Power prices expected to undergo major reforms

A tricycle passes a power plant of China Datang Corporation in Central China's Anhui Province. The price of electricity for non-residential use will be raised by 2.8 fen ($ 0.4 cent) per kilowatt-hour on average nationwide starting from today. Photo: CFP

By Zhao Qian

The price of electricity for nonresidential users will be increased by 0.028 yuan ($0.4 cent) per kilowatt-hour on average starting today, according to Xinhua News Agency, citing the National Development and Reform Commission (NDRC).

The power price rise would not push up China's consumer price index, a main gauge of inflation, said Cao Changqing, director of the NDRC's department of pricing.

The price of power for residential users will not change.

Although the price increase this time is not related to residential use, residents are still concerned that their personal life will be affected.

"If the price of electricity for a bread factory is increased, it still can affect our daily lives," Yu Menghan, editor of a fashion magazine, said on Thursday. "It will increase our cost of living."

"At present I don't care because only the price of electricity for nonresidential users went up. But who knows about what will happen in the future," said Li Ming, an editor from a publication company.

"I think the grid operators are already very rich," an Internet user commented on a blog on the Chinese Central Television website. "If the government raises the electricity price in order to make up for the losses of the grid operators, why don't they think about the real cause of their lack of profits?"

The State Grid Corporation fell into red in the first nine months, suffering a profit loss of 16.05 billion yuan ($2.35 billion), and 25 of the grid operator's 30 local companies saw red margins, a company employee was quoted by Shanghai Securities News as saying.

Not only the grid operators, but also some power generators also showed serious losses, according to an analyst from a securities company who declined to be named.

Analysts said the government-oriented power pricing system is the major cause of the problem.

In China, the government still sets both retail power prices as well as on-grid prices, although it has been planning to reform for several years.

In October, the Shanghai Securities News reported that China would allow the generators to compete in the prices they charge grids, and set price ceilings to protect users. But so far this plan still has not been enacted.

"A market-oriented pricing system is the major part of the reform plans," said Li Chaolin, an analyst at Anbound Group, an industrial research firm, "but it is very complex because each part of the power industry chain does not want to give up their profits."

The NDRC establishes the power price, while the local governments determine the price of coal, which is expected to increase. Consequently, many generators, most of which are State-owned companies, lost profits because of the high cost, an insider was quoted by the Shanghai Securities News as saying.

But things may get better since the government will likely soon unveil detailed plans about modifying the prices that power firms sell to grid operators in different areas.

The on-grid prices in some western provinces including Shanxi and Gansu provinces will be increased, while prices in some eastern provinces including Jiangsu and Fujian provinces will go down, the Shanghai Securities News reported on Thursday.

"This plan will pave the way for the country's power price reform though there will be many challenges before it is completed," Zhao Qianming, an analyst from Sinolink Securities,said on Thursday.

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