By staff reporters Yang Yue and Li Qiyan

China’s top economic planner, the National Development and Reform Commission (NDRC), unexpectedly announced significant price hikes for gasoline, diesel fuel, aviation fuel and electricity, effective June 20.

NDRC also set the first price caps since the 1990s for coal sold to power plants.

Retail prices for gasoline and diesel were scheduled to rise 1,000 yuan per ton, while the price of aviation fuel was set to jump more than 1,500 yuan per ton, NDRC said on its Web site late June 19. Prices for natural gas and liquified natural gas would remain unchanged.

The adjustments in government-controlled prices increased the nation’s benchmark retail prices more than 16 percent for gasoline, to 6,980 yuan per ton, and 18 percent for diesel, 6,520 yuan per ton.

NRDC also lifted the average electricity tariff paid by power grids 2.5 cents per kilowatt hour starting July 1, up 4.7 percent on average. But exemptions were announced for residential customers, farms, fertilizer producers, and the earthquake-hit provinces of Sichuan, Shaanxi and Gansu.

NDRC said the fuel price adjustments – the first since November 2007 -- were aimed at closing the gap between rising international crude oil prices and the relatively low domestic prices controlled by the government. Crude prices on the international market have been rising steadily since February, topping US＄ 138 per barrel June 6.

“The price rise will help alleviate pressures on refineries and secure the market supply of refined oil,” said an official from NDRC.

Over a half of China’s demand for crude oil relies on imports. The widening gap between international crude prices and domestic oil prices has squeezed refiners and forced refineries to reduce production, creating shortages of refined oil products.

However, concerns about the country’s high inflation rate made the government cautious about adjusting domestic oil prices.

NDRC Deputy Chairman Zhang Xiaoqiang said in mid-June that China would integrate its domestic oil prices with the international market. Speaking with U.S. Treasury Secretary Henry Paulson during bilateral economic talks, Zhang said “the adjustment will take place at the proper time, through proper measures.”

Han Xiaoping, a senior researcher with the industry Web site China5e.com, told Caijing the NDRC decided to raise domestic oil prices partly because the nation’s early harvest season is nearing its end, which means the adjustments would have limited impact on agriculture. Moreover, he said, the government was encouraged by a slowdown in the consumer price index growth in May.

To lessen the blow to the economy, NDRC said more fuel price subsidies would be offered to farmers, public transportation, low-income families and taxi drivers.

Electricity prices were allowed to rise in response to rising costs for the nation’s power plants, particularly coal costs, NDRC said.

Official statistics show power plant coal prices rose more than 80 yuan per ton over the past two years. And more than 80 percent of China’s power companies reported losses in the January-May period due to higher costs.

NDRC announced a temporary price intervention for coal sold to power plants effective December 31 that would cap prices below the June 19 level. It was the first government intervention in coal prices since 1990s.

The power industry expects more price increases. “The (latest) rise in electricity prices is too small compared with the coal price,” said one expert. “It is probably not the final adjustment. We expect more power price hikes after the Olympics.”

1 yuan = 14 U.S. cents