PRC Renewable Energy Law (Amendment of 2009)

The amendment of the PRC Renewable Energy Law (the “Amendment”) has been adopted on December 26th, 2009, and shall come into effect as of April 1st, 2010.

Compared to the PRC Renewable Energy Law of 2006, the Amendment has included some new provisions to promote the utilization of electricity generated from renewable sources.

Mandatory Connection Policy

Probably the most significant principle of the Renewable Energy Law when it was originally passed was the introduction of the “Mandatory Connection” policy, which required grid companies to connect and purchase all renewable energy generated that could be injected into the grid. After few years of experience it has been clear that not all grid companies were complying with their obligations to purchase all renewable power and connect it to the grid. This was caused by various factors, including technical infrastructure weaknesses that impeded the reception of all that renewable energy by the grid companies.

Part of the amendments are aimed at addressing this “bottleneck problem” by creating a legal framework that requires grid companies to invest in expanding and strengthening their facilities.

Also the amendments have increased the responsibilities of the grid companies by now requiring them to meet a new type of target- a proportion of renewable power generated relative to overall power generation (Art. 14, paragraph 1).

In contrast with the previous targets, the new target created by the amendments places responsibility directly on grid companies to purchase a fixed share of their power generation from renewable energy sources, and these grid-level targets will be enforced through penalties for non-compliance (Art. 29).

On the other hand, the amendments also decrease the grid companies’ obligations by adding a limitation to the scope of the grid companies’ obligations under the Mandatory Connection Policy.  The original law required grid companies to purchase all renewable energy regardless of its “quality,” but the amended law now limits grid companies’ responsibility to only those renewable energy generators that meet certain technical requirements for connection (Art. 14, paragraph 2).

Renewable Energy Development Fund

Another important addition to the law is how grid companies are compensated when purchasing renewable energy instead of cheaper, dirtier forms of energy, such as coal.

Since renewable power is generally more expensive than conventional fossil fuels, China has instituted feed-in tariffs for a variety of renewable energy technologies to compensate grid companies for the additional cost of purchasing renewable energy.

According to the Amendment, instead of the grid companies’ collecting the surcharge directly from the end-user, the end-user shall pay the surcharge into a Renewable Energy Development Fund. Once the surcharges have been pooled, the grid company will then seek compensation from the fund for the additional cost of purchasing the renewable energy, including the costs associated with integration. This large fund will allow the government to use this amount of money not only to compensate grid companies, but also to invest in various renewable energy development projects, including R&D (Art. 24).

The Amendment strengthens the penalty to the companies which break the rules. Electric grid companies, natural gas & heat pipeline companies, and gas-selling enterprises which fail to purchase or accommodate renewable sources of power or fuel are liable for compensation. The energy department of the State Council or provincial level governments shall order them to correct the situation within a stipulated period of time. If they refuse to correct the situation, a fine of up to double the amount of actual amount of the economic loss shall be imposed against them.

The Amendment has reflected the Chinese government’s determination of developing and utilizing the renewable energy sources in order to decrease the carbon emission and air pollution. China has 9% of primary energy consumption come from renewable energy sources at present and China will aim to have 15% of primary energy consumption by 2020 come from renewable energy sources. It also aims to reduce the carbon intensity, or the amount of carbon consumed when producing per unit of GDP, of between 40 and 45 percent by 2020 compared with 2005.

by UBILLA & CIA

A New Corporate Structure in China Partnerships: A New Form of Investment for Foreign Enterprises and Individuals

Measures for the Administration on the Establishment of Partnership Business by Foreign Enterprises or Individuals in China (the “Measures”) shall come into effect as of March 1, 2010.

Currently, foreign investors start business in China primarily in the form of Equity Joint Ventures, Cooperative Joint Ventures, Wholly Foreign Owned Enterprises ("WFOE") and Representative Offices. However, the Measures create a new structure - foreign invested partnerships (“FIP”) for foreign investors to invest and operate in China.

The Measures indicate that FIPs shall be governed by the Partnership Enterprise Law, issued as a general rule over partnership enterprises in 2007, and shall be regulated by the Foreign Investment Industry Catalogue.

The features of the new structure reflected in the Measures are as follows:

1. Regarding this form of partnership, the investor may act as a general partner or as a limited partner of a limited partnership;
2. Regarding the registration authorities, an application for a FIP’s establishment shall be directly submitted to the State Administration of Industry and Commence and its local branch for approval (“MOFCOM”) will only be notified after the registration is completed. Historically, the application for the establishment of the foreign invested company shall be approved by MOFCOM before registration. Definitely, the Measures take a different approach for FIPs.
3. Regarding the registered capital, the Measures are silent on the minimum registered capital, so it is assumed that the capital contribution and changes of capital may be stipulated in the partnership contract;
4. Regarding the liability of the investors, according to the PRC Partnership Law, the general partners of this form of enterprises shall bear unlimited liabilities to the debts of the enterprises, which is entirely different from the limited liabilities of other foreign invested enterprises. The “limited partners” of the Partnership will only be liability up to the amount of their capital contributions.
5. Regarding the tax, foreign partnership enterprises are immunized from the corporate income tax. Each partner of a partnership is liable for tax on its share of income of the partnership, regardless of whether such profits are distributed.

The Measures create a new legal form which provides flexibility and efficiency for them to set up businesses in China. However, the Measures only stipulate the basic rules for FIP’s establishment registration, changes, registration, dissolution, financial accounting, taxes, foreign exchange, customs, etc., and these rules still remain unclear and need further clarification. Therefore, it is expected that the implementation of the Measures and other relevant legislation shall be followed by other supplementary rules.

by UBILLA & CIA