The government is considering raising electricity rates starting from March or April to reflect recent coal cost increases, according to industry insiders.

Some sources said the electricity rate may rise by 0.007 to 0.01 yuan (0.08 to 0.12 US cents) per kilowatt-hour on average. However, the move may increase the nation's total electricity bill by as much as 20.0 billion yuan (US$2.4 billion), adding to inflationary pressures.

"It would be a tough decision for the government," said an analyst with a leading domestic investment bank.

About 85 percent of Chinese power companies suffered losses last year as the coal costs, which account for half of the production costs of power plants, jumped nearly 50 percent year-on-year.

Although the government increased the electricity rate in June, it failed to offset the rise in fuel costs.

One source indicated that the National Development and Reform Commission is asking local governments to submit plans for the electricity rate hikes.

The industry began anticipating another increase after the government decided in December to introduce a coal-power price linkage mechanism. The so-called "coal cost pass-through" allows the electricity rate to float in line with fluctuations in coal price.

Under the plan, 70 percent of the coal price increase will be transferred to end-users. Power generation companies will eat the remaining 30 percent.

The government did not specify a timetable for implementation of the scheme -- although many believe it will be in March or April -- and details of the nationwide plan have yet to be finalized.

However, Sichuan and Hunan provinces have already jacked up electricity rates to pass on the cost increase. Sichuan raised the on-grid electricity rate of coal-fired power plants by 0.0235 yuan (0.28 US cents), or 7 percent, as of February.

East China, one of the places worst hit by surging coal prices, could see electricity rise by as much as 0.02 to 0.03 yuan (0.24 to 0.36 US cents) per kilowatt-hour.

(China Daily February 18, 2005)