The Chinese government has annulled for the first time the annual procurement meeting for electricity coal, hoping coal producers and buyers can freely negotiate prices.
However, the wrangling over prices sees no sign of a resolution.
"It will be more difficult for power generators to settle prices with coal suppliers this year," said Xue Jing, director general of statistics and information at the China Electricity Council (CEC).
Procurement meetings for coal used to resemble a country dance. The National Development and Reform Commission (NDRC) would set prices, and producers and buyers simply had to find partners.
At the previous meeting, the NDRC cancelled set prices, but capped price rises at eight percent. As a result, coal producers and power generators spent almost six months in deadlock as the producers wanted a price rise and the generators united in resistance.
Despite the difficulty, the government went ahead in relinquishing its last control on the pricing of key energy resources.
The government started to ease coal price controls in 1993, but kept its hand on the pricing for power coal and electricity.
The NDRC outlined the principles in a video-conference in 2006: no more indicative prices, free negotiation and a one-month deadline.
"Coal producers and buyers will negotiate the price and volume for 2007's contracts by themselves based on the macro-economic controls of the central government," said Ou Xinqian, Vice Minister of the NDRC.
The move marks an end to China's procurement meetings for crucial resources such as steel, cement, non-ferrous metals, cable, chemical products and timber, after more than half a decade.
It is considered by industrial insiders as the total devolution of key energy pricing from the central government to the market.
Shi Wengang, general manager of a coal-mining company in southwestern Guizhou Province, welcomed the move, saying it would promote the market price of coal closer to the real value.
The NDRC has required that sellers and buyers should make agreements within a month and avoid delays in production and transportation plans for next year.
The only incentive the government has is the transport capacity arrangement: those who clinch deals within the deadline have first chance to book the limited railway capacity, which means cheaper shipping costs.
The preferential treatment, however, could only cover 738 million tons, said the NDRC.
The NDRC's confidence in the deadline was based on estimates that the year's coal output would continue to rise and meet market demand next year.
"Although the overall supply and demand has eased greatly, quality coal for power generation is still in short supply while the transport is quite limited," Xue Jing said.
Wu Chenghou, executive director of the Coal Sale and Transportation Association, refused to answer Xinhua's questions, saying, "The topic is too sensitive."
Xue said she saw no signs of an alliance among electricity companies. "But the situation is serious. The coal stockpile of some power firms in southeast China can only sustain operations for three days."
The NDRC projected a coal demand of 2.5 billion tons in 2007 while the country's coal production capacity stood around 2.35 billion tons. No power firms or coal producers would reveal their price targets. Both sectors complain of being hard up.
The crunch resulted from a market-oriented price for coal and a relatively rigid power price set by governments.
"Since the government has freed the price controls on coal, people can expect power price adjustments," said Zhou Dadi, former director of the Energy Research Institute of the NDRC.
"The key is whether power companies can propose a reasonable price fluctuation band," he said.
Production costs of the coal industry are to rise as the government plans to tax key resources and impose stricter requirements on work safety and environmental protection.
Leaving key energy prices to market forces was "an inevitable step" on the road to a market-oriented economy, said Zhou Dadi, an expert at a government think tank.
In the short term, if the deadlock continues, the government is likely to intervene in the name of macro-economic control.
(Xinhua News Agency January 1, 2007)