Rising crude prices, loss suffered by oil firms force government decision

Petrol will cost 0.8 yuan (12 cents) and diesel 0.92 yuan more for a liter from today, and electricity charges for commercial units will go up by 0.025 yuan ($0.4 cents) per kWh from July 1.

Cars queue up in front of a gas station to buy as much of fuel as possible before oil prices are hiked at midnight in Beijing June 19, 2008. China announced Thursday evening that gasoline and diesel prices would be hiked by about 18%. [Asianewsphoto]

The price of aviation fuel has been raised, too, by 1500 yuan a ton, said the National Development and Reform Commission (NDRC).

The prices of natural gas and liquefied petroleum gas (LPG), however, remain unchanged.

Urban and rural residents and the farming and fertilizer production sectors have, however, been exempted from the increased electricity charges. Areas in Sichuan, Shaanxi and Gansu hit by the May 12 quake too have been exempted, the NDRC said.

The move is expected to bring some relief to domestic refineries, which have been reeling under losses, and ensure a stable supply of oil in the market. "The increase in the prices will benefit domestic oil companies," the NDRC said in a statement yesterday.

The price of crude oil in the international market has crossed $130 a barrel. Crude price is linked fully with the international market in China, while prices of refined petroleum products are still controlled by the government.

Because of the big gap between the high crude price abroad and the relatively low price at home, China's oil refineries have suffered huge losses.

The country's largest refinery, Sinopec, incurred a loss of more than 20 billion yuan in its refining business in the first quarter of this year.

The largest oil company, PetroChina, saw its net profit fall by more than 30 percent in the first three months, with losses in its refining wing being the biggest contributor.

Analysts said the high consumer price index (CPI) in recent months had been a deterrent for an increase in oil prices.

The country's CPI, the main gauge of inflation, rose 8.5 percent year-on-year in April. It was 8.3 percent in March and a nearly a 12-year-high of 8.7 percent in February.

It, however, dropped to 7.7 percent in May, paving the way for the government to increase oil prices, an analyst said.

But increased oil prices could push up the rate of inflation, Zhou Dadi, vice-director of China Energy Research Society said.

Electricity charges

The government will raise the electricity tariff to prevent power companies from incurring further losses.

The price of coal will be brought under government control temporarily, the NDRC said, because soaring coal price is the main factor behind higher electricity charges.

The increase in power tariff will help the development of desulfurization equipment in the power plants, and renewable energy sources such as wind power and biomass power, the NDRC said.

The increase in power tariff will not create a big impact on the CPI because urban and rural residents have been exempted.