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Are price hikes justified?
2006-07-26
China Daily
As the top economic planning body, the National Development and Reform Commission (NDRC) is responsible for not only setting key energy and utility prices but also tapping them to advance the nation's pursuit of energy-efficient and environmentally friendly sustainable growth.
However, by excessively focusing on the cost consideration of the supply side, the NDRC has missed a rare chance to boost the country's energy-saving campaign following the nationwide electricity price hike at the beginning of this month.
It was reported that an NDRC official recently pointed out that, given the poor profitability of power grid companies, it was necessary to raise charges for the transmission and distribution of electricity.
Such a remark ostensibly aims to help persuade the public to accept the first hike in the retail price of electricity since May 2005.
Previously, the pricing authorities had used rising coal prices, the need to develop renewable energy and the extra cost for coal-fired power plants to install desulphurization facilities to justify price hikes.
Now, the NDRC believes that a more convincing case can be made for price rises by citing power grid companies' financial woes.
But consumers should not be made to pay for the poor profitability of these companies.
Charging the public more will do nothing to improve the efficiency of power grid firms and other State monopolies.
In the absence of competition, such monopolies typically resort to price hikes to improve their bottom line.
Worse, they even tend to take advantage of these price hikes to feather their own nests.
Recent reports that employees in certain monopoly sectors earn much more than the national average have already sparked complaints about the country's widening income gap.
Allegations that even a low-level power worker can make 100,000 yuan (US$12,500) a year, roughly 10 times the per capita disposable income for urban Chinese, gave rise to strong public suspicion about both the financial conditions of those monopoly companies and the motives behind recent price hikes.
Increased power and energy prices are inevitable as the Chinese economy increasingly tests its resource and environmental limits. To prepare the country for such energy challenges, all businesses must be urged to improve their energy efficiency as much as possible. Higher power prices should serve to encourage them to undertake otherwise painful reforms.
State companies in the power sector are not supposed to reap the benefits of price rises that make consumers and all other businesses suffer.
By granting them a monopoly stemming from the administrative power, the government should expect such State companies to serve the public in a more efficient way than free market competition can.
In the case of power grid companies, it is the duty of the NDRC to force the companies under its regulation to come up with credible proof of their efforts to minimize operating cost before giving the nod to price hikes.
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