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First private investment in Chinese energy infrastructure plan

A private investment fund will take a stake in a major natural gas pipeline in China, the first investment by a private entity in the nation's energy infrastructure

The Chinese government has begun to encourage private investment in key sectors of the economy, including those monopolized by state companies, following a decision by the State Council last week. The move is intended to help boost the economy in the short term and diversify financing channels in the long run.

The Urban Infrastructure Facilities Investment Fund, a fund that handles investments in energy and infrastructure by private companies and investors, will invest CNY10 billion (USD 1.5 bn) to take a 16 per cent stake in the third phase of the West-East natural gas pipeline, the state pension fund said on its website.

The investment fund is organized by the All China Federation of Industry and Commerce, a lobby group representing private companies and investors.

PetroChina Co. (PTR), the project's primary operator, will invest CNY32.5 bn for a 52 per cent stake and state-owned steel company Baosteel Group Corp. will pay another CNY10 billion for a 16 per cent stake. China's state pension fund, the National Council For Social Security Fund, will also invest CNY10bn for a 16 per cent stake.

The government has opened several state-run sectors, including the railway and financial sectors, to private capital following the State Council's meeting, state-controlled Xinhua news agency said Thursday. "It is the first time for China to use both national and private funds for a single national project with equal terms and treatment," Xinhua said.

Lin Boqiang, director of the China Center for Energy Economic Research at Xiamen University, said including NCSSF as an investor was "very smart" because it would reassure private investors of the government's backing for the project.

"The investment will bring the advantages of all parties into full play and allow for the effective allocation of market resources, which will serve the country's efforts to expand domestic demand and boost growth," PetroChina Chairman Jiang Jiemin said in a Xinhua report.

The third phase of the West-East pipeline will require a total investment of CNY116 billion, the statement said. It will span 5,000 km from northwestern China to the southeast, and is designed to transport 30 bn cubic meters of natural gas annually, it said.

Initial construction of the third phase has begun and it is expected to be fully operational in two or three years, Jiang said previously.