The New York Times-20080124-Pinched by Price Controls- Power Plants in China Scale Back

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Pinched by Price Controls, Power Plants in China Scale Back

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The Chinese government issued an urgent notice on Wednesday to the country's power generators, coal companies and railways to address an electricity shortage that has led to rationing in more than a third of China's provinces in recent weeks.

The rationing, mostly achieved by telling factories that their power will be shut off for a day or two each week, coincides with the annual frenzy of factory production to meet orders before shutting down for the Chinese New Year holidays, which fall in early February this year.

Factories have kept going during past electricity rationing, usually during the summer air-conditioning season, by running diesel generators. But that is proving expensive this winter because of high fuel prices.

Power executives and government statements attributed the electricity shortfall this winter to a confluence of problems. Many of the problems appear to have their roots in the government's imposition of a long list of price controls in recent months in an attempt to tamp down inflation, which reached 6.9 percent at the consumer level in November.

Trucks did not deliver adequate coal stockpiles to power plants before winter snows arrived in northern China, partly because of nationwide diesel shortages. Refiners had cut back on the production of diesel because price controls were forcing them to sell the diesel for slightly less than the cost of the crude oil needed to make it.

Recent modest declines in world oil prices, together with government subsidies for refiners, have restored diesel supplies. Zhang Yanchao, a long-haul trucker who travels large areas of eastern China, said in a telephone interview on Wednesday that after waiting up to 10 hours at a time for diesel in November, he now finds that he can drive up to service stations and refuel immediately.

But the alleviation of diesel shortages has come too late for many power plants because heavy snows have blocked roads and rail lines in recent weeks. The official Xinhua news agency said that coal reserves at power plants were perilously low, with just 17.7 million tons in the reserves and power plants burning two million tons a day.

The snow has also felled some crucial high-power transmission lines, officials at two power companies said in telephone interviews.

The downed lines have made it harder for the operators of China's electricity grid -- really a series of poorly connected regional grids -- to redistribute power to areas that need it most.

Frigid weather has also increased demand for coal for heat, driving up prices for immediate coal deliveries. That has made coal mines more reluctant to fulfill their long-term, low-cost contracts to deliver coal to power companies.

Coal enterprises must produce and sell coal based on the law, and deliver on their responsibility to society, the government's powerful National Development and Reform Commission in Beijing warned in an urgent notice to various industries, posted on its Web site on Wednesday. Low water levels in lakes have also limited the availability of hydroelectric power, the notice said.

Low electricity tariffs, particularly for residential users, have been another problem.

The central government issued an official suggestion to provincial governments last fall that they not allow increases in electricity tariffs charged to customers, as part of national price controls.

Provincial governments have responded by freezing tariffs, and even reducing them in the case of Guangdong Province in southeastern China, the home of much of the country's export-oriented light industry.

The low tariffs have made it uneconomical for oil-fired plants to operate, and many have stopped doing so.

It makes absolutely no sense for anyone to run a diesel- or oil-fired plant. They're all shut down, said a power company executive in China who asked not to be identified because of the sensitivity of commenting on regulatory policies.

The executive added that even when ordered by the government to resume operating at a loss, many state-owned oil-fired plants had not done so, scheduling maintenance and repairs instead.

Oil-fired power plants account for up to 15 percent of the power generation capacity in parts of southeastern China but very little elsewhere in China, where coal remains the primary source of electricity.

The rationing this winter is particularly embarrassing for China because the country's power failures are usually limited to the summer, when ever-growing use of air-conditioning strains the power grid to its limits. Blackouts were more limited than usual last summer, as capacity finally seemed to be catching up with demand, which has been growing 13 percent a year.

[Illustration]PHOTO: Looking for usable coal at a cinder dump in Shanxi Province in China. Inadequate coal in the north limited power production. (PHOTOGRAPH BY REUTERS)