China's Electricity Prices May Decline This Year

By Wang Ying and Winnie Zhu

Jan. 14 (Bloomberg) -- Power prices in China, the world's second-biggest energy user, may fall this year because of slower economic growth, said a government official, signaling policy makers may relax controls and allow more provinces to cut tariffs.

Prices in some regions have already been reduced, Huang Shaozhong, deputy director of the State Electricity Regulatory Commission's department of tariffs and financial regulation, said in a telephone interview in Beijing today.

The Chinese government controls power prices to curb their impact on inflation and last year allowed some regions to lower tariffs for certain industries to help ease costs. China raised electricity tariffs twice in 2008 after domestic coal prices reached a record. The government last allowed a large scale cut in prices in the late 1990's, according Yu Hai, an analyst with Shenyin Wanguo Securities Co.

``While China has on occasions raised tariffs, the country rarely reduces prices nationwide,'' Yu said by phone in Shanghai today. ``The current trial in some provinces is mainly aimed at helping heavy industries such as steel, and I don't think the cuts will boost demand significantly.''

Inner Mongolia cut prices of power supplied to metal processors by 0.04 yuan (0.59 cents) a kilowatt hour for three months, Xinhua News Agency said Dec. 8. That's about 7 percent of the national average of 0.53 yuan.

Huaneng, Datang

A widespread reduction in tariffs may cut power producers' earnings. Lower factory output and plant closures in industries from toys to electronics have caused power demand to fall, sending shares in Huaneng Power International Corp. and Datang International Power Generation Co., China's two biggest electricity suppliers, lower this year.

Power use and output in China will continue to decline this year because of the slowdown, the commission said Jan. 12.

Economic growth in China has slowed for five consecutive quarters and its 9-percent third-quarter expansion was the weakest in five years. Power consumption fell 4 percent in October from a year earlier, the first decline since March 2005, and 9.6 percent in November, according to state data. The government has yet to release December figures.

The government may stop such preferential tariffs once the economy recovers, Yu said.

Power prices will rise over the long term, said the commission's Huang.

To contact the reporter on this story: Wang Ying in Beijing at ywang30@bloomberg.net. Winnie Zhu in Shanghai at wzhu4@bloomberg.net;