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China power firms tell cabinet to raise tariff

China's major power generators have submitted a proposal to the cabinet, urging the authorities to raise power prices to reflect their costs and rescue them from deep losses, Caijing Magazine reported.

China raised power tariffs in July and August 2008 for a total of around 0.04 yuan per kilowatt hour. But power companies have said the increases were insufficient to fully offset rising coal costs, which touched record levels last July.

China Power Investment Corporation, representing the country's five major electricity generators, have proposed to the State Council that power tariffs be brought in line with coal prices, Caijing cited an unnamed source close to top economic planning agency the National Development and Reform Commission (NDRC) as saying.

On May 28, vice-premier Li Keqiang responded to the proposal and asked the NDRC to study the issue, the source added, according to the magazine.

“The NDRC has started working on a plan to track power prices to coal costs. Grid power prices as well as retail power prices to end-users are involved,” the source told Caijing.

“A plan needs to be worked out first, before it is officially launched at an appropriate time,” the source said.

China set up a linkage system between power and coal prices in 2004. It allows power companies to raise electricity prices when average coal costs increase by more than 5% within a certain period of time. But it can be suspended when the government has other priorities on its agenda.

When China was moving to fight soaring inflation last year, many coal-fired power plants were unable to pass the increase in coal prices on to customers because the state set power tariffs.

China's six major power producers, including Datang International Power Co Ltd and China Resources Power Holdings, suffered total losses of 3.77 billion yuan ($552 million) in the first quarter, on top of total losses of 32.25 billion yuan ($4.7 billion) in 2008.

Although coal prices have declined since the beginning of the year, the performances of Chinese power producers have not greatly improved as power consumption has been dropping.

Domestic power production in May fell 3.54% from a year earlier, while power consumption was about 4% lower in the first five months of this year than in the corresponding period of 2008. (Reuters)