Under the pressure of soaring electrical coal and worsening losses in the power industry, the five state power generation groups recently urged the government to launch the coal-electricity tariff automatic mechanism as soon as possible. But in face of the skyrocketing CPI, the wish can¡¯

t be realized before the Olympic Games period. 

The coal-electricity tariff automatic mechanism was proposed by NDRC at the end of 2004. It stipulates that within a coal-electricity tariff automatic cycle (less than six months in principle,) if the average initial price of electrical coal varies up to or more than 5% than the last cycle, the electricity price will be adjusted accordingly based on 30% self-absorption by the electric power enterprise; if the variation is less than 5%, it will be added up to the next cycle. When the accumulative range of variation reaches 5% or more, electricity price will be further adjusted.

According to CEC, the national average price of electrical coal grew by 35-40 yuan/ ton in 2007, up 10%, and the price for 2008 rose again by 35-45 yuan/ton. As the data from China Coal Industry Association showed, the average retail price of electrical coal from coal enterprises under the central finance budget from the second half of 2006 to the first half of 2007, has grown by over 5% than the second implementation of the coal-electricity tariff automatic mechanism; from the second half of 2007 to the first quarter of 2008, the figure has risen again by over 10%. According to the above-mentioned mechanism, coal-electricity tariff automatic mechanism will be launched at least twice. However, the soaring CPI since the middle of last year has dampened the feasibility of the mechanism. Wang Yepin, Vice-Chairman of the State Electricity Regulatory Commission also showed recently that as electricity price is the basis of the national economy, electricity price rice will definitely cause ripple effects, further pushing up the already high rate of CPI.

Zhu Baoliang, Deputy Director of Economy Forecast Division of State Information Center told reporters that the electricity price is bound to be raised, as long-term regulation will inevitably lead to power shortage. However, taking into account the inflation situation, the implementation of the coal-electricity tariff automatic mechanism may be delayed by the year end. 

Meanwhile, a spokesman with NDRC revealed to reporters that NDRC had urged on key coal production provinces to strengthen self-discipline and appropriately control price rise; if they fail to do so, control measures may be launched. Zhu Baoliang suggested that on-grid electricity price may be raised while keeping retail price unchanged, and providing some financial subsidies to power grid companies. On the one hand, it won¡¯t directly affect the inflation situation; on the other hand, as there are only two major power grid companies, operation will be simple.