Center

New oil pricing system fuels debate

(China Daily)
Updated: 2007-02-13 09:03

"The authority keeps its good intention to balance all the factors involved in setting up the refined oil price. Therefore, it is a better pricing option than before. Of course, the key to its success means the authority should make the cost and profit calculation as transparent and as fair as possible," Lee said.

Under the old pricing mechanism, the government would not adjust the local oil price until the global oil product price had fluctuated beyond 8 percent.

Market rules?

It is true the new mechanism is a more accurate and efficient means of reflecting the global oil supply and fending off speculation, said Han Xuegong, a veteran CNPC analyst.

But some ordinary consumers and private oil dealers challenged the authority by asking how they can objectively determine the "cost and adequate profit of refineries".

"The oil product price should be determined by market rules, instead of the authority. Cost should not be the one deciding force in setting the price, otherwise competition cannot be encouraged," Yao Daming, an official with theGuangdongOil and Gas Association, told China Daily.

NDRC Energy Research Institute Director Han Wenke said that as long as the wholesale business of oil products is still dominated by a few State-owned giants, mainly CNPC and Sinopec, it was natural for the government to keep a tight grip on pricing.

Han's retired predecessor Zhou Dadi agreed: "Even if a more market-based pricing mechanism is adopted, government intervention will also apply in China, where the oil product wholesale business is mainly controlled by Sinopec and CNPC."