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More frequent fuel price adjustments considered

(Shanghai Daily)

14:05, March 07, 2013

CHINA is studying options for increasing the frequency of fuel price adjustments as part of plans to reform pricing mechanisms, the top planning official said.

Under the current system, introduced in late 2008, the government can adjust fuel prices if the 22-working day moving average of Brent, Dubai and Indonesia's Cinta crude benchmarks rises or falls more than 4 percent.

The government also considers other factors, including inflation and supply, when adjusting prices.

"The period is too long," Zhang Ping, director of the National Development and Reform Commission (NDRC), which sets energy prices in China, said in Beijing today.

The commission plans to shorten this period and remove the 4 percent trigger point so fuel prices better reflect changes in global crude oil markets, he said.

Drawbacks of the current mechanism were evident when the NDRC raised fuel prices on February 25, its first adjustment this year.

This was to reflect a longer term price change in crude market. However, there had been a retreat in the days leading up to the adjustment.

The same day, pump rates were cut in Taiwan, where CPC Corp, the island's oil company, reviews rates weekly.

This disparity led to outrage among mainland motorists and underscored for many the urgent need for the NDRC to improve its fuel pricing mechanism.

A new mechanism is expected to shorten the 22-working day adjustment period to 10 working days, according to analysts and industry officials.

The new pricing mechanism may be unveiled after the ongoing National People's Congress, according to analysts at Sanford C Bernstein.

ICIS C1 Energy expects the NDRC, while removing the 4 percent cap, still to introduce a limit in fuel price changes, according to a report today.

The mainland raised fuel prices four times and cut them four times last year.

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