Tue Dec 15, 2009 6:26am GMT
BEIJING, Dec 15 (Reuters) - China will revise the percentage that coal-fired power plants are required to absorb in the change in coal costs while setting a cap on thermal power price rises, the government said on Tuesday.
Under a scheme introduced in 2004 that links coal and power prices, the government will adjust power prices if coal costs shift 5 percent every 6 months, and power firms have to take on 30 percent of the change in coal costs while passing 70 percent onto power consumers.
But the rules have been loosely followed since 2005 and have been largely idled in the past two years when coal prices soared, as Beijing worried that too many increases coming too quickly in accordance with surges in coal prices might hinder economic growth and cause social unrest.
The National Development and Reform Commission (NDRC) said in a document dated on Monday that it would "perfect" the coal-power linkage in an interim period before competitive power pricing is introduced.
The move did not signal any significant policy shift as it would continue to control power prices, especially on the upside. But a change in the stake that generators undertake in coal cost variations would potentially impact their operations and profit margins.
Coal-fuelled power plants provide around 80 percent of China's power output.
China's five major power generating groups, including the parents of GD Power Development Co Ltd (600795.SS), China Power International (2380.HK), Datang International Power Generation Co Ltd (0991.HK)(601991.SS), Huadian Power (1071.HK)(600027.SS) and Huaneng Power International (0902.HK)(600011.SS), generate nearly half of national output.
The NDRC raised power prices for non-residential users by around 5.4 percent from Nov. 19, the first rise for users since July 2008, to compensate grid firms that lost out because of the government's cap on prices. [ID:nPEK268089]
The NDRC also reaffirmed that coal prices will continue to be determined by the market and called for establishing pricing indexes for coal used in power generation as soon as possible.
It cancelled the annual coal price negotiating conference and instead asked coal suppliers and users to complete supply contracts by themselves within a month.
Negotiations at last year's pricing conference, attended by coal industry players from all over the country, ended in a stalemate, as coal suppliers and buyers with sharply contradictory expectations on term prices refused to compromise.
China's major coal miners have already started talks with their key clients on next year's supply contracts, industry officials said.
Next year's term prices are expected to rise on the year, because both power generation and spot thermal coal prices have been rising since September along with signs of an economic recovery, analysts said. (Reporting by Jim Bai, Rujun Shen and Tom Miles; Editing by Jacqueline Wong)
Source: http://uk.reuters.com/article/idUKTOE5BE04K20091215
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