Coal prices should be decided by market
(Xinhua)
Updated: 2004-11-28 09:45

Coal prices should be decided by market instead of the government, insiders of coal industry urged here Saturday at a forum on coal.

Pu Hongjiu, vice-chairman of the China National Coal Association, said current price-forming mechanism distort coal prices and cannot reflect its value.

In the recent years, China suffered from "shortage of electric power," most of which generated by thermal power plants. Though the output of coal increased 19.1 percent in 2003, coal was still badly needed. But even under these circumstances, most coal companies are still in difficulty.

According to the statistics of the China National Coal Association, the profit margin of net assets of coal industry was an average of 2.57 percent from 1998 to 2003. While in 1998 and 1999, the profit margin was negative. Even in 2003, the best year,it was 6.04 percent, only half of the overall level of the country's industries.

Pu said factory price of coal is very low in China and the reason is that the price-forming mechanism is not logical.

In fact it was the central government who controls the price ofa large amount of coal. So there were two prices of coal: one is "guiding price," the price that the central government set down forcoal to generate electricity; the other one was market price for ordinary coal.

In June of this year, the State Council decided to abolish the guiding price and allow the buyer and seller to negotiate the price.

But because of the interference of some local governments and collective purchases of large electric companies, Pu said, the situation did not change much. Large gap between the two prices continue to exist.

According to the statistics from China Coal Industrial Association, leading state mines sold coal to power plants at an average price of 155.59 yuan (18.8 US dollars) by the end of September. This is 42.95 yuan less than those provided for market deals.

Market-regulatory mechanisms can bring reasonable prices and sound profit margins for mines, said Peng Jianxun, chairman of Datong Coal Mine Group Co. Ltd. a leading coal company in China.

"We, the coal companies, hope that the government will open theprice," he said.

Pu said besides operating costs and profit margins, coal prices involves several other items as well, such as safety costs and costs used for environment-protection. He believed that allowing the market to regulate the price will greatly help the sustainabledevelopment of coal industry.

"If we open the price, what shall we do if there is drastic wave in the market and national economy?" said Wu Yin, deputy director general of the Energy Bureau under the National Development and Reform Commission, China's economic policy maker. "So how to open is still under investigation."

The two-day forum is held by the government of Shanxi Province,a province with a rich storage of coal, and the China National Coal Industrial Association.

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