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China ponders electricity rate hike
By Mai Tian (China Daily)
Updated: 2005-02-18 00:48

The government is considering raising electricity rates starting from March or April to reflect recent coal cost increases, according to industry insiders.

Some sources said the electricity rate may rise by about 0.007-0.01 yuan (0.08-0.12 US cents) per kilowatt-hour on average.

A worker walks towards a transformer station in Shangdong, East China, December 30, 2004. [newsphoto]
The move may increase the nation's total electricity bill by as much as 20 billion yuan (US$2.4 billion), adding to inflationary pressures.

But loss-making power plants are set to benefit from the electricity tariff hike to pass on part of the fuel cost hikes to end users.

About 85 per cent of Chinese power companies suffered losses last year as the coal costs - which make up half of the production costs of power plants - increased by almost 50 per cent over 2003.

Although the government increased the electricity rate in June, the price hike was still unable to cover the fuel costs hike.

"The National Development and Reform Commission is asking local governments to submit plans for the electricity increase to reflect the coal cost increase," said one insider.

Different provinces have experienced different coal price increases.

The fresh electricity rate hike is widely anticipated by the industry after the government decided to introduce the coal-power price linkage mechanism in December.

The so called "coal-cost-pass-through" allows the electricity rate to float in line with coal price fluctuation.

Under the plan, 70 per cent of the coal price increase will be finally transferred to end users. The generating firms will take on the remaining 30 per cent of the fuel cost rise.

But the government did not specify the timetable for the implementation.

So far, Sichuan and Hunan provinces have increased their electricity rates to pass on the coal cost increase.

Sichuan, for instance, raised the on-grid electricity rate of coal-fired power plants by 0.0235 yuan (0.28 US cents), or 7 per cent, as of February.

But details of the nationwide plan to increase the electricity rate have yet to be finalized. Industry insiders said the expected electricity rate rise in March or April would be the first time for the government to implement the coal-and-power-lineage mechanism on a nationwide basis.

East China, one of the places worst hit by coal price surge, may see electricity rise by as much as 0.02-0.03 yuan (0.24-0.36 US cents) per kilowatt-hour.

Still, it remains uncertain whether electricity costs could rise by so much because such a move would result in huge inflationary pressures.

"It would be a tough decision for the government," said an analyst with a dominant domestic investment bank.

If the electricity rate hike fails to cover enough fuel cost increase, power companies will continue to see the profit dropping.

(China Daily 02/18/2005 page2)

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