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People's Daily Online>>China Business

More fuel price reforms in pipeline

By Richard Fu (Shanghai Daily)

15:14, November 29, 2011

The prospects for the reform of fuel pricing in China continue to improve as the government steels its resolve to introduce a market-oriented mechanism that's more transparent and predictable for refining margins at state giants such as Sinopec Corp.

Under the current pricing system, which has been in place since late 2008, the government can adjust fuel prices when the moving average of a basket of international crudes changes more than 4 percent over 22 working days.

However, the National Development and Reform Commission, which sets energy prices in China, also takes into account other factors, such as inflation, which have delayed overdue price adjustments in the past.

As a result, mounting losses in the refining sector and the shutdown of independent refineries across China have led to diesel shortages, analysts said, as the price of refined products falls further behind processing costs.

"With pricing-induced diesel shortages across China, the current mechanism is clearly doing more harm than good," Neil Beveridge, Hong Kong-based senior analyst at Sanford C Bernstein, said in a recent note.

China will increase the frequency of price adjustments as part of efforts to revamp the current pricing system, the NDRC said early last month, when announcing a cut in retail fuel prices.

Though the commission didn't elaborate on its plans or suggest any timetable, analysts and industry sources said they believe the pricing formula could be reduced to 10 working days or two weeks from 22 days now.

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