The National Development Reform Commission (NDRC) is considering
plans to abolish the fixed coal prices currently enjoyed by the
nation's power plants.
The idea, which is intended to balance coal supplies and
electricity generation, is the highlight of a proposal submitted by
the China Society of Coal Industry (CSCI) to the commission to
amend the coal trading rules.
The proposal, still under initial discussion, aims to replace
the 1960s rules, which were designed to serve the needs of the
planned economy. New regulations would update such areas as coal
quality ratings, transportation, legal contract terms and the
pricing mechanisms.
CSCI officials say that they have proposed completely
liberalizing the coal market and abrogating the existing
double-pricing systems for thermal coal to power plants.
Liberalization should resolve the enduring disputes between coal
and power companies.
At present, Chinese power plants sign one-year-forward coal
purchase contracts with mines at the end of each year to supply
about one-quarter of the coal they will consume in the coming
year.
The government tends to cap the contracted prices much lower
than that on the spot market out of concern that power companies
cannot afford a rise in coal prices. Electricity sales prices are
pegged by the government.
Thermal coal prices on the spot market have risen this year by
25 to 30 percent year-on-year, while contracted prices increased by
less than 10 percent. Many coal mines refused to observe their
contracts and sold the coal on the spot market to cash in on the
price hike.
As a result, some power plants have run out of coal and had to
stop operating, aggravating the nationwide power shortage.
"The double-pricing system should be abolished," said a CSCI
official. "Transactions should be fair to both sellers and buyers.
But historically, coal companies have been suffering from the lower
prices."
Experts agree that liberalization of coal prices is
inevitable.
Wu Zhonghu, an analyst with the NDRC's Energy Research
Institute, said the pricing reform is a way to resolve the dispute
between coal and power companies.
"Prices should be decided by the market," said Wu. "Government
interference will distort it."
But opening the market is a tough decision for the
government.
The premise for the complete freeing up of the coal market is
that the government would establish a mechanism to float
electricity tariffs, allowing the power companies to pass on coal
price hikes.
But the government is concerned that the decision will hurt the
interests of millions of power users.
A deputy director of the China Electricity Council said the
government is studying ways to push through the coal-electricity
pricing collaboration mechanism.
Meanwhile, the government is encouraging coal and power
generating companies to enter into long-term contracts to stabilize
coal supplies. It also encourages power companies to invest in coal
mines to ensure supplies.
Last month, the NDRC increased the end-user electricity tariff
by an average of 22 yuan (US$2.70) per megawatt-hour on the
eastern, northern, central, and southern grids to help generating
companies offset some fuel cost increases.
(China Daily July 23, 2004)