Link to global price

The draft document said China's domestic crude oil prices should be set directly in line with world prices, but the link should be indirect for refined petroleum prices.

Under the reform scheme, "pricing of domestic refined oil prices should not only reflect fluctuations of international oil prices and production cost, but also take into account domestic oil supply and demand," it said.

In the retail sector, the draft said fuel would be sold at set ceiling prices, which would be based on producer prices with some reference to world prices.

Currently, China allows retail fuel prices to fluctuate around a state-set benchmark.

The government will retain "an appropriate control" over the fuel price, according to the draft.

The newly announced reform will be a significant step towards liberalizing retail fuel prices, said researcher Zhou Dadi from the Energy Research Institute of the NDRC.

China has been pushing for fuel tax reform for many years, and the idea of a fuel tax was raised as long ago as 1994. Both government officials and academic economists have said that the current global oil price plunge presents a window of opportunity for this reform.

The world crude oil price has plunged almost 70 percent from a peak of US$147 per barrel in mid-July.

Even with oil prices tumbling so far, Chinese drivers are paying much more than those in many other countries because domestic fuel prices have been unchanged since June. Government-set prices are changed only infrequently.

The government said that the fuel tax revenues would be used to cover expenditures on road and waterway maintenance and management, subsidize the losses of local governments due to the abolition of annual maintenance fees and support farmers and disadvantaged people affected by the reform.

The public can submit comments by letter, fax or e-mail until Dec. 12, said the four ministries in a press release. The full document has been posted on the official websites of these ministries as well as the sites of state media such as the People's Daily, Xinhua News Agency and China Central Television.

The State Council, or the Cabinet, discussed the reform plans last week,and decided to make public the draft plan for public comment.

(Xinhua News Agency December 6, 2008)