China considers freeing up energy prices: report

BEIJING (Reuters) – China reiterated that it might
liberalize prices of oil, gas, coal and electricity to
encourage more efficient use of resources, but ruled out
imposing a widely discussed fuel tax because of current high
prices.

Officials also said construction of the first phase of the
strategic oil reserves in China, which is concerned with energy
security as crude imports grow, was proceeding well.

“The first phase project is being carried out very
smoothly. When it is finished, we will strengthen the strategic
reserves,” the China Securities Journal on Monday quoted Xu
Dingming, head of the National Development and Reform
Commission’s (NDRC) energy bureau, as saying.

Beijing has been tight-lipped over details of when and how
it will start filling its reserves, fearing any signs of
large-scale purchasing could trigger a spike in already
volatile oil markets.

Officials have said China would use domestic crude to fill
the stockpile tanks, but that would still require refiners to
import more to cover domestic consumption.

The official China Daily reported Zhao Xiaoping, head of
the NDRC’s price department as saying that the government
planned to loosen up energy prices soon, which could push up
utility bills for ordinary families.

The changes, which Beijing have been considering for years
and some of which are covered by agreements China made when it
joined the World Trade Organization, would likely be gradual
with power tariffs not expected to change greatly before
mid-2006, Zhao added.

TAXES

The Chinese government may also levy a special windfall tax
on production of minerals by 2007, the China Securities Journal
quoted Vice Finance Minister Lou Jiwei as saying. This could
include oil, although the report did not specify.

However, Lou ruled out bringing in a fuel tax — which has
been discussed for several years — because of current price
levels. Beijing is nervous that higher fuel costs could spark
inflation or social unrest and currently caps retail prices for
oil products well below global levels.

The production “cost” of mineral products in China was only
a short-term cost that did not include long-term expenses such
as exploration, pollution and work safety, Lou said, while the
Chinese mining industry often reported huge profits.

“We will collect windfall profit taxes in some monopolized
sectors within two years,” Lou said. He did not say how the tax
might be levied or at what rate.

Yang Weimin, another NDRC official, said it would take
measures to discourage exports of products which used too much
energy, but he did not elaborate.

Over the past year, Beijing has introduced a series of
measures to rein in explosive expansion of energy-intensive
sectors such as aluminum and steel and the world’s
second-largest oil consumer recently said it aimed to curb
growth in energy consumption.

(Additional reporting by Nao Nakanishi and Ben Blanchard)