China Orders Price Caps on Coal Used at Power Plants

By Wang Ying

July 24 (Bloomberg) -- China, the world's biggest coal user, ordered a cap on prices of the fuel to help power producers cope with costs as the country battles a sixth year of electricity shortages. Power companies' shares climbed.

Prices at the country's biggest coal ports, including Qinhuangdao, Tianjin and Tangshan, can't rise beyond the June 19 levels, the National Development and Reform Commission said in a statement on its Web site today.

Asian coal prices have more than doubled this year on rising electricity demand and as railroad and port bottlenecks in Australia and South Africa curb supplies. Prices at Qinhuangdao reached a record $154 a metric ton in May after China ordered the closure of small mines to cut pollution before the Olympics. The nation uses coal to generate 80 percent of its power.

``The price curbs may reduce imports and discourage smaller companies from boosting output, worsening the supply shortage,'' David Fang, a director of information at the China Coal Transport and Distribution Association, said by mobile phone from Beijing today. The curb will ``to some extent'' help power companies reduce fuel purchasing costs.''

China's power plants have been losing money because of rising coal prices and government controls on electricity tariffs. Today's announcement sent the share prices of power utilities higher while those of coal producers fell.

Share Prices

Datang International Power Generation Co. shares rose 0.4 percent to a one-month high in Hong Kong, while Huadian Power International Corp. climbed 3.2 percent, the biggest gain in two weeks. China Shenhua Energy Co., the nation's biggest coal supplier, fell 4.9 percent in Hong Kong, the biggest decline in three weeks. China Coal Energy Co. dropped 3.6 percent.

Prices of coal with an energy content of 5,500 kilocalories are capped at 860 yuan ($126) a ton at Qinhuangdao port, 840 yuan a ton at Tianjin and 850 yuan a ton at Tangshan, the commission, China's top economic planning agency, said today. Kilocalories are a measure of the amount of energy coal generates when burnt.

The government will punish any coal producers that raise prices illegally, it said.

The commission ordered a cap on prices of coal at mines on June 19. The restriction failed to prevent prices from rising at ports, which climbed 22 percent in a month, the Beijing News reported today.

Insufficient fuel supplies have forced the closure of 2.5 percent of the nation's coal-fired power plants, State Grid Corp. of China said on July 7. Government restrictions on transporting hazardous materials near Olympic venues also disrupted some coal production, Zhang Wenjiang, assistant general manager of Shenhua Group Corp., said last week.

Power Shortage

The world's fastest-expanding major economy faces such acute power shortages that electricity-sapping industries including aluminum smelters have had to halt production.

Energy supply shortages have become a ``key factor'' in holding back the nation's economic and social development, the Chinese government said in a statement yesterday.

To conserve energy and cut the nation's demand for oil, Premier Wen Jiabao ordered the nation to cut back on summer air conditioning and drive less, according to yesterday's statement. The nation will also shut more oil-fired power generators, it said.

Wen will raise a consumption tax on vehicles with large- capacity engines, according to the statement, which didn't specify the tax or the engine size. Low-emission vehicles and energy-efficient autos powered by gasoline-electric hybrid systems will get tax breaks.

The government will develop public transport, urging the public to drive at least one day less each week, the statement said. Street lamps, hotels, and public venues will have to switch to energy-efficient lights this year, the government said.

To contact the reporter on this story: Wang Ying in Beijing at wang30@bloomberg.net.