No change for residential power prices
Individual residents in China will not be expected to pay more for electricity in the near future, according to sources at the National Development and Reform Commission (NDRC).
The NDRC also decided that power prices for individual residents, agriculture, small and medium-sized fertilizer production, remain relatively stable, with changes to be made at most annually.
Hearings are supposed to be held before any possible changes of power consumption prices for individual residents.
In order to maintain coal and power price stability, the central government also encourages coal production and power generation companies to sign long-term contracts for coal supply, said NDRC sources.
Coal suppliers and buyers have just concluded negotiations on coal price at the week-long China 2005 Coal Ordering Conference and signed long-term coal supply contracts.
Inadequate production and transportation capacity mean that the coal price has continued to grow, while the government-controlled power price remains unchanged.
As a result, power generation companies has suffered from losses caused by coal consumption cost rises, said an industry analyst.
"A further increase in the coal price is expected this year, resulting from similar factors as in 2004," said Han Yong, a coal industry analyst with China Securities.
Under the new price linkage mechanism, power prices will float along with coal price changes, and pass the coal consumption cost increase to end users, according to industry sources.
Power generation companies are expected to afford 30 per cent of the coal price increases, said an industry insider, and the on-grid power price will fluctuate with coal prices, which, accordingly, is to affect power prices for end users.
The power price for industrial sectors, such as steel production, is expected to rise approximately 0.01 yuan (0.12 US cents) per kilowatt-hour after the new price linkage mechanism is implemented, said Wang Xiaohui, a power industry analyst with Beijing-based CITIC Securities.
China's largest power generator, Huaneng Power International, said on Thursday it was raising tariffs for energy from its power plants by between 3 and 7.7 per cent following an increase in coal prices.
Compared with industrial sectors, however, the government should be more cautious in adjusting the power prices for individual residents, which account for 20 per cent of China's total power consumption, said Wang.
"Changes in power consumption price for individual residents and agriculture, not only represent a business issue, but more importantly, has far-reaching social implications," said Wang, "so the NDRC-regulated unchanged power price for individual residents and agricultural sector in the near future, will help maintain social stability."
However, the power price is supposed to be higher than those for industrial uses, because the production and transmission costs for individual residents exceed those for industrial uses, and the sales prices should mirror the costs, according to Wang.
But China's current power price system does not reflect this, for example, in Beijing, power price for individual residents stands 0.1 yuan (1.2 US cents) to 0.2 yuan (2.4 US cents) per kilowatt-hour less than that for industrial uses, according to a Beijing government official website.
So a reform is needed to rationalize China's power price system, said Wang.
"But the reforming needs time to process," Wang added.
As part of the country's power price system adjustment, large power consumers, such as steel producers, are expected to directly buy electricity from power generators, steering clear of the power grid transferring procedure and government control on power prices, said Wang.