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Needed price hikes

(China Daily)
Updated: 2008-06-21 09:08

 It was not an easy decision for the government to make to raise fuel and electricity prices while the country's consumer inflation remains within striking distance of 12-year highs.

However, the increase in oil and power prices the National Development and Reform Commission announced on Thursday will benefit not only loss-making domestic oil-refiners and power plants, but more importantly, it will also give a badly needed boost to the national drive for energy conservation.

Petrol will cost 0.8 yuan ($0.12) and diesel 0.92 yuan more for a liter from Friday, and electricity charges for commercial units will go up by 0.025 yuan per kwh from July 1.

On one hand, domestic oil and power companies will welcome the price hikes to reduce losses they are suffering because of the soaring cost of crude oil and coal. Global crude prices have rocketed by more than 40 percent since the Central government last hiked fuel prices by about 11 percent in November.

Frozen fuel prices have led to shortages at the pump as refiners cut output to minimize losses. It is expected that the current hikes will encourage refiners to increase output to meet domestic demand.

On the other hand, higher prices can help cool the nation's surging energy consumption.

The rise in fuel prices will no doubt add to the short-term pain of consumers. Decade-high consumer inflation has already considerably affected low-income groups.

To limit the impact of price hikes, the government needs to promptly grant subsidies to transport operators, fishermen and farmers to help them cope.

However, for the country's long-term gain in energy efficiency, it is definitely necessary to hike below-cost fuel prices to the level that can reflect supply and demand in the market.

Though this round of price hikes will not bridge the gap between domestic and global oil prices, it demonstrates policymakers' resolution to cut energy intensity.

To pursue sustainable development, the government has made it a top goal to reduce energy consumption per unit GDP by 20 percent between 2006 and 2010. After two years of failure to meet its annual target of cutting energy intensity by 4 percent, this year has become crucial to achieve the aim.

Accelerated inflation from the beginning of this year made it difficult to raise energy prices. But the decline in consumer inflation from 8.5 percent in April to 7.7 percent last month has seemingly created an opportunity for the price hikes. By its action the government has confirmed again its commitment to energy-saving and environment-friendly development.