Others News
- Fuel price rise not sign of loosening grip
Date: 5-Nov-2007 Sources: (Shenzhen Daily)
THE country's first oil price increase in 17 months should end fuel shortages that were unnerving the country's leaders, but it leaves the government no nearer to the market deregulation needed to ensure stable long-term energy supplies.
The government had pledged 'in principle?to freeze prices of fuel and other items under its control for the rest of the year to keep a lid on inflation, which is near a decade-high.
But ultimately it was forced to react after diesel rationing spread from coastal manufacturing hubs to the capital and to cities further inland.
With global crude oil prices flirting with the US$100-a-barrel mark, refiners forced to sell at below-market prices were just not prepared to shoulder ever deepening losses.
Despite the resulting supply squeeze, analysts say meaningful liberalization of prices of gasoline, diesel, natural gas and electricity in the world's second-largest energy consumer remains unlikely given China's craving for stability.
'Its biggest concern is consistency. The government doesn't want direct exposure to global markets,'said Sijin Cheng of Eurasia Group, a New York-based consultancy. 'They are worried that full liberalization will lead to boom-and-bust cycles.'
History suggests China will not easily relinquish control of such an important price.
The supply crunch is possibly worse than previous ones in 2003 and 2005. Analysts said the most recent two shortages were directly the result of China's price controls. The adjusted diesel prices remained a third below Singapore rates, though petrol is now on par with what American motorists pay.
But if without inflationary pressure, the Chinese Government, keen to curb wasteful energy use, may have moved faster and earlier to the surging international oil prices that have rallied 40 percent so far this year, analysts said.
Maintaining economic and political stability and a rapidly rising standard of living have been critical considerations for the government, which fears social unrest if prices were allowed to rise too quickly.
But the government's determination to keep control means that price adjustments tend to lag, and its policy-setters will need to resort to other administrative measures such as export by quotas to address shortages.
China's aim to use market prices for energy to curb wasteful use and investment is a long-term strategy, analysts said. For the near- and medium-term, it needs affordable energy prices to power its industrialization.
To achieve that, the government has struck a subtle alliance with national oil firms: in return for granting near-monopoly power to State energy giants Sinopec Corp. and PetroChina, the government wants their guarantee for stable oil supplies.
That worked well in the first half of this year when refiners were making decent profits with international crude prices mostly at US$60-US$70 a barrel. But as U.S. oil jumped, the State refiners were forced to trim production to cut losses.
The government also overlooked the increasing swing factor played by the country's independent refineries - privately or locally owned firms that together supply nearly 15 percent of the market - which were forced to come to a near-halt as prices bit into profits.
'If the government asks the oil companies to shoulder all the social responsibilities, they should give us tools to do that,'a Sinopec oil official said.
But for now and the foreseeable future, that tool remains in the hands of the National Development and Reform Commission, and it is a tough call to time the market.
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