China power crunch shows price folly, crackdown cost

By Emma Graham-Harrison - Analysis

BEIJING (Reuters) - As much of China blames severe winter weather for the power crisis that has crippled the nation this week, Beijing's policymakers are being forced to face up to the fact that they've also played their part in the crisis.

For the moment, however, they look unlikely to budge on the two main issues -- low state-set electricity tariffs that are causing power generators to run in the red as coal prices leap, or the crackdown on unsafe, deadly coal mines.

Even though higher power prices might encourage plants to rev up operations to thwart its worst shortages ever, analysts say fears of stoking already high inflation or provoking unrest ahead of the summer Olympics wil stay their hand for a while yet.

"At the moment we are assuming that there will be an increase in power prices in July and that is contingent on the rate of inflation moderating, which our economists believe will happen," said Stephen Oldfield, head of Asian Utilities Research at UBS.

Chinese authorities, power sector officials and the media have focused on the fierce weather and heavy snows as the cause of the power shortages, as key power lines snap and coal trains come to a standstill, causing stockpiles of the country's main power fuel to dwindle. They have denied any link to the tariffs.

But traders and analysts say Beijing's remedies -- including a two-month ban on coal exports, and urging railways to give priority to cargoes of the fuel -- tackle only symptoms of a flawed pricing system rather than the root of the problem.

"Power plants are suffering... The more they generate, the larger the losses get," said one broker at an international firm.

"Even when they are short of coal, and they have to shut down part of their plants, they still do not want to import."