Beginning January 1, China will raise electricity prices to help out the country's power plants, which are struggling with increasing demand and higher prices for raw materials such as coal.

Zhang Guobao, deputy director of the National Development and Reform Commission, said Thursday that the retail price of electricity will be raised by 0.008 yuan per kilowatt-hour.

Residential and agricultural users will be exempt from the price hike.

The hike could mean a substantial increase in costs for large industrial users.

Shanghai-based Baoshan Iron and Steel Co Ltd, which contains the core works of China's largest steelmaker, will see its electricity bill jump by 160,000 yuan per day under the new prices.

"The price increase will be good news for those generators, relieving them from undergoing rising production costs caused by surging coal prices," said Yang Jinghui, an industry analyst with GF Securities Co Ltd.

Power shortages across the nation have prompted generators to increase their capacity. At present, China is facing a shortage of 10 million kilowatts of power, while the country's generators are in short supply of coal, which fuels more than 70 percent of the country's generators.

"The central government's decision to increase the price is not surprising given the rally in coal prices," said Yang.

The country produced 1.42 billion tons of coal in the first 10 months, up from the 1.39 billion tons produced last year.

"Actually, there should be enough coal to meet generators' demand," said Yang. But mines are unwilling to sell their coal to generators at a government-set price below market value.

Coal provided to power plants is priced at 170 yuan a ton on average, while free-market prices top 200 yuan a ton.

(Shanghai Daily December 26, 2003)