Beijing city raises pump prices to fund cleaner fuel

BEIJING (Reuters) - Beijing's city authorities have raised pump prices by up to 4 percent to cover the cost of cleaner fuel, a bold gesture of support for efficiency and green growth on a day when global oil markets hit an eight-month low.

China's central government has for years ignored rising oil markets to hold down state-set diesel and gasoline prices -- and protect demand growth -- out of fear costlier energy could feed inflation or social unrest.

But if the capital of the world's No. 2 two oil consumer now sets a new example for the rest of the country, it would be a further blow to crude oil markets which are already tumbling as the worsening financial crisis eats into demand in the West.

From October 7, gasoline prices in Beijing went up by 200 ($29.18) yuan per ton, over 2 percent, with the exact proportion of the increase depending on the fuel quality. Diesel pump prices rose 290 yuan per ton, around 4 percent.

Wholesale prices were also raised.

The move is to help cover the cost of providing the city with cleaner but more expensive Euro IV standard fuel, the Beijing Municipal Commission of Development and Reform said in a notice posted on its website (www.bjpc.gov.cn).

The Olympic Host city largely won a difficult struggle to lift its recurrent shroud of smog during the August Games.

The clearer skies were so popular with the city's affluent and increasingly environmentally aware inhabitants that leaders decided to roll out a permanent car control scheme.

They also aim to boost public transport and limit the number of new vehicles that hit its clogged streets each year.

CLEAN, GREEN BEIJING

The Beijing increase comes on top of a surprise nationwide hike in June of nearly 20 percent. But it is not the first time residents of the capital have had to deal with fuel prices rising faster than for their compatriots.

In a nationwide hike in March 2006, Beijing's prices rose more than the national average.

The National Development and Reform Commission, which sets energy policy, explained that move by saying it was more expensive to refine Euro-III standard gasoline for the capital than the dirtier fuel used elsewhere in China.

Before the Olympics, Beijing was again told to improve fuel standards and supply the less polluting Euro-IV.

But refiners who have been losing money for years likely put pressure on Beijing to compensate them for even greater outgoings on the higher quality products.

China's domestic fuel prices have roughly doubled since the start of 2003, but they have lagged global markets, forcing the country's energy majors Sinopec and PetroChina to shoulder losses on sales of refined fuel.

The country's leaders have doled out subsidies and promised to eventually free up prices to market levels, in order to promote a more frugal use of energy and cleaner generation, but have been reluctant to act as they battled inflation.

Now however, with inflation and oil markets both retreating, profitability may finally be back within reach for some refiners.

Crude dropped below $89 a barrel Monday on expectations the growing financial crisis will further slow already faltering global demand, with many eyes fixed on China.

(Additional reporting Tom Miles in Hong Kong; editing by Jim Marshall)