The country's coal-fired power producers have secured more than 80 percent of their fuel supplies for this year.

 

But they still face cost rises as coal prices are higher than last year, although electricity tariffs are controlled by the government.

 

Yang Linjun, general engineer of Zhongneng Power Industry Fuel Co, said 84 percent of key coal supply contracts for the country's electricity generators had been signed.

 

Yang said the coal supply shortfalls would not be a problem causing brownouts this year, but power producers are still "under cost pressure," since key coal contracts for this year were signed at 10 to 15 yuan (US$1.23 to US$1.85) a ton more than last year's price.

 

Wang Yonggan, secretary-general of China Electricity Council, the industry consortium of the country's power producers, last week said if coal prices were 40 yuan (US$4.90) a ton higher this year, the electricity tariff would have to be raised at least 0.02 yuan (0.25 US cents) per kilowatt-hour in order to pass on the fuel cost hike to end users.

 

The Chinese Government currently grips the electricity tariffs to ease inflation, but coal prices are more market-based as the overall supply of coal is generally balanced by production.

 

The different pricing mechanisms have led to long-standing disputes between coal suppliers and power firms in the country to secure the fuel supply.

 

Wu Chenghou, executive director of China Coal Sales and Transportation Association, yesterday said coal prices would remain flat for the rest of this year. Production is expected to be 2.26 billion tons while demand is 2.25 billion tons, Wu said.

 

At least 80 percent of coal contracts for Beijing-based China Datang Corp have been finalized so far, the bulk of which came from the country's biggest coal producer, China Huaneng Group, a director in charge of fuel supply for the electricity company yesterday told China Daily.

 

A quarter of Datang's annual coal needs, which is expected to reach 40 million tons this year, has been secured through contracts with Shenhua, with the remaining coal sources coming from China Coal, Shanxi-based Datong Coal Mine Group, and Henan-based Kailuan Coal Mine, the director disclosed.

 

Datang's coal stockpiles are able to sustain power generation for a week, the director added.

 

"Coal supply shortages are not likely to happen this year," he said.

 

Rising fuel prices increased Datang's costs last year by 2.58 billion yuan (US$318 million), a 52 percent year-on-year growth, the company said in its annual financial report.

 

"High coal prices will still be a major component for our rising costs this year," the company director said.

 

The market speculates the central government will soon raise the electricity tariff to handle the disputes over coal price rises that erode power companies' profits.

 

Senior officials from the nation's top economic policy planner, the National Development and Reform Commission, last week declined to comment on details during industry conferences.

 

(China Daily April 7, 2006)