The government may soon raise electricity rates to help power firms get over the hike in coal prices, a vice-chairman of State Electricity Regulatory Commission said on Friday.

"The government has nailed down a scheme to increase electricity tariffs nationwide to reflect last year's increase in coal prices," Shao Bingren, vice-chairman of the industry watchdog, told China Daily.

Shao refused to give further details.

According to sources, the government may raise the electricity rates by 0.01-0.02 yuan (0.12-0.24 US cents) per kilowatt/hour.

That means the country will have to pay as much as 48 billion yuan (US$5.8 billion) more for electricity this year, adding weight to inflation.

If the plan is implemented, the consumer price index (CPI), a key barometer of inflation, will rise by 0.12 per cent, industrial sources calculated. The National Development and Reform Commission (NDRC) earlier predicted a 4 per cent growth in the CPI this year.

The sources expected the rate increases to vary from area to area.

Eastern China, where coal prices increased more drastically last year, may see the cost of electricity rise by more than 0.02 yuan (0.24 US cents) per kilowatt/hour. Western areas, which are less affluent, may see smaller increases.

The public, as well as fertilizer and agriculture industries, however, may escape the rise as the government intends to protect the interests of residents and agriculture industry.

The imminent electricity price hike comes as a result of the government's implementation of the coal-power pricing linkage scheme.

Under the scheme, power companies can transfer 70 per cent of the rise in fuel costs to end users, should coal prices increase by more than 5 per cent within a six-month period. Power companies will have to absorb the remaining 30 per cent themselves.

The scheme was designed to give some respite to power companies which have been struggling with surging coal prices since late 2003.

Coal costs - which make up half of the production costs of power plants - increased by almost 50 per cent last year over 2003.

Industrial sources said no more jumps in electricity prices can be expected after the upcoming rise unless big fluctuations occur in the remaining months of this year.

Speaking at Friday's press conference, Shao sang the praises of the recently approved Electricity Supervision Regulation.

The regulation gave legal grounding to Shao's commission to oversee the industry for the first time since its establishment in 2002.

"From now on, electricity regulations will be on the right track," said Shao.

The commission, which was set up three years ago during a sweeping reform of the power industry, is seen as a toothless tiger.

Important decision-making rights such as pricing and project approval were scattered among other government institutions such as NDRC.

Shao said on Friday that the government is studying a new proposal to stake out the responsibilities of his commission in supervising electricity rates.

But analysts said the regulation is by no means a breakthrough for the commission.

"I don't think the new regulation awards much power to the commission as long as the NDRC is involved," said one analyst with a dominant domestic investment bank.

At Friday's press conference, Shao said the electricity shortage is expected to ease this year.

New generators with a combined capacity of at least 60,000 megawatts are expected to come online this year, maintaining the pace of the capacity increases last year.

The government earlier anticipated the electricity capacity shortfall this year to drop to 20,000 megawatts from 30,000 megawatts last year.

Shao anticipated that the shortage will be "largely mitigated" by the end of 2006.

(China Daily February 26, 2005)