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China to end price cap on coal

2012-12-26 15:28 Caixin     Web Editor: yaolan comment

The Chinese government will abolish administrative controls on coal prices for power generation, according to a State Council guideline published on December 25.

The guideline, effective January 1, said the government would scrap regulations on the thermal coal price cap, preferences for the annual major coal supply contracts for power companies, as well as railway transportation quotas for thermal coal.

The announcement went on to state the thermal coal supply contracts system violated market forces in terms of supply, pricing, transportation and caused unfair competition. Contracts will be negotiated directly between coal producers and power plants, according to the guideline, adding that local governments will not be permitted to interfere.

China's coal market has long operated on a dual-track pricing system, which included government-regulated contract prices set by the National Development and Reform Commission to secure power company demand and open market prices.

The regulated price for a major thermal coal contract is usually 100 to 200 yuan per ton lower than the market price. As a result, Chinese power companies face difficulties in keeping up with demand for electricity generation.

Despite mounting calls for reforms, coal price reforms have been met with opposition in the past from poorly-performing power companies amid surging coal prices.

The guideline stated that the cooling of the domestic economy and higher coal inventories this year allowed for adjustments to the policy.

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