The average production price across the nation is set to lift by a little more than 0.1 fen (0.01 US cents) per kilowatt-hour from current 0.28 yuan (3.4 US cents) per kilowatt-hour from June, industrial sources said.

Prices increases could vary across the regions, depending on how much thermal coal they use.

Analysts say the marginal price increase is unlikely to have a detrimental effect on consumers. The increased charge of 1 billion yuan (US$120 million) is almost negligible compared with the nation's total annual electricity bill of tens of billions of US dollars.

Officials from the State Development Reform Commission, which sets electricity prices, declined to comment. But the commission said earlier this month it was considering raising electricity prices.

The potential price increase could end the months-long stand-off between coal and power companies, with the two failing to agree on coal prices since the end of last year. This has forced generators to halt their operations, leading to blackouts in some areas.

The coal companies had demanded an average 5 yuan (60 US cents) increase from last year's price. But power firms turned down the offer. They claimed this was too expensive to accept because they could not pass the increased costs on to consumers, given that electricity prices are capped by the government.

Faced with a combination of power shortages and surging demand, the government decided to step in. Earlier this month, it requested that prices for meagre lean coal rise by 8 yuan (97 US cents) a ton, and prices for high-quality coal rise by 2 yuan (24 US cents) a ton. Other coal prices remained unchanged.

The thermal coal price is estimated to increase by 3 per cent.

Analysts say both the coal and power companies could accept the compromise. But it remains questionable whether the power companies could pass these increases on to the localities.

Yet, the seemingly successful resolution of the dispute has put the government in an awkward situation, analysts say.

The government has had to intervene in the market again by setting up so-called "guidance prices," after it liberalized thermal coal prices three years ago.

"The freeing up of thermal coal prices has failed," said an anonymous industry insider. "It is just too early to give up control (on thermal coal) to the market."

The official said the disputes between the two industries could last for years as the government prefers to peg electricity prices in order to stop any increases being passed on to other industries.

Liu Shijie, a researcher from the Development Research Center under the State Council, said that, as a long term solution, power and coal firms could invest in each other, or form joint ventures.

This could help ensure coal supply for power firms, and enhance coal firms' profits at the same time, Liu said.

But this means the government would have to lift barriers which prevent the penetration of the two sectors into each other, Liu added.

Xie Juchen, general manager of China Energy Power Industry Fuel Company, also said the scattered government administration has hindered such a move.

But Xie said government reform may take a long time.

It will also be difficult because power companies are reluctant to invest in low-profit coal mining, while coal firms lack capital to invest in electricity generation, added Xie.

(China Daily May 29, 2003)