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China ready to deregulate coal pricing
By Richard Fu |
December 25, 2012, Tuesday
|
Online Edition
Online Edition
CHINA will take its hands off the coal market from next year by abolishing the annual price negotiations between coal suppliers and power producers, as the government seeks to take advantage of lower prices to push forward reform.
Coal companies and power firms will negotiate prices themselves from 2013 and are encouraged to sign long-term contracts, the State Council, China's cabinet, said in a statement today.
For long, coal price term contracts were signed every year at a year-end annual meeting organized by the National Development and Reform Commission, China's top planner, and the coal industry association. Under the contract, coal producers have to sell certain quantities to utilities at prices below market rates as part of state efforts to ensure supplies for power plants and prevent widespread blackouts.
But in some years, sharp gains in spot prices had seen coal supplier renege on the contracts and revise them up.
The cabinet statement said such system is increasingly unfit for a market economy and a reform is inevitable.
"Coal supplies have been easing year to date, which was rare in recent years, and the price spread is narrowing between key term contracts and spot market," it said, adding term prices are even higher than spot prices in some regions and the situations for power plants have largely improved.
"The conditions are mature for a reform. So we should seize this favorable opportunity and unswervingly advance reform," it said.
The State Council said the government will keep in place a cost pass-through mechanism, under which a 5 percent increase in coal prices would trigger a hike in on-grid electricity tariffs over a one-year period.
On-grid tariffs, charged by power producers to grids, won't be adjusted following the abolishment of the annual contract negotiations because market prices are close to term prices at present, the cabinet said.
Coal companies and power firms will negotiate prices themselves from 2013 and are encouraged to sign long-term contracts, the State Council, China's cabinet, said in a statement today.
For long, coal price term contracts were signed every year at a year-end annual meeting organized by the National Development and Reform Commission, China's top planner, and the coal industry association. Under the contract, coal producers have to sell certain quantities to utilities at prices below market rates as part of state efforts to ensure supplies for power plants and prevent widespread blackouts.
But in some years, sharp gains in spot prices had seen coal supplier renege on the contracts and revise them up.
The cabinet statement said such system is increasingly unfit for a market economy and a reform is inevitable.
"Coal supplies have been easing year to date, which was rare in recent years, and the price spread is narrowing between key term contracts and spot market," it said, adding term prices are even higher than spot prices in some regions and the situations for power plants have largely improved.
"The conditions are mature for a reform. So we should seize this favorable opportunity and unswervingly advance reform," it said.
The State Council said the government will keep in place a cost pass-through mechanism, under which a 5 percent increase in coal prices would trigger a hike in on-grid electricity tariffs over a one-year period.
On-grid tariffs, charged by power producers to grids, won't be adjusted following the abolishment of the annual contract negotiations because market prices are close to term prices at present, the cabinet said.
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