. 1.13 Other ministries also play important roles in the sector. The Ministry of Railways handles about two thirds of the coal and most of the refined petroleum production; conversely, coal and oil together account for over 40% of the total tonnage carried by rail. Large volumes of coal and oil are also moved via coastal and inland waterways by ships operated by the Ministry of Communications. The Ministry of Chemical Industry operates a number of refineries, which produce a considerable volume of fuels as well as petrochemical feedstocks. The Ministry of Water Conservancy has a role in water management and, thus, hydro development. The Ministry of Geology is active in the surveying of mineral resources, and some of its activities seem to overlap or compete with those of the Ministries of Coal and Petroleum Industry. While the three energy producing ministries manufacture much of their own equipment, some equipment is also bought from the Ministries of Machine Building or imported via the Ministry of Foreign Trade, which also handles oil and coal exports. Investment Planning 1.14 The investment planning system and project design and evaluation criteria used in the energy sector appear to vary somewhat among ministries and provinces. The task of obtaining information on planning procedures and criteria was further complicated by the present process of reform, which has so far affected some aspects more than others. The description below attempts to summarize the situation in 1980, but may be oversimplified; further changes are likely as economic reforms are instituted. 1.15 The main focus of investment planning in the coal and oil industries is the annual plan. Some longer term plans, covering 5-10 year periods, are used in formulating the annual plans and others are being prepared, but they seem to be the exception. The basic administrative unit in the planning system is the bureau or administration responsible for an individual coal mine or oil field or, in some cases, for a group of mines or fields located near one another and managed as a unit. Proposals for projects are prepared at this level and, if they exceed a specified size, submitted to a higher authority (provincial coal bureau or the Ministry of Petroleum Industry) in  the fall of the year preceding proposed implementation. A geological report and preliminary project design would generally (in the case of coal) or sometimes (in the case of petroleum) have been approved earlier, so processing of the annual plan is concerned primarily with allocations of budgetary resources and key construction materials. 1.16 In the electric power industry, five-year plans are in general use. They cover individual grids and are developed by the respective regional and provincial power bureaus. Major projects are subject to approval by the Ministry of Electric Power and the State Planning Commission (SPC). The process is a two-stage one, with an initial approval required for detailed design work and a second approval required to implement a project. Project selection is based on "payback" periods rather than present worth analysis. Also, the concept of the least-cost sequence of projects for developing the entire system over a period of time is not applied. 1.17 The function of "balancing" resource availability against project proposals is carried out within the three energy supply industries by the respective ministries, and across sectors by the State Planning and Capital Construction Commissions./1 Only a few months (in some cases, a few weeks) are allowed for this process, and as the Energy Bureau of the SPC has only about 30 professional staff, it seems unlikely that detailed analysis can be made of a large number of alternatives. 1.18 With such a planning system, problems are likely to arise from the limited time horizon, the few alternatives considered, and the limited geographic and jurisdictional scope of most planning work. Focusing attention primarily on annual planning can produce two kinds of problems. First, it may result in use of short-term expedients, such as neglect of tunnelling and other development work in coal mines and excessively rapid depletion of oil reserves. This appears to have happened to a certain extent. Second, in investment programs, the preoccupation with current output may lead to a focus on current investment levels, but little concern about channeling investment into projects that will yield benefits earlier rather than later. This seems to be reflected in long construction periods and in the very long production lives planned for many mines. 1.19 The isolation of planning within ministries, the limited number of alternative studies and the short time allowed central authorities to deter- mine the best combination of investment projects must often result in failure to study adequately solutions to problems that cross the lines of geograph- ical or ministerial jurisdictions. The creation of the Energy Commission can be expected to improve this situation in some respects, e.g. coordination of coal and electric power planning. Other closely related sectors, such as railways and chemical industries, however, do not come under this commission, and analytical methods that link sectoral plans across jurisdictional lines do not seem to be in general use. It would, of course, be useful to link /1 The Energy Commission will presumably become an intermediate step.  - 9 - railway planning with the planning for coal and for highways, and to link chemical industry planning with petroleum and agricultural planning, but without putting all these sectors under the same commission. Shadow prices, i.e. estimates of the value to the economy of key commodities such as capital, foreign exchange, and fuel that are used to provide a consistent basis for planning in all sectors (but not in financial accounting), could be used to provide the needed intersectoral links in planning. 1.20 The choices among projects and of technical design and operating standards for projects would also seem to offer scope for raising outputs and lowering costs. The mission visited, for example, a number of installations with what appeared to be an excessive amount of underutilized and stand-by equipment. Improving performance in this area nay require less fundamental changes than those required to implement comprehensive sector planning. Aspects of project selection and design that may merit attention include: (a) generation of an inventory of investigated projects and project design alternatives that is sufficiently large to allow selection of the most economically attractive alternatives; (b) the computation of economic indices (such as net present value, benefit-cost ratio, or internal rate of return) that can assist in the allocation of scarce resources to their most productive use; (c) comparison of costs and benefits under a variety of project design alternatives and equipment types; and (d) the balance made by project designers between operating reliability and return per unit of invested resources. Pricing 1.21 Despite recent (1979) rises in natural gas and coal prices to non- household users (25% for gas, 29% for coal), the prices of several forms of energy - including fuel oil, coal, crude oil and industrial electricity - are at the official exchange rate still well below international prices (Table 1.5). Equally important, the current relative prices of different forms of energy are inappropriate - for example, encouraging the use of heavy oil rather than coal for fuel. However, prices of a few energy produces - gasoline, kerosene and electricity for household lighting - are now above international trade prices.  - 10 - Table 1.5: PRICE COMPARISONS Average Price in inter- Unit Chinese price national trade Coal (7,000 kcal/kg) $/ton 19-33/a 41/a Crude oil $/ton 90 250 Gasoline, 70 oct. $/ton 533 310/b Kerosene $/ton 453 3607 Diesel fuel $/ton 280 3207b Heavy fuel oil $/ton 37 220 Electricity