China Needs to CleanIt & Make it Lighter:K-Fuel A Third Lighter Than Unrefined Lignite:
Friction over coal price at root of power shortage
By Richard McGregor in Beijing
Published: January 30 2008 02:00 | Last updated: January 30 2008 02:00
The unusually heavy snowfalls in the past week have not helped, but at the heart of the power problems in about half of China's regions is coal, the economy's staple fuel.
The snow has complicated the already challenging logistics of getting coal to a power system that has grown at exponential rates in the past two years, adding generating capacity equal to the entire grid of the UK in both 2006 and 2007.
But the snow is a transitory problem.
In the longer term, the rolling cuts are the product of a clash between the power and coal industries over price and profits, with Beijing standing by, sometimes ineffectively, as referee.
The state power companies have bristled in recent years at the rising cost of the coal they buy to fire their generators. While coal prices have been largely deregulated, and become increasingly tied to global markets, power prices are still set by the government.
Added to this already volatile mix are two other issues: inflation, which hit an 11-year high in November; and a rise in global coal prices due to the flooding
of mines in Australia and supply problems in South Africa.
Beijing has ordered price controls in recent months, including on power, in an effort to ensure that inflation, now confined largely to food, does not spread to the rest of the economy.
Global coal prices, in the meantime, have soared in recent months, by 50-60 per cent, with the largest rise occurring in recent weeks because of the Australian floods.
"There is a large amount of coal traded internationally which is suddenly no longer available," said Jim Brock, a Beijing-based energy consultant.
Against this background, power companies have been refusing to pay the prices they negotiated with the coal companies earlier this year. And the longer the delay in honouring these contracts, the higher the asking price for coal.
As a result, many generators are short of coal, or had their power inventory cut to about four days, dangerously below the Chinese industry standard of two weeks to
20 days.
Beijing has now ordered coal companies to stop haggling over price and deliver the coal, which they
are struggling to do via
the country's snow-clogged transport system.
But Beijing appears equally furious at the brinkmanship of the power companies. Mr Brock said: "I think the power companies' tactics have backfired."