China sure of power supply, freeing coal prices

BEIJING, Dec 28: China will allow coal producers and consumers to set their own prices without state interference next year, as Beijing anticipates excess supplies and more than enough power capacity, government documents showed.

Analysts say the shift reflects Beijing's growing confidence in energy and resource price reforms that will bring rates into line with higher global markets in an effort to encourage conservation and promote ''green growth'' for its booming economy.

Coal producers and users will be allowed to negotiate prices and volumes among themselves for supplies next year, the National Development and Reform Commission (NDRC) said on its Web site (www.ndrc.gov.cn), replacing the current practice with heavy government involvement such as setting price ranges.

The shift is the next step toward electricity price liberalisation, a process that began two years ago with the introduction of a system to link power tariffs with fuel cost.

Over half of China's coal supply goes to feed power plants, the rest to steel mills, chemical plants and households. The top coal producer is Shenhua Energy Co. Ltd Datang International Power Generation Co. and Huaneng are major listed power firms.

''Coal supplies are expected to be in relative surplus next year, providing a better opportunity to further reform the national coal procurement (system),'' NDRC, the macroeconomic planner, said in a document posted on Wednesday.

Miners of coal, of which China is the world's top producer and consumer, and power utilities have in the past few years faced off over prices as producers want to capture gains on soaring global markets. However, users balk at higher costs as they face price caps on China's regulated electricity market.

But that seems to have changed recently.

''We've noticed one key characteristic for 2007 -- Chinese power plants are no longer so anxious about pushing down coal prices, because they've managed to pass on higher tariffs to residents,'' said a Beijing-based coal analyst.

The analyst, who has collated residential power prices from provinces, said retail tariffs in some regions had grown nearly 10 percent since July, a much larger increase than the range allowed in Beijing's power price hike announced in July.

PRICES TREND HIGHER

The NDRC is still predicting surplus domestic coal production next year. But analysts say prices are likely to rise as miners hoped to pass on growing production costs as a result of new levies including mineral resource tax, royalties and fees for environmental protection expected to be in place soon.

Coal exports fell 12 percent in the first 11 months of the year to 57.4 million tonnes, while imports soared 46 percent in the period to 33.8 million tonnes, Chinese customs data showed.

China has repeatedly said it would push for these taxes to curb excessive development of mineral resources and allow the government to get a share of the revenue. But it has yet to announce a firm timeline for implementation or the rates of these charges.

Analysts said Beijing has targetted Shanxi province, China's top coal-producing region, as the testing ground for new levies next year.

A higher Chinese coal price could curb exports to key regional importers such as South Korea and Japan, driving up prices for benchmark coal from Australia, the world's second-largest thermal coal exporter.

Demand for next year is likely to rise to 2.5 billion tonnes next year, Xinhua reported earlier on Thursday, without giving a forecast for production next year. Output in 2006 is estimated at 2.4 billion tonnes.

REUTERS