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Notice of the General Office of the State Council on the

Submitting of the "Advices to Speed up the Promoting of

Energy Management Contract to Enhance the Development of Energy Efficiency Service Industry"

Document No.: Guo Fa [200628

The government of each province, autonomous region and municipality, ministry and agency directly under the State Council:


The "Advices to Speed up the promoting of Energy Management Contract to Enhance the Development of Energy Efficiency Service Industry" submitted by the SDPC, the MOF, the People's Bank of China and the State Taxation Administration has been accepted by the State Council, now it is transmitted to you for your earnest implementation.

General Office of State Council

April 2, 2010

The SDPC, the MOF, the People's Bank of China and the State Taxation Administration

"Advices to Speed up the Promoting of Energy Management Contract to 

Enhance the Development of Energy Efficiency Service Industry"

With reference to the "The Energy Conservation Law of People's Republic of China" and "The Decision of the State Council on Strengthening the Energy Conservation" {Document No.: Guo Fa [200628}, "Notice on the Printing and Issuance of the Energy-saving and Emission Reduction Work Program of the State Council" {Document No.: Guo Fa [200715} and other documents, in order to accelerate the promotion of Energy Management Contract (EMC) and enhance the development of energy efficiency services industry, we put up with the following advices:

I. Have a full understanding of the importance of the promotion of Energy management Contract and the development of energy efficiency service industry.

Energy management Contract (EMC) is a service mechanism generally implemented by developed countries to use market instruments to promote energy efficiency. The energy efficiency service companies sign energy management contract with customers and provide them with services such as energy-conservation analysis, financing, renovation and others. The energy efficiency service companies recover their investment and obtain reasonable profits from the energy efficiency benefits. This mechanism can greatly reduce the capital and technology investment of energy transformation units, and it is effective to mobilize the enthusiasm of the units to the energy saving renovation. China began to introduce the EMC mechanism from the late 1990s. From then on, the energy efficiency service industry developed quickly and more and more energy efficiency service company emerged under the EMC demonstration, guidance and promotion of the government. The service domain has extended to industry, construction, transportation, public institutions and others. In 2009, there were up to 502 energy efficiency service companies in China with total output value exceeding 58 billion RMB yuan and annual energy saving capacity amounting to the energy of 13.5 million tons of standard coal. They play a positive role in the promoting of energy saving, reducing energy consumption and increasing the employment. But it should be noted that the EMC in China has not gained enough attention. In the energy efficiency services sectors, preferential financial and taxation policies are lacking, the financing for the EMC project is difficult and financing scale is relatively small and the current development of EMC in China is irregular. Therefore, it is hard for the current energy efficiency service industry in China to meet the energy efficiency requirement indeed. Speeding up the promotion of the EMC, actively developing the energy efficiency service are effective measures to use market mechanisms to promote the energy conservation, reduce greenhouse gas emissions, fulfill the urgent requirement to cultivate strategic new industries and new economic growth point in order to build a resource-saving and environment-friendly society. All localities and departments should fully understand the importance of the promotion of the EMC and the development of the energy efficiency services industry, and take practical efforts to create and establish a favorable policy environment for the quickly development of the energy efficiency service industry.

II. The guiding ideology, basic principles and development targets 
(A) The guiding ideology 
Hold high the great banner of socialism with Chinese characteristics, Deng Xiaoping Theory and "Three Represents" as guidance, further implement the Scientific Concept of Development, give full play to market mechanism, to strengthen policy support and guidance and actively implement the EMC, accelerate the promotion and application of new energy-saving technology, new product, promote the development of energy efficiency service industry and enhance their energy efficiency.

(B) The basic principles 
First, to play the role of market mechanism. Give full play to the market's basic role in allocating resources, to establish market-based mechanisms based on sharing the energy-saving benefit in order to mobilize the energy efficiency service company to strengthen the technological & service innovation and improve services.

Second, strengthen the policy support and guidance. Through the making of sound policies, strengthening of the supervision and the self-discipline, the government shall establish a good policy climate and market environment for the energy efficiency service company, and guide the healthy development of energy efficiency service industry.

(C) Development targets
By 2012, we will support and cultivate a batch of professional energy efficiency services company, strengthen a large number of integrated energy efficiency services company, establish a vibrant and standardized energy efficiency services market with distinctive features. By 2015, we will establish a relatively complete system of energy-saving services, enhance the service capabilities and further expand their service sectors of professional energy efficiency services companies. The EMC will become one of the main measures of the energy consumption units to implement the energy saving. 

III. Policies and measures to improve the promotion of energy efficiency services

(A) Increase the funding support 
EMC projects will be included in the range of central budget investment and the central government special fund to support energy saving and emission reduction. We will give financial subsidies or other incentives to the energy efficiency renovation EMC project implemented by the energy efficiency service companies which comply with the relevant provisions. Areas where conditions permit should retain some funds to support and guide the development of the energy efficiency services industry. 
(B) The supporting tax policy 
The government will provide appropriate tax relief policies for energy efficiency service industry under the premise of strengthening the tax administration.

First, the taxable turnovers of the energy efficiency service company in the implementation of the EMC project is exempted from the turnover tax temporally and the free transfer of EMC project assets to the energy consumption unit is VAT free. 

Second, during1-3 years from the first turnover year onwards, the EMC project implemented by the energy efficiency service companies is free from the income tax and free from 50% of the income tax in the next 4-6 years according to the relevant tax provisions. 
Third, the payment of the energy consumption unit to the energy efficiency service company on the EMC contract can be deducted from the current income tax calculation with no differentiation of revenues from the service charge and assets.

Fourth, after the expiration of the EMC contract, the energy efficiency service companies will transfer the assets accumulated in the EMC project implementation to the energy consumption units, the transferred asset is taxed as the depreciation or amortization assets.  The assets transferred to the energy consumption units will not be calculated in the income tax of the energy efficiency services company. 
The specific measures for implementation of the above tax policies will be formulated separately by the MOF, the Administration of Taxation, the SDPC and pertinent agencies. 

(C) Improve the relevant accounting system 
The payment of the government agencies at all levels for the energy efficiency services to the energy efficiency service company under the EMC contract shall be retained as the energy consumption charges. The payment of the public institutions for the energy efficiency services to the energy efficiency service company under the EMC contract will be included in the relevant expenditure items. For the enterprises adopting EMC pattern to implement the energy efficiency renovation, if the construction and purchase of the assets can be distinguished and measured separately and appropriately from the service payment, they shall be accounted for respectively in accordance with the national unified accounting system of China. If they can not be reasonably distinguished or differentiated, or can be distinguished but can not be calculated separately, they payment of the energy consumption unit to the energy efficiency service company will be listed in the item of expenses.  In case of the maturity of the EMC contract, the pertinent assets transferred by the energy efficiency service company to the energy consumption units will be dealt with as donation assets in the tax calculation, and as gift or donation for the energy efficiency service company.

(D)  Further improve the financial services
Encouraging banks and other financial institutions to design innovative credit products, broaden the range of collateral, streamline application and approval procedures for energy efficiency service companies and provide financial services such as project financing, factoring and so on to meet the financing needs of energy efficiency services companies. The energy efficiency service companies shall be allowed to use the fixed assets invested in the EMC project for mortgage loans from banks. The government shall encourage the active use of foreign preferential loans and grants to enhance the support to the EMC project.

IV. Strengthen the government guidance and services on the energy conservation service industry 
(A) Encourage and support the energy efficiency services company to become bigger and stronger.
Energy efficiency service companies shall enhance service innovation, strengthen staff training, enhance technological R&D, brand building, and constantly enhance the comprehensive strength and competitiveness. Encourage the energy efficiency service companies to manage in the way of large scale, reliable branding, network through M&A, restructuring, etc., and form a pool of large-scale service enterprises with well-known brand and strong competitiveness. Encourage the large-scale key energy consumption units to utilize their technological advantage and management experience to establish professional energy efficiency services companies and provide services for other energy consumption units.

(B) Encourage the industry organizations to enhance self-service and be self-discipline of the energy efficiency service industry 
Encourage the energy efficiency services industry organization to fully perform their functions and organize business training vigorously and accelerate the building of information exchange platform, sum up actively the experiences of energy efficiency service companies with outstanding performance, provide the energy efficiency consulting services. Self-discipline convention in the energy efficiency services industry shall be established in order to establish and improve the self-regulation mechanisms and the industry overall.

(C)Create a favorable environment for the development of energy efficiency services 
Local governments at each level should list the promoting of the EMC and the development of energy efficiency service industry into their agenda of important affairs, strengthen the government leadership therein and carefully organize in order to achieve tangible results. The government agencies should take the lead to adopt the EMC to implement the energy efficiency renovation and play an exemplary role model to the others. Competent authorities at all levels shall take various forms to publicize the importance of EMC and its significant achievements to improve the social awareness and sense of identity to the EMC and create a favorable atmosphere for the EMC. The government shall strengthen the energy consumption measurement management, urge and supervise the energy consumption units to equip with metering equipment required and provide basic conditions for the EMC implementation of the energy efficiency service companies. The government shall organize and implement the pilot EMC projects and enhance the leading role of it. The government shall strengthen the research in the development law of energy efficiency services industry, actively learn from foreign advanced experience and good practices, coordinate and solve industry problems and difficulties in promoting the sustained and healthy development of industry.

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