Energy Procurement Cartels in China

1. Introduction

Energy procurement cartels arise when competing purchasers of energy or energy-related inputs coordinate their purchasing conduct instead of independently negotiating with suppliers. Examples include competing electricity generators jointly fixing the price at which they purchase coal, gas distributors coordinating procurement prices, energy-intensive industrial users agreeing on maximum purchase prices, or buyers collectively allocating suppliers or purchasing territories.

In China, such conduct is principally examined under the Anti-Monopoly Law of the People's Republic of China (AML). The AML treats agreements, decisions and other concerted practices that eliminate or restrict competition as monopoly agreements. Article 17 prohibits competing undertakings from entering into agreements that, among other things, fix or change prices and divide purchasing markets for raw materials and semi-finished products. (State Council of China)

Energy procurement cartels are therefore particularly important because coal, natural gas, electricity, petroleum products and other energy inputs often involve concentrated suppliers, long-term contracts and repeated negotiations.

2. Meaning of an Energy Procurement Cartel

An energy procurement cartel exists where two or more competing buyers coordinate their purchasing behaviour in a manner capable of restricting competition.

Typical arrangements include:

Joint purchase-price fixing

Buyers agree that none will pay above a particular coal or gas price.

Purchasing-market allocation

Buyers divide suppliers, regions or categories of energy inputs among themselves.

Supplier allocation

Buyer A deals exclusively with Supplier X while Buyer B deals exclusively with Supplier Y pursuant to an agreement eliminating competition between the buyers.

Collective refusal to purchase

Competing energy purchasers agree not to buy from a supplier unless that supplier accepts specified conditions.

Bid coordination

Competing buyers manipulate procurement tenders or agree which buyer will obtain a particular supply contract.

Exchange of competitively sensitive procurement information

Buyers exchange future purchase prices, volumes, reserve requirements, tender strategies or supplier-specific bids to reduce uncertainty between them.

Coordinated long-term contracting

Competing buyers coordinate contract quantities, prices or renewal conditions rather than independently negotiating with suppliers.

3. Why Procurement Cartels Are Particularly Serious in Energy Markets

Energy markets have characteristics that can make coordination easier and potentially more consequential.

A. Concentrated procurement

Large power generators, industrial consumers and energy distributors may purchase very large quantities from a limited number of suppliers.

B. Repeated transactions

Coal, gas and electricity are frequently purchased through recurring contracts, creating repeated opportunities for communication.

C. Homogeneous products

Coal grades, natural gas and electricity can sometimes have relatively standardized characteristics, making coordinated procurement easier to implement.

D. Long-term contracts

Energy procurement frequently involves annual or multi-year contracts. A cartel can therefore affect competition beyond a single transaction.

E. High switching costs

Infrastructure, pipelines, transportation arrangements, storage and grid connections may make switching suppliers difficult.

F. Information transparency

Industry associations, procurement platforms and regular tendering can provide information that, if exchanged improperly, may facilitate coordination.

4. Legal Framework Under China's Anti-Monopoly Law

The principal legal provisions are those governing monopoly agreements.

The AML expressly identifies agreements between competing undertakings concerning:

price fixing or alteration;

restrictions on production or sales;

division of purchasing markets for raw materials and semi-finished products;

restrictions concerning technology or equipment;

joint boycotts; and

other monopoly agreements.

The statutory definition is sufficiently broad to encompass coordinated purchasing arrangements where the purpose or effect is to eliminate or restrict competition. (State Council of China)

Procurement cartel versus legitimate joint purchasing

Not every joint purchasing arrangement is automatically unlawful.

For example, two companies may legitimately establish a purchasing consortium to achieve:

economies of scale;

lower logistics costs;

improved supply reliability;

standardized technical specifications; or

efficiency in transportation and storage.

The competition-law problem arises where the arrangement removes competition between otherwise competing buyers, particularly through price fixing, market allocation, coordinated tendering or collective exclusion.

5. Horizontal and Vertical Dimensions

A. Horizontal procurement cartel

This is the classic situation.

Example:

Five competing electricity generators agree that none will purchase coal below RMB X per tonne and that each generator will purchase from designated coal suppliers.

The generators are competitors on the downstream electricity market but cooperate in the procurement market.

Potential concerns include:

fixing purchase prices;

allocating suppliers;

restricting competition for coal;

exchanging sensitive procurement information.

B. Vertical energy arrangement

A different issue arises where an energy supplier imposes purchasing restrictions on distributors or customers.

For example:

A gas supplier requires distributors to purchase exclusively from it.

This may involve vertical restraints or abuse of dominance rather than a horizontal procurement cartel.

The distinction is important because the legal analysis differs.

6. Six Important Chinese Case Laws / Enforcement Decisions

Because directly litigated Chinese cases involving a classic cartel of competing energy buyers are comparatively uncommon, the following cases collectively establish the principles most relevant to analysing energy procurement cartels.

Case 1: Shanxi Direct-Supply Electricity Price Monopoly Agreement Case

Facts

In 2016, the Shanxi Electric Power Industry Association organized a meeting involving 23 thermal power enterprises. The enterprises discussed and agreed upon the pricing of direct electricity supply to large users.

They adopted an industry agreement under which the discount offered in direct electricity transactions would not exceed a specified amount and established a minimum transaction quotation.

The authorities concluded that the participating enterprises had coordinated their conduct and actually implemented the agreed prices.

The Shanxi authorities imposed penalties totaling approximately RMB 72.88 million on the 23 enterprises, while the industry association was separately fined. (NDRC)

Legal significance

Although the case concerned the sale of electricity rather than procurement of coal, it demonstrates the fundamental Chinese approach to coordinated conduct among competing energy enterprises.

The important principle is:

Competitors cannot replace independent market pricing with an industry-wide agreed price.

Relevance to procurement cartels

The same reasoning can operate in reverse.

If competing power generators agree:

"We will not purchase coal above RMB X per tonne,"

the agreement can restrict competition among purchasers just as coordinated electricity selling prices restrict competition among sellers.

Principle

Competitors must independently determine economically significant transaction terms.

Case 2: Chongqing LPG Joint-Operation / Unified Procurement Case

Facts

In 2026, the Chongqing Administration for Market Regulation dealt with an agreement between two LPG businesses operating in the same local market.

The businesses entered into a joint-operation agreement providing for:

unified management;

unified procurement;

unified sales;

unified settlement; and

unified distribution of profits.

The agreement also restricted the participants from independently purchasing or selling LPG covered by the joint operation. The authority concluded that the arrangement eliminated or restricted competition between the two competing gas operators. (CQ Government)

Legal significance

This is particularly relevant to energy procurement cartels because unified procurement itself became part of a broader arrangement eliminating competition between competitors.

The problem was not simply that the businesses bought LPG together. The problem was that the arrangement:

removed independent procurement;

unified commercial operations;

restricted independent purchasing and selling;

eliminated competition between the two businesses.

Principle

Joint procurement becomes problematic where it is used as a mechanism for eliminating competition between competing purchasers.

Case 3: Hadaqi Regional Natural Gas Vertical Monopoly Agreement Case

Facts

The competition authorities investigated China National Petroleum Corporation-related natural-gas businesses in the Hadaqi region.

The authorities found that the relevant businesses had implemented an arrangement involving the minimum resale price of compressed natural gas.

The businesses were fined approximately RMB 84.06 million, representing 6% of the relevant annual sales. The case was included among China's 2018 top ten antitrust enforcement cases. (Hebei Government)

Legal significance

This was a vertical rather than horizontal cartel case.

Nevertheless, it demonstrates the willingness of Chinese enforcement authorities to intervene in energy markets where contractual arrangements remove independent pricing.

Relevance to procurement

An energy procurement investigation may involve several layers:

Upstream supplier → purchaser → distributor → customer

Authorities must determine whether the alleged coordination is:

horizontal buyer coordination;

vertical price restriction;

resale-price maintenance;

exclusive dealing; or

abuse of dominance.

Principle

The legal classification of an energy arrangement depends on the economic relationship between the parties, not simply on the fact that the transaction concerns energy.

Case 4: Qinghai Natural-Gas Boiler Bundling Case

Facts

A natural-gas company was the only urban pipeline natural-gas supplier in the relevant locality.

It required consumers seeking gas connections to install boilers designated by the gas company. A competing boiler supplier consequently lost business.

The Qinghai market-regulation authority found the conduct to constitute prohibited tying by a dominant gas supplier. The administrative penalty became final, and the matter subsequently reached the Supreme People's Court in a private damages action.

The Supreme People's Court upheld compensation of RMB 80,000 to the affected boiler company. (Supreme People's Court of China)

Legal significance

This is not a procurement cartel, but it demonstrates an important energy-market principle:

Competition-law analysis must consider the relationship between control of an essential energy service and competition in an adjacent market.

Procurement relevance

A dominant energy purchaser or energy infrastructure operator could potentially create similar competitive concerns if it conditions procurement or access on purchasing unrelated products or services.

Principle

Energy infrastructure can provide leverage into adjacent competitive markets.

Case 5: Tengchong Natural-Gas Supply Case — Supreme People's Court

Case No.

(2025) Supreme People's Court Intellectual Property Division Civil Final No. 950

Facts

A downstream industrial gas user challenged conduct by the sole pipeline natural-gas supplier in Tengchong.

Among other allegations, the customer challenged requirements to submit gas-use plans in advance and the charging of deviation-settlement amounts.

The Supreme People's Court ultimately concluded that requiring advance gas-use planning and associated deviation settlement could have legitimate operational justification and did not, on the facts established, constitute prohibited abuse. (EIPC Court)

Legal significance

This case is particularly useful because it shows that commercial coordination or contractual mechanisms in energy markets are not automatically anticompetitive.

Energy procurement and supply often require:

advance scheduling;

volume forecasts;

balancing;

deviation settlement;

transportation planning; and

supply-security mechanisms.

These mechanisms may have legitimate technical or economic justifications.

Principle

A restriction should not be characterized as anticompetitive merely because it affects purchasing or supply decisions; its competitive effects and legitimate justification must be examined.

Case 6: Shanxi / Large-User Direct Electricity Procurement Enforcement

The broader Shanxi direct-electricity enforcement is also important because the investigation arose within China's transition toward market-oriented electricity procurement and direct trading by large electricity users.

The authority specifically emphasized that direct electricity prices were intended to be determined fairly by the parties according to market conditions. The coordinated conduct interfered with that market-based pricing process. (NDRC)

Significance for procurement cartels

This illustrates the structural importance of competition among participants in energy purchasing markets.

Where large users or generators independently negotiate:

Supplier → Buyer A
Supplier → Buyer B
Supplier → Buyer C

the supplier faces competitive purchasing demand.

If the buyers instead coordinate:

Buyer A + Buyer B + Buyer C → "We will jointly accept only price X"

the competitive procurement process can be materially altered.

7. Related Coal Procurement Enforcement

Chinese authorities have also paid close attention to coal procurement and coal pricing, although not every coal-price investigation constitutes a cartel case.

In 2022, the National Development and Reform Commission coordinated investigations into coal prices using the procurement records of major coal-fired power plants as a starting point. Authorities examined coal procurement contracts, invoices and transaction records and cross-checked coal and electricity enterprises' documentation. (NDRC)

This demonstrates the evidentiary importance of:

purchase contracts;

invoices;

procurement records;

quantities;

transaction prices;

supplier information; and

communications between market participants.

However, a regulatory investigation into excessive coal prices should not automatically be described as a procurement cartel. The legal characterization depends on the evidence of coordination and the applicable provision.

8. Elements of an Energy Procurement Cartel

A competition authority would generally examine the following questions.

1. Are the participants competitors?

This is fundamental.

If A and B are competing electricity generators, their joint purchasing arrangement receives substantially greater horizontal-cartel scrutiny than a genuine supplier-buyer relationship.

2. What is the relevant procurement market?

Possible markets could include:

thermal coal;

coking coal;

pipeline natural gas;

LNG;

electricity;

petroleum products;

renewable-energy equipment;

hydrogen;

biomass fuel; or

specialized energy inputs.

The relevant geographic market must also be considered.

3. What exactly was coordinated?

Investigators should distinguish between:

price;

volume;

supplier;

geographic territory;

tender;

contract duration;

payment conditions;

quality specifications; and

information exchange.

4. Was there an agreement or concerted practice?

Evidence may include:

written agreements;

association resolutions;

emails;

messaging records;

meeting minutes;

procurement spreadsheets;

common tender strategies;

synchronized bids;

identical contractual terms; and

communications concerning future purchasing behaviour.

The AML's concept of monopoly agreements extends beyond formally signed contracts to other coordinated conduct. (State Council of China)

9. Forms of Energy Procurement Cartels

10. Joint Procurement Versus Illegal Procurement Cartel

This distinction is crucial.

Potentially legitimate

Three small industrial users establish a purchasing vehicle to:

reduce transportation costs;

obtain bulk discounts;

share storage;

standardize technical specifications; and

improve supply reliability.

If they remain free to compete independently and the arrangement produces efficiencies, the analysis is different.

Potentially problematic

The same three companies agree:

"None of us will negotiate independently with coal suppliers, none will pay more than RMB X, and each company will purchase only from its allocated supplier."

This looks substantially more like a procurement cartel.

11. Role of Industry Associations

Energy industry associations require particular caution.

An association may legitimately:

publish technical standards;

promote safety;

facilitate lawful industry dialogue;

collect aggregated historical statistics.

But it should not organize meetings where competing energy purchasers exchange:

future procurement prices;

intended tender bids;

supplier negotiations;

purchasing quantities;

future contract strategies; or

coordinated purchasing restrictions.

The Shanxi electricity case demonstrates how an industry association can become involved in prohibited coordination among energy businesses. (NDRC)

12. Evidence Used to Detect Procurement Cartels

Chinese enforcement can rely upon both direct and circumstantial evidence.

Direct evidence

cartel agreements;

meeting minutes;

emails;

WeChat messages;

procurement instructions;

spreadsheets;

association resolutions.

Circumstantial evidence

identical procurement prices;

synchronized contract changes;

unusual supplier allocation;

identical tender strategies;

unexplained withdrawal from tenders;

parallel purchasing patterns;

communications preceding coordinated transactions.

The 2022 coal investigations demonstrate the importance of procurement contracts, invoices and transaction records in energy-market enforcement. (NDRC)

13. Defences and Legitimate Explanations

A company accused of participating in an energy procurement cartel may argue that the conduct resulted from legitimate commercial reasons.

Potential explanations include:

A. Economies of scale

Joint purchasing may produce genuine cost savings.

B. Supply security

Energy companies may coordinate emergency procurement to prevent supply interruption.

C. Technical compatibility

Purchasing standardized fuel or equipment may be necessary for operational compatibility.

D. Logistics

Joint transportation and storage may reduce costs.

E. Regulatory requirements

Certain energy-sector coordination may arise from government-mandated market mechanisms.

F. Demand aggregation

Aggregating demand can sometimes increase efficiency without eliminating competition between purchasers.

The critical issue is whether the arrangement restricts competition beyond what is reasonably necessary to achieve the legitimate objective.

14. Relationship with Abuse of Dominance

An energy procurement dispute can involve two distinct theories.

Procurement cartel

Several competing buyers coordinate.

Example:

Power Generator A + B + C agree on coal procurement price.

Abuse of dominance

A dominant buyer or infrastructure operator unilaterally imposes exclusionary conditions.

Example:

A dominant energy purchaser refuses to deal with certain suppliers without objective justification.

These should not be conflated.

The Supreme People's Court's natural-gas decisions demonstrate the importance of examining dominance, relevant market and justification separately. (IPC Court)

15. Government and State-Owned Enterprise Issues

Energy markets frequently involve state-owned enterprises and regulated infrastructure.

Government ownership does not by itself immunize commercial conduct from competition-law scrutiny.

At the same time, genuinely regulatory conduct must be distinguished from independent commercial coordination.

This creates three possible situations:

Commercial cartel — ordinary AML analysis.

Government-directed conduct — may involve administrative monopoly issues.

Regulated market mechanism — requires analysis of the legal authority underlying the arrangement.

16. Penalties and Consequences

An energy procurement cartel can expose participants to several forms of liability, depending upon the conduct and applicable law:

administrative fines;

confiscation of illegal gains where applicable;

orders to cease the conduct;

compliance obligations;

civil damages claims;

invalidity or unenforceability issues concerning prohibited arrangements;

reputational consequences; and

potentially criminal consequences where the conduct separately constitutes an offence, such as certain forms of bid-rigging.

China has also strengthened enforcement against collusive tendering, with the Supreme People's Court and NDRC publishing cases concerning coordinated bidding and procurement manipulation. (NDRC)

17. Compliance Requirements for Energy Companies

Energy companies should establish a procurement-cartel compliance programme.

Procurement teams should not:

discuss future purchase prices with competitors;

exchange supplier quotations;

coordinate tender participation;

agree which competitor will approach which supplier;

discuss minimum or maximum purchasing prices;

share future procurement volumes;

coordinate contract renewals; or

use an industry association to coordinate purchasing strategies.

They should:

maintain independent procurement decisions;

document legitimate reasons for joint purchasing;

establish information-access controls;

monitor industry-association meetings;

train procurement personnel;

preserve procurement records;

obtain competition-law review of purchasing consortia; and

create escalation procedures for suspicious competitor communications.

18. Practical Hypothetical

Suppose A Power, B Power and C Power are competing thermal generators.

They purchase coal from the same group of suppliers.

They agree:

A will purchase from Supplier 1;
B will purchase from Supplier 2;
C will purchase from Supplier 3;
none will compete for the other's supplier; and
none will pay more than RMB 800 per tonne.

This arrangement contains several potential cartel elements:

supplier allocation;

procurement-market allocation;

price coordination;

restriction of independent bargaining; and

potentially exchange of competitively sensitive information.

It would therefore require serious AML scrutiny.

By contrast, if A, B and C create a purchasing vehicle solely to combine transportation and storage while retaining independent price negotiations and supplier selection, the competitive analysis could be materially different.

19. Key Case-Law Principles

The first two are especially useful when analysing energy procurement coordination, while the other cases help distinguish procurement-cartel theory from vertical restraints and abuse of dominance. (NDRC)

20. Conclusion

Energy procurement cartels under Chinese competition law concern coordinated purchasing behaviour that substitutes collective action for independent competition between energy buyers. The most significant risks involve purchase-price fixing, supplier allocation, procurement-market division, collective boycotts, bid coordination and strategically sensitive information exchange.

The Shanxi electricity case demonstrates the authorities' willingness to intervene where competing energy enterprises coordinate commercially significant prices, while the Chongqing LPG case provides a particularly useful modern example of competing gas operators using unified procurement as part of a broader arrangement that eliminated independent competition. (NDRC)

At the same time, the Supreme People's Court's natural-gas decisions show that legitimate operational coordination must be distinguished from unlawful restriction of competition. Advance planning, balancing, joint logistics or genuine efficiency-enhancing purchasing are not necessarily cartels merely because they involve coordination. (EIPC Court)

For examination purposes, the central proposition is:

A joint energy procurement arrangement becomes a serious antitrust concern when competing purchasers cease making independent purchasing decisions and instead coordinate price, suppliers, quantities, territories, tenders or other competitively significant procurement parameters.