'Systemic' problems in the supply, delivery and pricing of power coal will lead to further electricity shortages this year, said Wang Yonggan, vice-general secretary of the China Electricity Council, speaking at a conference.

 

Wang, cited in a report in the official China Electric Power News, said problems were already evident before the temperatures plunged to record lows in late January. Stockpiles had already begun to drop alarmingly at the end of December.

 

The government has consistently blamed the weather for the recent coal and power shortages.

 

With electricity tariffs set by the government, power producers have been unable to pass on surging coal costs to their customers, giving them a disincentive to maintain output at maximum levels.

 

Transportation bottlenecks have reduced supplies and increased costs, and the closure of small local mines has cut off an important alternative source of coal for power plants located far from the big eastern and northern Chinese markets.

 

Shortages in southern China have been particularly severe, and a number of plants in southwestern Yunnan and Guizhou provinces were forced to shut down even before snow and freezing temperatures caused mayhem across the region.

 

According to official figures, coal stockpiles at China's major power plants were below 20 mln tons by the end of January, less than half normal levels. Average stockpiles in southern China fell from 1.3 mln tons at the beginning of the month to just 700,000 tons, 40 pct below their year-earlier levels. Wang said that since the beginning of 2008, new plants that have come online have yet to find adequate supplies of coal, especially in the eastern province of Shandong and in central regions, where the difference between contracted supply volumes and actual predicted demand is especially pronounced.

 

Wang said the new generating capacity will require an additional 10.7 mln tons of coal annually.

 

Analysts have said that in the peak winter consumption season, power companies -- anxious to persuade the government to raise power tariffs -- were involved in a game of brinkmanship, allowing their coal stocks to dwindle in order to reduce their operating costs.

 

Wang said that based on contracts signed with coal producers at the beginning of the year, China's power enterprises are already facing additional costs of 20 to 26 bln yuan. Contract prices have risen by an average of around 10 pct, and spot market prices could soar further.

 

Some blame the lack of coordination on the central government, saying the sooner the state establishes an integrated energy ministry, the better.

 

A former official with the defunct coal ministry told China Youth Daily that the responsibility for the coal and power sectors is divided among the National Development and Reform Commission (NDRC), the State Administration of Work Safety and the State Electricity Regulatory Commission, leading to excessive competition and lack of coordination.

 

Under the current regulatory framework, power companies and coal miners are usually at loggerheads, especially when it comes to negotiating contracts.

 

After the coal and power supply crisis hit at the end of January, the NDRC -- while continuing to insist that the problems were the result of force majeure, not regulatory failures - urged the two sectors to work more closely. It also told the coal producers in particular to set prices that reflect real supply and demand, rather than market bubbles.

 

At the provincial level, governments have been trying to curb coal price increases.

This week, Henan, a major central Chinese producer, actually banned local coal producers from raising prices and threatened to suspend the operating licenses of coal enterprises found guilty of driving up prices and 'causing disorder' in the market.

 

Wang said that although the situation has improved since the beginning of the month, when the State Council set up a special office to ensure adequate coal and power supplies, shortages are likely to recur later in the year, especially if the government fails to address the 'systemic' and underlying problems related to supply, pricing and transportation.