By staff reporter Li Qiyan

The State Council, China's Cabinet, is working to reform the country's power pricing system, as price curbs in the sector have caused huge losses for producers and supply shortage.

Li Rongrong, director of the State-Owned Assets Supervision and Administration Commission (SASAC), said at a press conference on August 10 that all of the country's power generation companies suffered losses in the first half this year. "The situation was caused by the disordered power pricing system, it will be eventually solved by price reform," said Li.

Li disclosed that the State Council had set up a task force to study price reforms for the power and oil sector.

Thermal coal prices in China have been climbing since China relaxed all price controls in the coal market in 2006. However, power price reform has stagnated. China's power companies have been pinched by climbing coal prices and the fixed, relatively low, government prices they must charge for power. Many power plants have been forced to shut down turbines.

According to the National Statistics Bureau, the amount of electricity generated by China's coal-fired power plants reached 230 billion kilowatt hours in June, increasing 6.8 percent year-on-year. It was the slowest growth since June 2007.

The State Electricity Regulatory Commission has forecasted that China's power shortage will just reach 16 million kilowatts this summer, the lowest since 2004.

"The reform on power price has stagnated and lagged behind the market reform of coal industry. It has caused a worsening power shortage," said an official from China Electricity Council.

The government has implemented several price interventions in the coal market in an attempt to cap the rising price and secure coal supplies for power generation. However, the effect has been quite limited.

A source from CEC disclosed that the government is planning to lift the power tariff to assist the suffering power plants. But, said the source, "What the sector actually needs is a market reform on the pricing system, rather than more government interventions."