China, the world's second-biggest energy user, raised electricity prices to
households and businesses for the first time in more than a year to help power
companies pass on the higher cost of coal.
The increases average 25 yuan ($3.13) per megawatt-hour, the National
Development and Reform Commission, the top economic planner, said today. Huaneng
Power International Inc., the nation's biggest generator, raised tariffs as much
as 7.3 percent. Shares of Hong Kong-listed Chinese power producers rose.
China sets power prices to shield households and manufacturers from increased
energy costs and to control inflation. The government is gradually allowing
power generators to charge more to help cover the cost of coal that has soared
amid economic growth exceeding 10 percent. Higher prices may help generators to
buy equipment to cut pollution in a country where coal-burning plants produce
two-thirds of the electricity.
"Overall, the power price increase is neutral to slightly positive for the
power companies," Alice Hui, a power analyst at UBS AG in Hong Kong, said today.
"Power plants with desulfurization facilities can levy higher charges and that
is encouraging on environmental grounds. The government wants the companies to
be more energy efficient in power generation."
Huaneng Power said the largest increase in its prices was in the eastern
province of Shandong, where tariffs rose to 381.4 yuan per megawatt-hour. It
raised prices in Guangdong, a manufacturing hub for China, by as much as 6.2
percent to 497.71 yuan per megawatt-hour, the company said in a statement to
Hong Kong newspapers today.
Shanghai, Jiangsu
Tariffs for Huaneng Power's plants in Shanghai, China's biggest commercial
center, increased by 3.8 percent to 371.70 yuan per megawatt-hour. Charges at
power plants in the eastern province of Jiangsu increased by as much as 5.3
percent to 378.70 yuan per megawatt-hour, it said.
Qu Hongbin, an economist at HSBC Plc in Hong Kong, said the increases won't
significantly fan inflation because utility charges have a "relatively low"
weighting in the consumer price index. China doesn't disclose the exact
weighting, Qu said, adding that his "best guess" is that it's about 5 percent of
the index.
"There will be an effect in terms of lifting the consumer price index but it
won't change the overall picture of low inflation," he said. China "is likely to
continue increasing energy prices, it's just a matter of at what pace."
Consumer Prices
China's consumer prices rose at the fastest pace in four months in May as the
cost of gasoline and food increased. The consumer price index climbed 1.4
percent from a year earlier after rising 1.2 percent in April, the Beijing-based
National Bureau of Statistics said June 12. Inflation outpaced the median 1.3
percent forecast in a Bloomberg News survey of 20 economists.
Inflation in China, the world's fastest-growing major economy, has
accelerated from 0.8 percent in March. The People's Bank of China warned on May
31 that fast investment growth, rising wages and liberalization of fuel prices
may stoke more gains.
Shares of Huaneng Power rose as much as 4.5 percent to HK$5.2 after the
increases were announced and later traded at HK$5.1 at 10:34 a.m. in Hong Kong.
Datang International Power Generation Co., the second-largest Chinese generator
listed in the city, gained as much as 3.9 percent to HK$5.4 and last traded at
HK$5.35.
Huadian, China Resources
Huadian Power International Corp., the fourth-largest Hong Kong-listed power
generator by market value, rose as much as 4.7 percent to HK$2.225 and later
traded at HK$2.175. China Resources Power holdings Co., the third-largest, rose
as much as 6 percent to HK$6.15 and later traded at HK$5.95. China Power
International Development Ltd., the smallest of the five, rose as much as 1.8
percent to HK$2.9 and later traded at HK$2.875
The Chinese government first linked power prices to increases in coal costs
in May 2005, increasing power prices by about 0.0252 yuan (0.3 cent) for each
kilowatt-hour under a system that allows utilities to pass on 70 percent of
their increased bill for the fuel.
"It's long due and expected," Lei Wang, who helps oversee about US$20 billion
including Datang shares, at Thornburg Investment Management inc. in Santa Fe,
New Mexico, said of the increase.
China, the world's biggest coal producer, relies on coal and oil for 90
percent of its energy needs. Coal companies are benefiting as demand for fuel
increases in an economy that expanded 10.3 percent in the first quarter of this
year.
