Fuel firms given more flexibility on prices

Oil companies may adjust retail fuel prices with government guidance under the new fuel-pricing scheme, Peng Sen, deputy director of the National Development and Reform Commission, said at a conference on Wednesday.

Companies, in accordance with market conditions, can make tariff changes within the range set by the government "at an appropriate time", while China's price control authorities will strengthen their supervision, Peng said, clarifying media reports that China will let oil companies set fuel prices.

China, the world's second-largest oil consumer, raised fuel prices for the second time this year on March 20 by more than 6 percent to reflect international crude oil hikes.

The highly controlled fuel tariffs, set by the government and lagging far behind movements in international crude prices, resulted in huge losses at China's top two oil companies and chronic diesel shortages across the country due to refiners' hoarding to ease losses.

China Petroleum & Chemical Corp, or Sinopec, the country's biggest oil refiner, reported a loss of 37.6 billion yuan ($5.97 billion) in its refining sector last year, while its rival PetroChina said its losses in the same sector will be higher than its earlier estimate of 50 billion yuan in 2011.

According to a report jointly released by China Petroleum Enterprises Association and China University of Petroleum, China imported 250 million metric tons of crude oil last year, bringing its foreign oil dependency ratio up to 55.2 percent, up 1.5 percentage point year-on-year.

As a result, oil companies have clamored for a pricing scheme for oil products that better reflects the changes in global oil prices.

Under the current formula, the government may adjust fuel tariffs when the average price of Brent, Dubai and Cinta crude fluctuates more than 4 percent over 22 days. But it did not strictly adhere to the scheme last year amid concerns over elevating inflation.

The NDRC said in February that fuel prices should have increased by 1,500 yuan per ton under the current formula, compared with the actual hike of about 550 yuan per ton last year.

The pricing reform will focus on reducing the frequency of adjustments and improve pricing transparency, Peng said.

Liu Tienan, head of the National Energy Administration, was quoted by Sinopec on its website as saying that he suggested oil companies set retail fuel prices under the current pricing formula, rather than by gaining approval from the top authorities.

It is generally expected that China will reduce the current 22-day pricing cycle to as little as 10 days.

zhouyan@chinadaily.com.cn

(China Daily 03/29/2012 page15)