CHINA / National

Gas providers look for price increase
(China Daily)
Updated: 2006-05-17 07:00

HONG KONG: Individuals and companies may soon have to pay more for their natural gas as the mainland's three major piped gas distributors try to persuade local governments to let them increase prices.

The companies have initiated the move because they are finding it harder to make money.

XinAo Gas, China Gas and Panva Gas which all trade their shares in Hong Kong said they are now stepping up efforts to increase earnings from gas sales.

The three firms supply gas to millions of people in about 130 cities.

XinAo, the largest of the three firms, which is currently in talks with 35 cities and towns over price increases, hopes to complete the negotiations by June, the manager of its investor relations department, Elaine Lam, told China Daily.

XinAo runs more than 60 city projects in 14 provinces, municipalities and autonomous regions.

The other two companies did not supply specific numbers or timetables, but confirmed talks with local governments were taking place.

On the mainland, retail prices for natural gas are determined by local pricing bureaux. Any changes need their approval.

Analysts believe prices will increase by an average 0.1 yuan (1.25 US cents) to 1 yuan (12.5 US cents) for every cubic metre of gas.

There are expected to be differences between the various cities and between industrial and household users.

Small though the changes appear, the companies say the increase is important if the number of users involved is taken into consideration.

At least 10 cities and towns have agreed to increase gas prices in the past half year and more are expected to follow.

Panva Gas, which supplies natural gas to more than 20 cities and towns, has succeeded in persuading eight to raise prices, including Ziyang in southwest Sichuan Province and Jinan in East China's Shandong Province, its Senior Vice-President Yuan Fei told China Daily.

XinAo Gas has made two successful applications, both in East China's Jiangsu Province, with prices going up from 2.8 yuan (35 US cents) per cubic metre to 3 yuan (37.5 US cents) and 3.2 yuan (40 US cents) respectively.

China Gas Managing Director Liu Minghui said his firm is holding talks with local governments, without saying if any agreements had been reached.

The three gas distributors are changing from gas promoters, focusing largely on snapping up as many new projects as possible, to gas sellers.

This comes as the number of possible new markets declines, making it harder to continue earning money from simply connecting cities up to the gas network.

At XinAo, for example, Morgan Stanley analyst Tony Watson said there are no more big connection opportunities.

"The company is currently trying hard to secure a foothold on the mainland and be a good gas operator rather than a piped gas promoter," he said.

On the mainland, gas distributors make money through two major sources connection fees and gas sales.

In the past few years, connection fees, amounting to as much as 4,000 yuan (US$500) for every household, generated the bulk of profits for gas distributors, which usually sign up 30-year exclusive deals to supply gas to a city.