The State Council had approved a long-awaited pricing mechanism that would establish a link between power and coal prices, allowing power producers to hike their rates to account for coal price increases, the National Development and Reform Commission said Thursday.

According to a statement posted on the commission's Web site, 70 percent of any increase in coal prices can be added to power rates of coal-fired plants.

To ensure the relative stability of power rates for household consumers, agricultural users and small-to-medium sized fertilizer producers, the power rates they pay will be adjusted once a year at most.

Hearings should be held each time before household power rates are lifted, the statement said. The ministry-level economic and industry planning agency did not plan to adjust household power rates in the near term, it said. But it has set an 8 percent ceiling on coal price rises for electric power generation next year as energy demand continues to outpace supply.

The mechanism would be implemented soon after the weeklong annual national coal ordering conference, Xu Dingming, head of the Energy Bureau under the commission, said Wednesday.

"Next year, the coal market will remain relatively tight. We expect overall production to remain at about two billion tons as production increases remain restricted and mines are presently working at over-capacity," Ou Xinqian, deputy director of the commission, said.

"If coal prices rise too high next year, then the National Development and Reform Commission will step in."

The meeting started Wednesday in Qinhuangdao, China's northern coal trading center. It is a major event for China's coal and power industries, as prices for more than 30 percent of the coal that will be consumed by power plants in 2005 will be negotiated at this meeting.

Following several coal price increases, the State-controlled power pricing system in China has squeezed margins of power generation firms.

China raised electricity rates twice this year to help generators cope with higher costs. But those moves were criticized as poorly timed and ineffective, prompting calls for a mechanism to make future price moves more predictable.

Source: Shenzhen Daily