November 27, 2008 / 6:30 AM / 11 years ago

China says fuel reforms will cut burden on consumers

BEIJING (Reuters) - China’s top economic planner on Thursday gave a glimpse of plans to reform fuel tax and pricing, saying the reforms would be based on an existing, broadly-based energy tax and consumers would end up paying less.

Motorists and oil traders have been itching to know how far China will go in tearing up its state-controlled prices for gasoline and diesel and introducing a market-based system to take the pressure off oil refiners, which are pushed into the red when crude oil prices move beyond Chinese pump prices.

Officials have been haggling over potential reforms for weeks and promised to solicit the public’s view on their proposals.

Zhang Ping, who chairs the price-setting National Development and Reform Commission, made a rare appearance at a news conference on Thursday and said the government would publish details of the reform as soon as possible, but gave very little more information.

“Our reform will convert various tolls and fees for water and road transport into fuel consumption tax,” he said, without giving details regarding any change in the fuel price mechanism.

“The reform will use the existing tax as a basis and improve on it,” Zhang told reporters after the news conference.

Official sources have told Reuters that rather than introducing a long-planned fuel tax on gasoline and diesel, the government may just lift the rate of refined oil consumption tax, which also covers jet kerosene, fuel oil, lubricants, naphtha and solvents.

That might allow the government to put the tax burden onto refiners rather than motorists, whose anger at fuel prices has occasionally spilled over into violence in the past.

A wave of strikes by taxi drivers has broken out across China in recent weeks, partly blamed on high fuel prices.

Aside from the threat of strikes, China’s government is under pressure to put its reform rhetoric into practice now because world crude oil prices CLc1 have crashed, leaving China’s controlled pump prices at a hefty premium to the U.S. equivalent.

For a graphic comparing Chinese and U.S. prices, click on:


That means hard-pressed refineries belonging to state oil firms Sinopec (600028.SS)(0386.HK)(SNP.N) and PetroChina (601857.SS)(0857.HK)(PTR.N) are now back in profit, and there is even room to build in a new layer of tax as the government slashes prices, which it is widely expected to do before the end of the year.

But the net result will be a lowering of prices, Zhang said.

“The reform process will lower the burden on consumers because the international oil price is indeed lower than the domestic price,” Zhang told the news conference in Beijing.

For a story on China’s options for the fuel price reform, please click on [nPEK81278]

Reporting by Jim Bai; Writing by Tom Miles; Editing by Michael Urquhart

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