Doubts over power price-cuts plan

By Fu Chenghao  |   2008-11-20  |     NEWSPAPER EDITION

IN order to boost regional industrial activities which had been hurt by the economic slowdown, China's northern Inner Mongolia Autonomous Region has moved to temporarily cut power tariffs for industrial users.

While the move could be meaningful to the reform of China's highly regulated energy pricing and be copied by other provinces, some market watchers cast doubt on the effectiveness of the policy.

Inner Mongolia is to cut electricity prices by 0.045 yuan (US$0.0066) to 0.08 yuan a kilowatt hour for users in sectors such as ferroalloy and polycrystalline silicon to help struggling enterprises which have cut output. In a trial program, local government, grid operators, power companies and coal producers will absorb the costs of the tariff cuts. For example, power plants are being told to absorb 0.03 yuan of the 0.08-yuan price cut.

"It's too much and will hurt coal-fired plants in Inner Mongolia, one of the areas already with the lowest power tariffs nationwide," said Orient Securities analyst Zhang Zhonghua. He estimated that 0.03 yuan accounts for more than 10 percent of local on-grid prices, charged by coal-fired power plants to grid companies.

Coal companies operating in Inner Mongolia, including China's largest, Shenhua Energy Co, have participated in the program to help industrial companies through the current tough times, Xinhua news agency said. The local government is urging more coal and power firms to join.

On its Website, the regional government said the cut was aimed at boosting power consumption, increasing local factories' competitiveness, and keeping provincial economic growth fast.

The reduction, approved by the China Power Regulatory Commission, would last until February 17 and could be extended if necessary.