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China considers freeing up energy prices: report

Posted on: Monday, 14 November 2005, 03:04 CST

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)

Source: REUTERS

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