working days, and the price adjustment restriction of ±4% of the energy source’s average price
in the international market would be cancelled. In
general, China’s current oil product pricing
mechanism follows the basic principle of following the international oil price, but to ensure a
relatively stable domestic oil price it implements
the government-guided pricing approach. The
existing oil product pricing mechanism covers
the following five aspects: (i) differentiated oil
product prices—either government-guided price
or government-controlled price; (ii) adjustment
of petrol and diesel prices based on changes in
the international crude oil market price every 10
working days; (iii) adjustment of oil processing
profit margins and thus oil product prices, based
on changes in the international crude oil price;
(iv) the NDRC sets the ceiling retail price of
petrol and diesel for all provinces and major
cities; and (v) defines the difference between
wholesale and retail prices.
A dynamic price adjustment mechanism that
reflects market supply and demand and the scarcity of resources has been preliminarily established in the natural gas sector. China has
gradually implemented the netback pricing
approach for pipeline gas since 2011, but the
price of pipeline gas has been restricted by gas
source price and limits on pipeline transmission
and distribution. The implementation of the netback pricing approach represents a major step in
rationalising the relationship between the natural
gas price and the alternative energy price. China’s
natural gas market is still supplier-dominated and
non-competitive, and the gas end-user price is
determined by such factors as gas source prices,
government-controlled long-distance gas transmission tariffs and local government-controlled
gas distribution fees and sale prices. Hence,
compared to alternative energy sources, the
competitiveness of the natural gas price is
uncertain. Liquefied natural gas (LNG) pricing
has been reformed and is market-oriented, but the
price of LNG entering the pipeline network as
peak-shaving gas remains unclear.
Due to the complicated network of interests
associated with the price of electricity, the
market-oriented reform of electricity pricing has
been much discussed, but without reaching a
conclusion. China’s electricity price is currently
considered both from the power generation side
and from the demand side. China’s current
electricity price system covers mainly feed-in
tariffs, transmission and distribution tariffs and
the power sale price. On the generation side,
different power generation companies set different feed-in tariffs in light of local conditions, and
the NDRC sets the benchmark feed-in tariff. On
the supply side, local government sets different
prices according to the type of end user—a dual
pricing system (including basic price and meter
price) is generally applied to large industrial
users, and a tiered electricity pricing system is
applied to residential users.
Coal pricing has been market-oriented for a
while. The double-track price system used for
thermal coal pricing was ended along with priority contracts in 2013. The publication of the
Guideline of the General Office of the State
Council on Deepening the Market-Oriented
Reform of Thermal Coal marked the official
ending of the dual-track price system, which had
been in place for more than 20 years. The NDRC
no longer sets the annual framework for allocating rail transport capacity for cross-provincial
coal to local governments.
3.4.2 Analysis of Problems
In general, the government still intervenes
heavily in energy pricing in China, and there is
insufficient guidance on end-user energy pricing.
Energy prices reflect poorly market supply and
demand and the attributes of each energy commodity. The current energy pricing system
struggles to reflect the interactive relationship
between production volume and price, and there
is insufficient transparency in pricing. In addition, the energy tax and subsidy systems fail to
provide useful guidance on energy production
and consumption.
440
S. Yaodong and A. Gillespie
in the international market would be cancelled. In
general, China’s current oil product pricing
mechanism follows the basic principle of following the international oil price, but to ensure a
relatively stable domestic oil price it implements
the government-guided pricing approach. The
existing oil product pricing mechanism covers
the following five aspects: (i) differentiated oil
product prices—either government-guided price
or government-controlled price; (ii) adjustment
of petrol and diesel prices based on changes in
the international crude oil market price every 10
working days; (iii) adjustment of oil processing
profit margins and thus oil product prices, based
on changes in the international crude oil price;
(iv) the NDRC sets the ceiling retail price of
petrol and diesel for all provinces and major
cities; and (v) defines the difference between
wholesale and retail prices.
A dynamic price adjustment mechanism that
reflects market supply and demand and the scarcity of resources has been preliminarily established in the natural gas sector. China has
gradually implemented the netback pricing
approach for pipeline gas since 2011, but the
price of pipeline gas has been restricted by gas
source price and limits on pipeline transmission
and distribution. The implementation of the netback pricing approach represents a major step in
rationalising the relationship between the natural
gas price and the alternative energy price. China’s
natural gas market is still supplier-dominated and
non-competitive, and the gas end-user price is
determined by such factors as gas source prices,
government-controlled long-distance gas transmission tariffs and local government-controlled
gas distribution fees and sale prices. Hence,
compared to alternative energy sources, the
competitiveness of the natural gas price is
uncertain. Liquefied natural gas (LNG) pricing
has been reformed and is market-oriented, but the
price of LNG entering the pipeline network as
peak-shaving gas remains unclear.
Due to the complicated network of interests
associated with the price of electricity, the
market-oriented reform of electricity pricing has
been much discussed, but without reaching a
conclusion. China’s electricity price is currently
considered both from the power generation side
and from the demand side. China’s current
electricity price system covers mainly feed-in
tariffs, transmission and distribution tariffs and
the power sale price. On the generation side,
different power generation companies set different feed-in tariffs in light of local conditions, and
the NDRC sets the benchmark feed-in tariff. On
the supply side, local government sets different
prices according to the type of end user—a dual
pricing system (including basic price and meter
price) is generally applied to large industrial
users, and a tiered electricity pricing system is
applied to residential users.
Coal pricing has been market-oriented for a
while. The double-track price system used for
thermal coal pricing was ended along with priority contracts in 2013. The publication of the
Guideline of the General Office of the State
Council on Deepening the Market-Oriented
Reform of Thermal Coal marked the official
ending of the dual-track price system, which had
been in place for more than 20 years. The NDRC
no longer sets the annual framework for allocating rail transport capacity for cross-provincial
coal to local governments.
3.4.2 Analysis of Problems
In general, the government still intervenes
heavily in energy pricing in China, and there is
insufficient guidance on end-user energy pricing.
Energy prices reflect poorly market supply and
demand and the attributes of each energy commodity. The current energy pricing system
struggles to reflect the interactive relationship
between production volume and price, and there
is insufficient transparency in pricing. In addition, the energy tax and subsidy systems fail to
provide useful guidance on energy production
and consumption.
440
S. Yaodong and A. Gillespie