The Chinese mainland lifted its processed oil prices yesterday to offset refinery losses and bring domestic prices closer to international levels, but promised to subsidize disadvantaged communities and public service sectors.

Ex-factory gasoline prices will be increased by 300 yuan (US$37.5) per ton while the cost of diesel oil will rise by 200 yuan (US$24.9) per ton, the National Development and Reform Commission (NDRC), the industry regulator, said yesterday.

Retail prices for gasoline will also rise by 250 yuan (US$30.8) per ton, while diesel prices will rise by 150 yuan (US$18.5) a ton, it said.

The decision was made because the nation's current prices of processed oil are far below those on the international market, it said.

"This is not beneficial to oil refineries and at the same time does not help ensure adequate supplies and improve energy efficiencies," it said in a circular published yesterday.

In Beijing, retail prices for 93 RON grade gasoline rose to 4.31 yuan (53 US cents) a litre from 3.94 yuan (49 US cents), and zero-grade diesel prices increased to 4.04 yuan (50 US cents) a litre from 3.74 yuan (46 US cents), the capital city's development and reform commission said in a separate statement, the Bloomberg reported yesterday. RON is the research octane number that indicates the quality of the gasoline.

PetroChina said last week that it lost 19.8 billion yuan (US$2.4 billion) on refining and fuel sales in 2005.

To offset the impact of the rises to groups sensitive to higher prices, the commission said the State Council has decided to offer subsidies to communities such as fishermen, farmers, State-owned forestry enterprises and urban public transportation firms.

Oil prices have rocketed since 2003, with crude oil reaching more than US$60 per barrel on the international market this year, far higher than the price paid for the commodity by domestic users. Prior to the price hikes, the retail price of domestically processed oil was only about US$43 per barrel.

The taxi and public transport sectors have borne the brunt of these rising prices.

Xue Chunsheng, a manager of the Beijing Yuyang United Taxi co Ltd, said yesterday's price rise would increase his company's daily costs by at least 30 yuan (US$3.7) per vehicle.

With its more than 4,000 taxis, the price rise will result in an additional monthly cost of 3.6 million yuan (US$448,000) for Xue's company. "We are expecting the government to unveil preferential policies to help the industry," Xue said.

Zhang Jinying, a driver for Capital Taxi Co, said the latest price rise would cut her monthly income by more than 400 yuan (US$50).

"Minus the monthly payment of 3,500 yuan (US$4,350) to the company as well as fuel expenses, I could earn around 2,000 yuan (US$248) a month prior to the price increase,"Zhang told China Daily. "And now, I will earn less."

The commission said local governments would offset the increased financial burden on taxi drivers in urban areas mainly through readjusting transportation charges and imposing surcharges on fuel oil.

It said local governments should offer provisional subsidies to taxi drivers in urban areas if they are unable to readjust the charges in the immediate future.

An employee of the Shanghai-based Dazhong Taxi Co Ltd said yesterday his company had just received a notice from the local authorities that increased costs resulting from the oil price hikes should not be passed on to taxi drivers, but instead shared by both the local government and transportation companies.

But how exactly the costs will be shared remains a subject of debate.

For operators of rural passenger transport businesses, the government will reduce the impact mainly through adjusting transportation charges and offering subsidies to those in difficulty, the commission said.

Insiders said yesterday's oil price hike was not as high as expected, suggesting that the government has postponed a plan to roll out its new oil pricing mechanism.

But the rise is nevertheless an indication that the government is trying to create a closer link between domestic and international oil prices, they said.

"Now that they have increased the price, that might mean the government is putting off the new scheme,"said Gong Jingshuang, a senior analyst with the research arm of the nation's biggest oil firm, China National Petroleum Corporation.
Analysts said a bolder plan to allow more frequent price changes in bigger margins may have been held back by the tough issue of how to shield lower-income users, mostly the country's 800 million farmers, from rising fuel costs.