By staff reporter Li Qiyan

The National Development and Reform Commission (NDRC), China’s top economic planner, has announced an average 5 percent price hike for the electricity that power distributors buy from the nation’s struggling power plant operators.

NDRC did not give distributors permission to pass the added costs to retail customers, thus sparing consumers from a new inflation hit. And price policies will not change for the western regions of Tibet and Xinjiang.

But the small increase is unlikely to cheer electricity suppliers whose profits have been squeezed by a growing gap between coal prices and government-controlled power tariffs.

The announcement surprised the industry, since it was widely believed that the government would maintain prices during the Olympics, which end August 24.

Distributors will see costs rise about 0.02 yuan per kilowatt hour nationwide starting August 20, NDRC said. At the same time, the government will maintain price controls for coal used to generate power.

Caijing learned that a draft plan for higher power prices had been under discussion since early August, when Vice Premier Li Keqiang took a tour of a major power supplier, Datang Group, in Beijing.

A source told Caijing that, during an August 7 meeting, Li asked senior managers from major power suppliers whether a 0.02 yuan price rise would help ease the difficulties faced by power firms. “The price hike had been decided at that time,” said the source.

However, the latest price hike has not changed the industry’s pessimistic outlook toward power suppliers.

“To wholly offset the increasing costs of coal, power prices should be increased at least by 0.1 yuan,” said an expert at the China Electricity Council.

“Power companies are expecting a further price increase,” the expert said. “Otherwise, we will face severe power shortages after the games.”

According to an earlier forecast by the State Electricity Regulatory Commission (SERC), China faces a supply-demand gap of 16 million kilowatts this summer -- the worst power shortage since 2004.

Industry insiders worry that power price increases may trigger further hikes in coal prices.

An SERC study showed that coal prices rose after power prices were increased July 7. Rather than cut supplier losses, the price adjustment put even more pressure on the bottom line for power suppliers.

“The distorted pricing system has made every price adjustment follow with a coal price hike,” said an expert at SERC. “If we don’t reform the power price system, it will be unable to get out of this vicious circle.”

Due to the widening gap between coal prices and power prices, the nation’s coal-fired power plant companies reported combined losses of 2.29 billion yuan between January and May.

1 yuan = 14 U.S. cents